Consumer adoption worries leads fintech fears

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The UK’s burgeoning ecosystem of fintech enterprises have expressed worries over the degree of adoption of new digital services, according to a new survey released this month by Ernst & Young (EY) and Innovate Finance.

Worries over rates of consumer adoption of new online offerings might have some read-across for the gambling sector and consumer-facing operator startups hoping to gain a greater foothold within the space.

Of the challenges for the year ahead identified by the UK Fintech Census, just under half of the respondents to the survey said that customer adoption was among the biggest challenge.

This was just behind that task of attracting qualified or suitable candidates which was the among the biggest challenges for 58 percent of respondents.

Building partnerships with established players was the next biggest of the challenges, cited by 38 percent of the fintech enterprises within the census while raising equity capital was important for 34 percent of those surveyed.

Imran Gulamhuseinwala, global head of fintech at EY, said that concerns about the availability of talent and the uptake of fintech services by customers are “very real.”

“The calibre of people leading and running fintechs is a fundamental pillar to success – as is the future pipeline,” he said.

“Without a large and diverse talent pool, the industry will struggle to retain its ability to innovate. Additionally, the concerns about adoption rates should be addressed as this is fundamental to future success. There are some real issues highlighted here that need to be seen alongside the otherwise very positive findings.”

The census of 245 companies took place between February and May this year from an identified universe of UK fintech of over 1800 companies.

The census found that over half the respondents are expecting revenues growth of over 100 percent in the year ahead with a sixth expecting that figure to be 500 percent.

Of the sub-sectors represented, the largest cohort come from the payments and remittances space at 13.5 percent while another 10 percent were financial software providers and 8 percent were online investment providers.

Seven percent were analytics and big data companies and the same figure were regtech and digital identity providers. Over 6 percent are blockchain-based companies by only 2 percent are involved in cryptocurrencies.

Charlotte Cresswell, the interim chief executive at Innovate Finance, said the census provided a comprehensive landscape of UK fintech for the first time and draws attention to the importance of the “two key ingredients to great companies and a healthy start-up ecosystem” of talent and investment.

“Start-ups’ requirements for coding and engineering skills and product and sales skills highlight the importance of working with education, sector and government bodies to ensure that the UK is attracting and developing the STEM skills fintech require,” she added.

Cash money
The census found that 222 of the fintechs had received average funding to date of £15m though 63 had received up to £500,000 and another 52 had received between £500,000 and £2m in initial funding. Only three had received over £100m in funding since formation.

Of the 207 firms that said they were seeking future funding, 49 percent said they would expect their next funding round to be over £2m. The total amount that the firms expected to raise within the next 12 months was £2.5bn.

Of the firms surveyed, over half or 169 were founded within the last five years with the largest single number – 53 – founded in 2014. Matching those figures with the data regarding the number of regulated entities, the census suggested that the low level of regulation might be due to the relatively large number of entities founded within the past three years and may still be in the process of becoming authorised or regulated.

A third of companies said they would be likely to seek an initial public offering (IPO) within the next five years while slightly more than a third said they were unsure.

“The requirement for future funding and forecasted IPO activity over the next cycle is a beacon to both domestic and foreign venture capital, highlighting the great opportunities to expand funding programmes into UK fintech,” said Cresswell.

The UK’s Financial Conduct Authority (FCA) has been keen to promote its willingness to work with fintech startups on incubating and supporting their ideas within the UK’s financial regulatory framework via its own ‘regulatory sandbox’.

The report points out that the UK has a “global competitive advantage” in its regulatory environment for fintechs and says that half of the firms involved in the census are regulated by the FCA or the Prudential Regulation Authority(PRA).

“The UK financial regulator has a mandate to promote innovation and competition, on top of the basic requirements for financial stability and consumer protection,” says the report.