American Banker reported that batches of FinTech startups are relocating to London to engage with large financial institutions and banks through connections from accelerators and mentorships, such as Accenture’s FinTech Innovation Lab, or accelerator Level39.
Global investments in FinTech ventures have reached US$12.21 billion, a large portion in London. Sir Edward Lister, chief of staff for the mayor of London, told American Banker:
"What is most interesting for London is that, as a city, we are leading on the development of specific subsectors that build on London's historical strengths as a financial services hub. Throughout London, more than 44,000 people work in the fintech sector, more than New York and Silicon Valley.”
While many U.S-based startups have set their focus on small merchants and consumers, startups in London have pivoted to a model for larger clients, such as enterprise-grade services and platforms for well-established financial institutions.
Large accelerators are emerging in the UK, and London is still favored by a majority of startups hoping to work with established financial institutions.
"We are seeing a very large number of fintech startups set up in London. Companies are setting up here in droves to be a part of a tech-cool environment and a vibrant multicultural social scene,” Lister said.
Gerald Brady, Head of UK relationship banking at Silicon Valley Bank stated:
"The big shift in the last two to three years, U.S. investors are looking at investing in U.K.-based companies […] instead of demanding they move to the U.S. to invest. It's not just the research and development in the U.K. anymore, but management as well."
In the last few months, quite a few European startups have relocated to London, including CQuesta (previously known as xWare42), a Munich born transaction data provider. Originally, the startup intended to stay in London to participate in a 12-month mentorship program called Accenture’s FinTech Innovation Lab. They decided to relocate to London permanently “because it's the hotspot for fintech companies,” said David Lais, CQuesta co-founder and CEO.
Several FinTech incubators and accelerators have emerged in London over the last few years to help startups engage with financial institutions. One major accelerator includes Level39, which launched in the spring of 2013. Currently, the company oversees 173 startups, 70% of which are focused on FinTech.
American Banker reported that among the startups supported by Level39, 42 companies are developing data and analytics services, 25 are working on payments, 14 on banking solutions, 25 startups are working on crowdfunding, nine are building trading services and eight are focused on the foreign exchange market.
“In the UK it’s growing and elsewhere everyone is claiming to be an amazing tech cluster,” Eddie Copeland, head of technology policy at Policy Exchange think tank told the Financial Times. “I am sure they are not all the next Silicon Valley, but where they are playing to local strengths a reasonable number will stand a chance of being successful.”
While many startups are leaving the U.S. to either expand or relocate to London, others are leaving London for the U.S. The UK recently proposed the Investigatory Powers bill, which may heavily affect FinTech and blockchain-based startups.
The bill requires that UK companies implement state-mandated backdoors in all cryptography, and that telecommunications providers retain user data for 12 months. It gives the government the power of surveillance, and requires startups to hand over information for inspection, influencing at least one company to choose to leave the country.
Preston Byrne, co-founder and COO of Eris Industries, which recently relocated to the U.S. in order to avoid the bill, told CoinTelegraph:
“This is a red line for us, and should be for every blockchain firm. Distributed systems don't work without secure cryptography.”