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August 24, 2015

How London fintech is taking on Silicon Valley’s insurgents

A global capital of finance is drumming up investment and mopping up talent.

By Jimmy Nicholls

London is proving to be a focal point for the emerging financial technology sector underpinning the City of London’s hopes to combat Silicon Valley’s intrusion into financial services.

Touted by some as the global centre of finance, the British capital is home to 40,000 financial services companies and 44,000 workers in fintech, a number that promotional firm London and Partners claims is greater than the equivalents for both New York and San Francisco.

Such is the amount of talent London fintech appears to be avoiding some of the pitfalls of other sectors of the technology industry, which are struggling to find skilled software engineers.

"There’s a lot of people in London who are familiar with the business opportunities of making big the efficiency improvements that fintech can," said Julian Skan, managing director of Accenture’s FinTech Innovation Lab London.

Financial services’ habit of outsourcing infrastructure projects to places like India is also working to lessen a potential skills shortage such as those besetting tech clusters from Silicon Valley to Silicon Glen.

"In terms of access to IT and technology scale there isn’t really a shortage because we already have a model in the UK that can tap into the supply chain," Skan said.

Making money

In addition to talent, investment is another area where London’s fintech scene appears to be leading other start-ups sectors.

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Of the $1.5bn (£950m) in venture capital funding raised for British technology firms in the first half of the year, almost a third went to London’s fintech sector, according to CB Insights, a venture capital database.

By comparison, fintech investment in the US came to $9.9bn over the course of 2014, according to figures from Accenture. Total investment in the UK and Ireland over the same period came to $623m, much of which will have gone to London.

"The city has become such a tech powerhouse because it excels over other tech hubs around the world," said Eileen Burbidge, partner at Passion Capital and the mayor of London’s tech ambassador, speaking back in July.

"London combines the technology and digital innovation of Silicon Valley with the Wall Street financing heritage of New York and the policy making of Washington DC – all in one phenomenal city."

The biggest winner in fintech investment this year has been Funding Circle, a peer-to-peer lender that claims to have handled almost £800m in loans since it opened for business five years ago. In April it raised £96m, some £32m more than WorldRemit, a money transfer service.

However the maturing market for investment is throwing up some problems for firms. As in Silicon Valley, the greater investment is attracting a greater number of firms, in turn inducing angels and venture capitalists to be more sceptical about where there money is going.

"There’s more money but in some ways it’s harder to prove yourselves," Skan said.

Proving yourself these days does not merely mean coming up with an idea for an enticing new app or service. Entrepreneurs must now have an idea of how they fit into the given chain that supports what they are doing.

Stealing your lunch

In a much reported letter to shareholders this year Jamie Dimon, chief executive of JPMorgan Chase, delivered the ominous verdict that "Silicon Valley is coming".

By this he meant that products such as mobile payment services Apple Pay and Android Pay, the latter of which is just about to roll out in the US, are about to steal a chunk of the payments chain from the folks in Wall Street and the City of London.

Judging by the increases in global investment, which tripled to $12.2bn in 2014 from the year prior, others are coming to the same conclusion. But there is also evidence that fintech is ready to join forces with the financial behemoths.

"We’re getting a lot of applications [to our programme] saying we thought we wanted to attack the sector, now we want to work with it," said Skan.

But bankers should not become complacent. Though fintech is shaking up consumer products now, it may only be a matter of time before the commercial sector is affected.

"There are very great efficiencies in terms of how those larger payments are handled and the cost of higher payments are still very high," observed Skan. And if he is right, London is well placed to make a profit.

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