Fintech, or financial technology, startups and businesses raised almost $1 billion in funding last year, according to industry body Innovate Finance.
Innovate Finance says in a release on Wednesday that the UK attracted the second highest number of fintech funding deals in 2015 after the US and was third in terms of volume invested, behind the US and China.
The UK took $901 million (£647.5 million) of the $12.5 billion (£8.9 million) that was invested in fintech globally across 860 deals, according to analysis by venture capital tracking service Pitchbook on behalf of Innovate Finance.
A separate report out Wednesday from Ernst & Young (EY) ranked the UK first amongst the world’s seven leading fintech hubs, from Silicon Valley to Hong Kong. EY compared the availability of talented staff, access to investment, the nature of government and regulatory policy, and the demand for fintech services. The report also sets out a number of areas where the UK can improve.
Commenting on the EY report, Chancellor George Osborne said: “In 2014 I said I wanted Britain to be the global capital of fintech. This report says that we have delivered exactly that: we have the most supportive tax and regulatory regimes in the world for fintech, and we have the world’s leading FinTech ecosystem.
“But we’re not going to rest on our laurels. I know that we need to do more if we want to maintain this position, and so I welcome the report’s recommendations.”
The reports from Innovate Finance and EY come midway through “Fintech Week,” which is a government initiative being led by Economic Secretary Harriet Baldwin to promote and celebrate the emerging cluster of fintech companies in the UK. Baldwin and UK fintech envoy Eileen Burbidge hosted an event at 11 Downing Street, the Chancellor’s home, on Tuesday night to mark the launch of Fintech Week
During the event, fintech founders and industry regulators were asked by Burbidge, who chaired the session, what needs to be done to further support the UK fintech sector. Suggestions ranged from linking up the UK fintech sector to other clusters in places like New York, to setting up government-backed fintech centres of excellence across the country.
Notable UK funding deals last year include a £97 million ($150 million) investment in peer-to-peer lender Funding Circle last April, mobile money service WorldRemit’s £64.8 million ($100 million) round in February, online money transfer platform TransferWise’s £37.4 million ($58 million) funding round at the start of the year, and a £54.5 million ($83 million) investment in online small business funding company Ebury.
The UK’s 2015 fintech funding total represents a 35% jump on 2014’s figure, although the total number of deals actually fell, suggesting larger rounds last year.
Innovate Finance CEO Lawrence Wintermeyer says in a release announcing the statistic:
One of the big trends in 2015 was investment in FinTech by financial institutions in incubators, accelerators, labs, talent, partnerships, digital M&A, and corporate venture funds. A couple of years ago, entrepreneurs in the community were looking for introductions to VCs. Last year, they were interested in introductions to institutions. What this reveals is that corporate venture funding could be the new smart money for FinTech.
Spanish bank BBVA invested £45 million ($68 million) in digital challenger bank Atom last November, huge institutional investor BlackRock took part in Funding Circle’s big round last year, and Woodford Investment Management, the company set up by star fund manager Neil Woodford, invested in several fintech startups last year including RateSetter and Seedrs.
The figures show how big fintech has become within the UK tech sector and how excited venture capitalists are by its potential. $3.6 billion (£2.5 billion) was invested in UK tech startups overall in 2015, according to data from CB Insights and London & Partners, meaning a quarter of the total invested in tech last year went to finance-focused startups.
While 2015 was a blockbuster year for the sector, 2016 has so far been more muted in terms of investment. VCs ended 2015 in a mood of reluctance and worry, amid redundancies at some of the best known Silicon Valley startups such as Snapchat and Twitter.
Index Ventures Jan Hammer told Business Insider in November that the industry was seeing more and more down rounds — funding rounds where the startup is valued at less than it was in its previous round. He said: “You can look back and say maybe that was the top. We’re not seeing valuations continue to escalate upward from maybe where they were one-quarter ago.”
At the recent Finovate Europe conference in London, the mood among VCs was one of scepticism, with some on the look out for “froth.”
Alex McCracken, managing director of venture services at Silicon Valley Bank, told BI at the conference: “What’s become clear now is who are the one or two leaders in a particular subsector. It’s easy for the VCs to keep supporting those companies rather than finding ‘new new’.”
So far the most notable deal of 2016 in the UK fintech sector has been mobile-only challenger bank Mondo’s £6 million round, which valued it at £30 million.