How is Scotland transforming into a global fintech hub?

Post-pandemic, UK-based fintechs have had to navigate tough economic conditions and staffing challenges – while many experienced close calls with the collapse of Silicon Valley Bank and still struggling with the realities of the post-Brexit challenges.

As fintech funding experiences a downturn, the UK, the ‘fintech capital of the world’, has remained resilient – ​​thanks in part to fintech hubs in England; especially London and Manchester. But how long will Scotland’s fintech ecosystem remain in the shadows?

Scotland’s fintech sector is certainly not looking to stand still. An independent cluster body FinTech Scotland was formed to help establish the country’s position as a top five global fintech center.

The organization published its strategy Roadmap for FinTech research and innovation in March 2022, highlighting how the whole of the UK could accelerate its fintech ambition through research and development (R&D) and targeted innovation.

Roadmap success: One year on

One year after the publication of the roadmap, Scotland’s fintech sector has already experienced positive change and growth.

By the end of the set ten-year period, the goal of the roadmap is to have delivered over 20,000 more fintech-related jobs. It also sets a target to produce an increase in gross economic value added (GVA) through fintech innovation: from today’s £598million GVA to £2.1billion GVA by 2031.

Progress has already been made towards this end and FinTech Scotland reveals that it is “on track” to achieve these economic growth targets. Scotland has seen investment totaling around £83m in fintech companies focusing on financial regulatory innovation over the past 12 months.

A 26 percent increase in the number of fintech companies developing innovative solutions using open banking services; a 19 per cent increase in Scottish fintech companies developing payment solutions; and the number of fintechs focusing on climate finance doubling are just a selection of highlights from a successful year amid economic uncertainty.

Nicola Andersenchief executive of FinTech Scotland, said: “By enabling collaborative innovation across the fintech ecosystem, not just in Scotland but across the UK and beyond, we can see how the FinTech Research and Innovation Roadmap is already making a real difference – helping businesses with building economic growth, creating jobs, working through climate finance to enable a future net zero economy, and helping to alleviate the cost of living crisis.

“The FinTech R&I Roadmap demonstrates how collaboration and innovation can change people’s lives, creating positive outcomes for both business and citizens both in Scotland and across the UK.”

Competition with London

March 2023 so Jeremy Hunt reveal plans to deliver 12 new investment zones, across England and at least one in each of Scotland, Wales and Northern Ireland in the government’s latest budget. Each zone will receive £80 million over a five-year period. The move came as Hunt outlined a goal to “supercharge growth” across the UK – along with another pledge to share £100m of funding across Glasgow, Manchester and the midlands to boost research and development centers in those regions.

While these plans outline further support for Glasgow, much more needs to be done to specifically ensure the growth of Scotland’s fintech scene. If Scotland wants to close the gap to England’s capital, it cannot rest on its laurels.

Jack PrinterCEO of financial education provider DollarWise, explained how Scotland needs to ensure it remains competitive with London: “If London-based fintech firms win the majority of the UK market, Scotland will lose market share in relative terms and therefore jobs. It is incredibly important that Scotland invests heavily in this industry and I think it has to compete with London. That is the reality of the situation and at the moment it is still behind.

“For Scotland to succeed in this area, it needs to become a desirable place for top talent to live and build their businesses. That means working with universities and incubators to create desirable working environments. Otherwise, that talent will come to London, NYC and California.

“The most important thing is that Scotland needs to cultivate a strong VC and investment industry. If entrepreneurs can easily find funding in Scotland, they will stay there and build amazing businesses. I think the most important factor in making Scotland a fintech hub will be to bring VC capital into the country – making it easier to find and invest in new startups.”

“A coming of age for Scottish fintechs”

Thomas GillanCEO of the Edinburgh-based payment orchestration platform BR-DGE, explained the areas Scotland can lean on to further encourage growth. He said: “Scotland has a rich heritage in financial services which has enabled the development of a thriving fintech sector north of the border.

“We have a deep pool of talent, underpinned by our world-leading university system, and entrepreneurs now have strong ambitions for international growth. In the years ahead we should see a coming of age for Scottish fintechs as the ecosystem matures and takes a leading role in shaping the future of global finance and technology.

“Behind this ambition are several characteristics that accelerate the growth of the ecosystem. There are a number of successful start-up incubators that provide entrepreneurs with the right tools to develop exciting innovations and access early investment.

– Companies are also supported by increasing cooperation between the public and private sectors, the university system and cross-sectoral measures such as e.g. Converging, Edgeand Fintech Scotland.

“Founders also have access to Scottish Development International and Global Scots both of which are important partners for international expansion. In addition, hybrid working has definitely helped with talent acquisition, helping firms draw on wider resources and scale their businesses directly from Scotland.

“Room for development”

While Scotland clearly has potential, Gillan also explained how more still needs to be done to promote growth, highlighting the areas that may need the most support.

He explained: “Although the foundations are in place for future growth, there is room for development. Early stage companies are well served by angel investors and VCs. However, there is a later investment gap for companies in series A and B onwards with a limited group of investors. Strengthening the Scottish market for later stage venture capital is critical to supporting the growth ambitions of Scotland’s fintech entrepreneurs. Entrepreneurs I speak to also have high ambitions, but Scotland’s fintech needs to be more vocal about their success. If not, the nation’s clusters will undoubtedly outperform their international peer group.

“Looking ahead, Scotland’s fintech ecosystem is well positioned for continued growth and success. There is huge untapped potential which, given the right conditions, will make Scotland a global hub for fintech.”