Spotlight: Leeds moves forward with fintech success, but lack of talent is a concern

Leeds has firmly established its position as one of the UK’s leading fintech hubs with tremendous growth over the past three years; with its main strengths including banking, lending, payments and financial regulation. However, it does not escape the ongoing battle for talent or the lack of fintech-specific funding.

In its February 2021 independent report on the UK fintech sector, Sir Ron Kalifa named Leeds out alongside Manchester (as part of a ‘Pennines Cluster’) as one of the UK’s most established fintech hubs.

Now a new review has delved further into the Leeds City Region’s fintech sector (which includes Bradford, Halifax, Harrogate, Huddersfield, Wakefield and York), to provide an updated analysis of its strengths, as well as areas for improvement.

This is the third report from Whitecap Consulting on the region; the last one was published in early 2020, just before the outbreak of the Covid pandemic.

Positive milestones

• The number of fintech startups and scaleups in the region has increased by 263 percent since 2020
• Gross Value Added (GVA) of fintech in Leeds City Region has increased by 102 per cent since 2020 (now valued at £711.7m)
• The number of firms estimated to operate in the fintech sector increased by 105 percent to 207
• The fintech workforce increased by 23 percent to 7,804
• Leeds is one of eight UK cities with two or more of the UK’s 112 tech unicorns, of which almost one in four nationally are fintech firms
• Leeds is the only city outside London to be home to all three of the UK’s major credit benchmarks
  agencies
• Sixty national and international financial services firms have headquarters or operational bases in the region
• Venture capital investment in Leeds startups increased from £153m in 2021 to £288m in 2022
• Since the last report, a notable trend has emerged, with the rise of fintech focusing on sustainability and green finance
• The Financial Conduct Authorityit UK Infrastructure Bank (UKIB) and Bank of England now has bases in Leeds

The report also explains how LHV Bank, Iwoca, Recognize Bank, Global Shares and PEXA have established bases in the region. While new startups in the last two years include Reply Pay, a certified provider of Request to Pay services, and green fintech Tree.

Report reaction

Chris Says, HM Treasury FinTech Envoy for England and Chair of FinTech Northsuggests that Leeds “continues to thrive” due to the strength of its finance, technology and fintech sectors, “which have always been strongly supported by the public sector and the region’s many universities”.

Charlotte Croswell OBE, chair for Center for Finance, Innovation and Technology (CFIT), also described the growth of the fintech sector in Leeds as “very impressive”. She added that “it is vital that we continue to strengthen the links between industry, academia, government and regulators to support this exciting sector, and ensure its impact is felt up and down the country.”

Euan Westoffice senior partner in Leeds for accountancy firm KPMG, commented: “Leeds has a burgeoning technology cluster and is the UK’s second center for banking after London, making it fertile ground for the city’s fintech ecosystem to thrive. Leeds has the right talent and networks to support the growth of banking giants, challengers and startups as they collaborates with forward-looking developers to drive the sector’s digitization forward.”

Areas to focus on

The Whitecap report, which was launched at an event at Leeds Building Society’s head office this week, looked at the key focus areas of talent, education, collaboration and funding.

Talent and skills

The report describes the talent pool in Leeds as “young and ever stronger”, but notes that hiring senior and experienced staff has become “increasingly challenging as hybrid working becomes more
often adopted”.

The fintech industry in the region currently employs over 7,800 people, but many employers still face challenges in finding skilled talent. The report suggests that the nature of fintech is such that firms that were traditionally pure financial services firms need technical talent and are now also competing with larger software companies.

“With the recent cost of living crisis and rising wages, this has made it particularly difficult for startups and scaleups to find the talent they need,” it reveals.

University commitment

Because Leeds City Region is home to nine universities, as well as 14 further education colleges, this should provide a strong pipeline of talent for the fintech sector to support startups, scaleups and established firms, including those looking to expand in the region.

But fintechs, startups and scaleups express concern that they do not understand or receive clear communication about today’s opportunities to engage with universities.

