Fintech startups have drawn investments from venture capitalist companies, mainly based out of the U.S., and despite the uncertainty surrounding Brexit negotiations, the inflow of funds has placed Britain third in the global race to attract venture capital funds.
A pulse of the British economy taken by Innovate Finance, a trade body, shows that half a billion dollars have been poured into British financial technology companies in the first half of this year. The latest sign that the fintech sector is so far weathering the impact of Brexit.
Fintech startups in the UK have attracted $564 million of venture capital investments in the first half of the year, more than half of which came from outside the country.
In comparison to the previous year, this inflow is up by 37% and places Britain in third place globally for fintech investment, behind the United States and China.
Although this is a promising sign, in 2015 however, Britain had managed to attract a record $676 million in the first half and over $1.3 billion for the entire year.
“We saw a period of uncertainty over the summer last year but I would say that by around the third quarter, things were starting to recover,”said Abdul Haseeb Basit, Innovate Finance’s chief financial officer.
He went on to add, “Things have slowed but we’ve seen an improving recovery since the referendum last year.”
The British government has identified fintech as a priority area since it provides 60,000 jobs and contributes nearly $9 billion to the economy.
Basit was however quick to clarify that many fintech deals had “Brexit clauses” – contractual provisions that are contingent to Britain voting to stay in the European Union. This could be a cause for concern.
However investors opine that Britain’s prowess in, both conventional finance and technology, its pro-business culture and light-handed regulations, will attract investments and make it difficult for other centres, including Paris and Berlin, to compete with it.
Passporting rights remain a concern with investors. If Britain were to lose it, it would impact nearly 20% of the 300 startups which are members of Innovate Finance.
What is a bit of a worry are the lack of highly skilled workforce. As per Innovate Finance, 30% of fintech workers are from EU countries.
“Talent is the number one concern, and has been consistently since the referendum – we test (our members on) that every three to six months. So that’s been fairly consistent – it’s been a worry and until we have more certainty around that, it will remain a worry,” said Abdul Haseeb Basit.
Incidentally, one third of the investment into the British fintech sector came from venture capital companies based out of the United States.
“There is a lot of competition in the investment space – there’s a lot of capital available and it’s looking for good companies to invest in,” said Basit. “Were they to not invest in UK companies, they feel like they might miss an opportunity. The appetite is still strong.”