FinTech - building blocks for continued success in Wales

As part of the Kalifa Review launched in February, Deloitte undertook a comprehensive data-led view of the UK FinTech landscape, analysing FinTech locations, FinTech growth patterns, their strengths, the driving forces behind them and why some areas are better at producing more growth than others.

The analysis clearly showed that the building blocks exist to create a highly successful FinTech ecosystem in Wales, but it is now incumbent on key parties to maximise this opportunity. Cross-collaboration will be needed across entrepreneurs, existing businesses, professional services firms, public bodies and investors to build the ecosystem and ultimately the country’s future success in this field.

What is FinTech?

A FinTech is described as a company which has developed technology-enabled products for financial services resulting in the innovation of organisational business models, applications processes or services. In a nutshell, a FinTech is a company that produces tech products to help improve one or many aspects of finance – right across the financial services value chain.

Strength of FinTech in the UK

As an emerging sector, FinTech has an impressive growth rate. Between 2011-2016 the sector saw an average year-on-growth of 16 per cent, and whilst it may have slowed in recent years, you’ll see there is still seeing plenty of activity across the UK, especially in high growth clusters such as Wales.

To put it in context, there are approximately 2,500 FinTech companies across the UK, with a third of those situated outside of London. Of the 25 FinTech clusters that have been identified across the UK, there are 10 high growth FinTech localities – London as the super hub along with three established and six emerging clusters.  Wales was identified as an emerging cluster.

FinTech connectivity has the potential to drive the UK government’s vision on ‘levelling up and equalling out’ regions and nations, with a projected uplift in GVA from £2.4 billion to £3 billion in the next three years.

The industry has a huge role to play and is pivotal to the local economy’s ecosystem and ultimate success, especially in cluster areas such as Wales where it is crucial it retains and attracts the relevant skills to ensure the sector’s continued growth.

FinTech in Wales

Wales has a history of innovation stemming from locally based financial services businesses such as Admiral Group, which is the principality’s only FTSE-100 company. There is a thriving financial services industry in Wales, with Principality Building Society, Hodge Bank, Development Bank of Wales, GoCompare and Lloyds Banking Group to name but a few of the big players. In fact, just in the Cardiff Bay area there are over 17,000 people working in financial services.

Whilst Wales’ strengths in FinTech may have originally emerged with a strong slant towards insurance comparison engines (i.e. quote aggregators), nowadays there is a high number of FinTechs which span multiple subindustry categories. Comparison engines have expanded beyond the realm of insurance into other aspects of finance such as mortgages, and when you compare the percentage coverage of FinTechs in Wales to the rest of the UK, you’ll see that there is a strong presence in banking and payments as well.

Highlighted as an emerging cluster, around 19 per cent of Wales’ FinTech cluster are scaleups, i.e. a business that has achieved at least 10 per cent growth in employees or revenue for at least three years in a row. Looking more closely at the FinTech scaleup businesses in Wales, approximately 60-70 per cent of these are homegrown and were founded in the principality.

There are approximately 40-60 businesses in the FinTech industry in Wales, and the annual growth figure for this sector in Wales currently stands at eight per cent. However the building blocks are in place for exponential growth if Wales is able to seize the opportunities available and create a cohesive community to driving that future growth.

FinTech Wales

The creation of FinTech Wales in 2019 was seen as a giant step forward. As an independent voice for the industry, its aim is to develop an ecosystem in Wales that will help FinTech companies, and more importantly, help to promote Wales as the best destination for FinTech businesses.

You can already see the impact its made through providing access to funding for start-ups and introducing investors to those scaling-up. In two years, FinTech Wales has brought stability to the sector and a clear strategy for growth.

Building blocks for success

Following the recent pandemic, we need to build back better by harnessing the innovation and drive of entrepreneurs as well as the knowledge of established FinTechs and those in the long-standing financial services sector.

The building blocks to future success hinge on three key areas and through focusing on these and building a strong FinTech community the future of FinTech in Wales is bright.

• Skills: getting off the ‘brain drain train to Paddington’! Retaining and attracting skills has never been so important. Wales has a diverse range of colleges and universities, but the key is retaining that talent with retention rate across Wales low in comparison to other UK regions.
  
  
• Funding: recent data by the UK Department for International Trade shows Wales secured 62 inward investment projects in 2019-2020, an increase of 22 per cent on the previous year compared to four per cent increase for the UK as a whole. We need to capitalise on this success and incentivise FinTech businesses to choose Wales and harness the funding available from both the government and Welsh government.
  
  
• Inspire: Wales has the right ecosystem for fledgling FinTech businesses to thrive along with good transport links, the question is how do we harness all the ingredients to inspire businesses to set down roots?

Successful FinTech clusters are underpinned by a successful ecosystem where there is a culture of connectivity. The proximity to financial services, STEM talent and investment all play a part, as does the agility of FinTech companies themselves.

We should not be afraid to fail but be swift to recover. Wales has all the right ingredients; it now needs to build its FinTech community to help realise its potential and respond with speed to the opportunities available, which will cement its growth trajectory from an ‘emerging’ cluster towards an ‘established’ cluster.