HM Treasury, EY, and Innovate Finance have released their annual report on the British Financial Technology sector, UK FinTech Census 2017. Intended to ‘help build greater awareness and understanding of UK FinTech,’ it provides a detailed profile of the sector and aggregated metrics on its growth.

Speaking to 245 representatives from the FinTech community, including from within Scotland, the census gathers data on the specific areas of revenues, investment, talent, regulation, and future expansion.

Stephen Barclay, Economic Secretary to the Treasury, said: “FinTech is fundamentally challenging the way that we deliver and access financial services in the UK. It helps consumers to make more informed choices and to increase competition in our financial services sector.

“The UK FinTech Census provides a clearer picture of our diverse and innovative FinTech ecosystem, which continues to go from strength to strength. We will work to ensure that the UK remains at the forefront of FinTech policy and regulation to create an environment that supports our firms to access the talent and investment that they need to grow and succeed.”

Charlotte Crosswell, Interim CEO at Innovate Finance, added: “The FinTech Census provides, for the first time, a comprehensive landscape of UK FinTech and draws attention to the importance of talent and investment to entrepreneurs, the two key ingredients to great companies and a healthy start-up ecosystem.

“It has been a privilege for Innovate Finance to work with HM Treasury and EY on the inaugural census, and we are in no doubt that it will provide invaluable insights to the community.”

Revenue

Both historic and prospective revenue growth are used as key indicators of success for FinTechs. The census found that the average UK revenue of respondents grew by 22% between 2014 and 2016, with average revenues reaching £5m. 50% of companies expect to see global revenue growth of over 100% in the next 12 months, with 17% predicting growth of over 500%.

Respondents commented that gaining an insight into the Government’s due diligence process for reviewing and benchmarking suppliers was “highly useful” for FinTechs. One unnamed organisation suggested that the Government should consider tendering services to UK FinTechs.

Investment

The census results show that FinTechs have received an average of £15m of investment to date, with half of all respondents saying that they expect their next funding round to be more than £2m. A further 35% anticipate raising over £5m, and 14% expect more than £15m.  In aggregate, FinTechs expect a total of £2.5b for their next funding round, and 33% of respondents expect an IPO to be likely in the next five years

Talent

According to the report, most UK FinTech companies are focused on building their talent base in the UK, however bigger FinTechs are starting to build talent bases abroad. The majority (95%) of respondents have an overall UK employee headcount of less than 150, with 92% employing less than 50 people in other countries.

There is a significant gender divide on all levels in UK FinTechs: The average number of males and females on executive teams for respondent companies are four and one respectively, and the gender split of the UK employee base is 71% male and 29% female. The census did find, however,  that UK FinTechs are marginally more gender balanced than firms based in Australia and France.

With regards to future employees, the report states that coding and software development are the most difficult skills to find whilst recruiting, followed by sales, and regulatory and risk management. HR and talent management, financial and tax, and project management skills were ranked least difficult to find when recruiting in 2017. The majority of companies (95%) are looking to hire up to 50 employees over the course of 2017, with 5% expecting to hire between 51 and 150.

Regulation

Financial services is a highly regulated sector and the UK has a global competitive advantage in its regulatory environment for FinTechs. However, the census notes that of the 245 respondents, only 44% are FCA and/or PRA regulated, while 56% are unregulated. A large proportion of the FinTechs were founded in the last three years, therefore some may still be in the process of becoming authorised or regulated.

The majority of FinTechs (over 75%) operating in sectors, such as online investments, consumer finance lending and digital banking are FCA and/or PRA regulated, whilst sub-sectors, such as financial software, trade finance or supply chain solutions, cryptocurrency, blockchain, analytics and big data, and RegTech contain the fewest number of regulated FinTechs, at 20% or less.

Future Expansion

Europe and North America are seen as the two most important regions for expansion by UK FinTechs, with 64% of respondents ranking Europe as highly important, and 42% ranking North America. Africa, South America, and the Middle East were the regions chosen by most FinTechs as least important for future expansion.

Respondents highlighted a number of key challenges to achieving their business and growth objectives. 58% identified attracting suitable or qualified talent as an obstacle, with 38% saying that building partnerships with established players is a concern. Some respondents noted that from January 2018, Open Banking will support data sharing between FinTechs and banks, playing a significant role in addressing challenges relating to customer acquisition and building partnerships with existing players.