Financing and investment

Despite the growth in investment in Leeds’ fintech sector in recent times, access to funding remains a challenge for many startups to navigate. During the report’s research collection, fintech entrepreneurs spoke of “the difficulties they face in identifying and connecting with suitable investors”.

Whitecap’s report also suggests that smaller fintechs do not always receive clear communication about funding opportunities. They can also benefit from increased awareness of where to seek support and advice. This could be through peer support groups or improved regional awareness of funding opportunities for national innovation grants.

Financial services and fintech collaboration

The digital sector in Leeds City Region fosters a strong environment for collaboration by offering various initiatives including Leeds Digital Festival, Leeds Digital Forum, FinTech North, WILD Digital, LegalTech in Leeds and MY REAP program.

However, the report suggests that there needs to be a better connection between the established financial services companies and fintech startups and scaleups in the region. They also want better opportunities for deeper collaboration and to get involved beyond events.

So, what are the next steps?

Help develop skills

“We try to take a long-term view of the skills pipeline,” said Richelle Schuster, innovation manager at Leeds City Council during the report’s launch event. “So we know it’s tough to get graduate talent right now, but we’re doing an excellent job of finding those avenues to develop the skills you need. That’s how we have to look at it from a city perspective.

“We need talent from different places and I think that’s very important. So we work with schools and colleges to really help them understand the industry, understand the technology and see where they can fit in, and I guess, more importantly, understand and develop the mindsets that want to make a difference, that want to change things and disrupt things and think differently, regardless of sector. This is about how we utilize all our talents as a city.”

Change how we educate

Nabi Omidvar, associate professor in AI at University of Leedssuggests that the education system can help play a role by addressing the way it designs programs.

He said: “A university is historically focused on fundamental knowledge and I think the challenge when it comes to fintech is for the investors to really understand the ecosystem because it moves very quickly both on the technology side and the applications of those.

“I’m interested in really getting the right message from the industry sector so that we can incorporate that information into the way we design programs. It could come out as perhaps a specialized master’s program or perhaps even dedicated short courses. But on the education front, the role we can potentially play is to shake things up and maintain relevance.”

Be more cooperative

“It’s clear that all sectors have some problems with talent at the moment, especially the technology-driven sectors,” said Julian Wells, director of financial services and fintech at Whitecap. “It’s a recognized problem not just in Leeds but everywhere else. There’s a smaller number of more experienced people available, but when you also have technology-driven sectors you need a lot of skills that didn’t exist before.”

It is not just the fintech industry that is growing rapidly, says Wells, but other areas such as legaltech or healthtech.

“They all need people with data skills or people with analytics skills that haven’t necessarily existed, so they’re all fighting for similar skills. Yet companies don’t necessarily understand what universities can offer them, such as research projects, knowledge transfer, partnerships, internships, placements and all that kind.”

Improve marketing to attract more startups

To Will Ellis, sales director at API-powered lending platform EQ credit services, more effort is needed to attract startups to establish a base in the Leeds City Region.

“We have around 150 lenders that we work with across the UK and only around 10 per cent of those are in Leeds. I think there is still work to be done in the region in terms of getting head offices to Leeds as what we tend to find are established lenders opening operational centers in Leeds or technology hubs rather than coming to the area as their first office.I still only have a handful of meetings with decision makers who are in Leeds as they are usually based in Cardiff, Manchester, Birmingham or London.

“There’s a rich talent pool of people and established data providers in this area, so there’s certainly an opportunity to hire a range of skills from operational to technology people. We have data providers, credit reference agencies, systems providers, payment providers, and if you’re thinking of attracting people to the region, there is a huge amount of meetings that a company can have with all these suppliers.

“But I don’t necessarily know if we’re marketing ourselves well enough as a region in terms of all these suppliers, like ‘Come to Leeds and you can meet all these’. One of the ways we ‘win’ as a company when we hire is to provide a link to purpose, a collaborative environment and make it a place that is an interesting place to work.”

download Leeds City Region Fintech Ecosystem Report 2023