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The UK fintech revolution

By Tom Chambers, Manager (Advanced Analytics and Engineering) at Robert Walters

Over the last five years, the rise of Fintech has had a profound impact on the UK banking sector.

The rise of smartphones and 4G has not only significantly reduced barriers to entry for new players, but has shifted the perception of digital banking to become less of an ‘option’ and more of a ‘given.’

Privately held start-up companies valued at over $1 billion - known as the ‘Fintech unicorns’ - are spearheading innovation through successfully digitising payments, P2P finance and fund transfer processes.

As a result, incumbents in the banking sector find they are having to adapt to this wave of innovation to compete with the likes of Funding Circle, Transferwise and Revolut.

Influence of venture capitalists

This wave of disruption would not have been possible without the influence of Venture Capital (VC) investment. The fintech unicorns have had to raise significant capital in order to get to a place where they can compete, equally now what is clear, is they are here to stay and London remains at the forefront of the Fintech revolution.

In fact, over a third (39%) of European VC funding into Fintechs goes to London – followed by Berlin (21%), Paris (18%), Stockholm (5%), Barcelona (4%), Amsterdam (4%), Zurich (3%), Copenhagen (2%) and Dublin (2%).

All the data points towards London continuing on its fast track trajectory to becoming a global hub for Fintech, showing signs of potential to threaten San Francisco’s historic dominance of the market. Of the 29 fintech unicorns worldwide, 9 are in San Francisco, while 7 are housed in the UK.

Recruitment in fintech

Recruitment into Fintech, as a result, is soaring. Where the total amounts of jobs being created in the sector are still small compared to banking, the rate of growth is significant.

For context, the sector created 61% more vacancies in 2018 compared to 2017, making it the fastest growing sector in the London economy. The growth is also felt at a regional level, where job creation increased by 18% last year.

All the data points towards London continuing on its fast track trajectory to becoming a global hub for Fintech, showing signs of potential to threaten San Francisco’s historic dominance of the market.

Talent shortages towards the end of 2018 resulted in a slight slowdown in hiring activity, with only London based fintech companies with significant VC funding continuing to pursue aggressive recruitment campaigns.

Impact of fintech on banking

When looking at Fintech and its relationship to the traditional financial services institutions, it is worth remembering the impact of the Global Financial Crisis (GFC).

As a result of the GFC, employment in the industry dropped by nearly -7% (100,00 people), leading to a period of stifled innovation, with banks understandably focussing on their balance sheets and profitability.

This contraction in the market created the vacuum to enable the people with the expertise to develop the Fintech business models that had yet to be created within the banks themselves.

Arguably it is only now, with the rise of the Fintech unicorns, that the banking sector has woken up and started to adapt to the new paradigm, where as a result there has been a wave of innovation, leading to a new surge in hiring for IT professionals.

As a result, IT is now constituting over 30% of professional roles in the sector, up from 24% in 2017, with this projected to increase further.

With all of this, the banks are now utilising the latest technologies to streamline, resulting in a new wave of change, from closing branches to mobile-based payments. What this means is that now the line between Fintech and traditional banking is becoming increasingly blurred, especially given the fact a Fintech company is now able to get an EU banking license (allowing them to guarantee customer deposits).

Currently, Fintech is still in the explosive phase. However, as well as embracing technology, it’s possible that established banks could scope the Fintech market for acquisition opportunities and increase segmentation of their core services to gain back competitive advantage.

Impact of Brexit on salaries

With this increased hiring, the UK’s pending departure from the EU could serve to stifle Fintech candidate pools.

Approximately 25% of professionals working in IT in the UK are from overseas, with the highest concentration of non-UK technology professionals residing in London.

The capital has historically been able to attract skilled IT professionals from across the EU, yet with the current political climate, perhaps unsurprisingly, this is proving to become more of a challenge.

As a result, there has been a significant surge in salaries for IT professionals, where businesses are struggling to find the talent they need.

It is already estimated that salaries have increased by between 6-8% in certain key specialisms, where just as noticeably, the issue of replacing people is becoming so challenging, that buy backs and counter offers are becoming more prevalent.

For businesses with operations across multiple countries, there are now questions being asked as to whether certain roles should be relocated to curb the impact of the talent shortage facing the UK.

However, the long-term question remains, how can UK businesses bridge the expanding talent gap?

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