The financial technology, or fintech, sector represents one of the biggest opportunities for economic growth in the UK, according to Steve Varley, chairman and managing partner of EY, which is likely to generate jobs as the £20 billion industry gears up for rapid growth.
At the same time, new figures released this week show that the UK’s financial sector is on a hiring spree as banks beef up their digital operations.
Astbury Marsden, a recruitment firm, said 3,400 jobs were filled or created in the City of London in October, up 46% on the same month in 2013, driven by investment in digitising business.
“Fintech [is] a growing segment of the technology start-up scene that is disrupting sectors such as payments, loans, fundraising and wealth management,” Steve said, speaking at the CBI business group’s annual conference in London.
The chairman of EY for UK and Ireland highlighted a report from the leading accounting firm which says the UK is a destination of choice for companies wanting to establish a global presence in the financial technology sector. EY estimates that fintech is one of three industries set to generate a combined £300 billion by 2020.
He said the fintech sector is led by a cluster of leading firms which already make up 18% of the UK’s financial tech market. Some of the most successful are London-based and run by business school graduates. These include Transferwise, the money transfer company founded by an INSEAD MBA graduate that raised $25 million earlier this year, and Nutmeg, an online wealth management business that has received $50 million in funding and was founded by an MBA graduate of Stanford GSB in California.
Transferwise is expected to raise another significant round of investment that would send its valuation soaring.
“These are firms that are disrupting existing models across the financial services sector, and in turn challenging our traditional providers to be more innovative,” said Steve.
He said that the highest growth areas in fintech are peer to peer platforms, online payments and data analytics products – which offer credit reference, capital markets and insurance services – which together represent 60% of the sector.
As well as disruptive start-ups, the biggest banks are demanding digital skills from business school graduates as they move products and services online.
Adam Jackson, a director at Astbury Marsden, said: “This next wave in the digitisation of [the] banking sector processes is already having a profound impact on hiring activity at the large investment banks, and this is set to continue well into 2015 and beyond.”
He added that from investment banking desks to insurance firms, investment in IT is “back in vogue”.
Payments are one area seeing demand for MBAs, with Barclaycard, a fast-growing arm of Barclays Bank, seeking data analytics managers.
A host of UK banks have revealed plans to shut branches in a push to cut costs and move towards a digitally focused model.
Barclays has produced Pingit, a smartphone app that allows consumers to send money to someone using a phone number. RBS is launching a pilot peer-to-peer financing platform with a third partly, while Santander UK announced a similar move with Funding Circle, the crowdfunding website.
Lloyds plans to close 200 branches under a three-year strategy to respond to the digital age, and Standard Chartered, the emerging markets bank, will close up to 100 retail branches and focus on increasing the number of digital transactions.
The UK, where many of these banks are based, is evolving as a global leader in fintech. “One of the unique things about the UK market is the level of consumer appetite for new, innovative products and services,” Steve said.
He added that the UK already has high levels of internet and mobile phone penetration, and is leading in innovation and technology-driven access to financial services.
He said that the City of London, the financial centre of the UK capital which has large financial services groups’ offices clustered together, including Deutsche and Citi, has helped it to attract innovative fintech start-ups.
This shift has been aided by government policies to bring entrepreneurs to London which include grants and tax incentives.
However, Steve said that the UK must “close the gap” with the US on access to capital, which is “no small thing” to do. Europe is criticized as having a smaller venture capital market than Silicon Valley, which potentially hampers start-up growth.
He also said that the UK should take the lead on setting the policy agenda on data privacy and protection to cement its lead.
But these disruptive entrepreneurs are beginning to lure graduates away from the bulge-bracket banks nonetheless.
Fintech firms are offering potentially lucrative stock options to new hires, as well as the opportunity to develop new technologies from the ground-up.
Astbury Marsden said that banks must find a way to make their roles more attractive than those opportunities being created by the “new breed of start-ups”.
“We’re already seeing the smaller fintech companies snapping up some of the best technology staff from the investment banks,” Adam added.