Adam Joyce and James Smith no longer wear pinstripes. They have left jobs in the City, London’s financial district, and now work alongside T-shirt-clad dreamers in Campus London. There, in Seedcamp’s fourth floor co-working space, they are trying to invent the future of banking services.
Joyce, a soft-spoken mathematician, honed his skills at an options market-making firm in the City as a quantitative analyst, working on price and volatility modeling, real-time risk analytics, and automated market-making software.
Smith, who earned a PhD in Computer Science (Machine Translation) from the University of Oxford, is a former derivatives trader. He worked for an options market-making firm on the fixed income desk and as a trader on a volatility arbitrage desk, focusing on global equity indices.
A third co-founder, Tom Robinson, has a PhD in Atomic and Laser Physics, with experience in the finance and commercialization of new technologies emerging from universities.
Their start-up, Elliptic, is developing money management services for people who own Bitcoins or other types of encrypted digital currencies. “The money management services of the past will not be those needed in the future,” says Joyce.
Elliptic is just one of a growing number of London-based fintech start-ups that are out to disrupt financial services (see the chart) and Campus companies are helping to swell their ranks.
There are plenty of reasons why London serves as a magnet for fintech companies. It is considered to be one of the world’s leading financial capitals, with a far more international scope than either New York or Singapore, and is home to five of the world’s biggest banks. Financial services represent the single largest sector by GDP in the UK. “Think of it like a petri dish of opportunity,” says Monitise founder and CEO Alastair Lukies, who was recently appointed as industry by the UK government.
Industry pundits joke that half of the fintech start-ups are trying to sell their services or the companies to the banks and the other half are trying to destroy the banks.
The tension between the old and the new worlds of financial services is “needed for fintech to thrive and I really think that consumers and London benefit from that,” argues Lukies. “It is a very healthy tension because it is needed to push the incumbents to keep moving.”
That may be true but it puts the UK government in a delicate position. On the one hand it needs to protect the incumbents, which represent one of the country’s most important industries. On the other, it needs to cater to start-ups if it wants to promote itself as a global fintech hub.
In December news leaked that UK Prime Minister David Cameron was hatching a plan to throw Whitehall’s weight behind Britain’s fintech industry. The aim is to “re-invent Britain as the world center of financial services and repair consumer trust in the sector,” according to a story in the Sunday Times.
Fintech accelerators are popping up
It’s no accident that the UK has asked Lukies to be its ambassador. Monitise, the 10-year-old company he founded, bridges the two worlds. A start-up, it built its business by helping banks with online money services.
It took four years for it to net its first bank as a customer. Today it is a public company with a market value of around £1.3 billion and was named one of the UK’s fastest-growing technology businesses in Deloitte’s 2011, 2012 and 2013 Technology Fast 50 rankings.
Lukies’ job will be to represent the traditional banks as well as a new generation of London fintech companies fighting to either win business from traditional financial services companies or steal some of their customers. Azimo, a Campus alumnus which specializes in remittances, announced a $10 million round from the U.S.’s Greylock in March. (The same week WorldRemit, another London start-up in the remittances space, announced a $40 million round led by Accel Partners, reportedly one of the biggest ever Series A rounds in Europe.)
With all signs showing that the fintech sector is hotting up it is no wonder then that a number of new fintech accelerators are sprouting up to encourage more start-ups to target the burgeoning sector. They include Startupbootcamp FinTech, Barclays Accelerator, powered by Techstars, FinTech Innovation Lab and Level39, which bills itself as the largest financial services accelerator in Europe. Since its official opening last March Level39 says it has received over 682 applications for membership from technology companies internationally, and played host to over 30,000 visitors and 200 events including a 3DFintech Challenge sponsored by the French company Dassault Systemes to help it identify start-ups with which it could team up to bid for the business of banks.
Level39 is positioning itself as a neutral platform for the industry. It provides office space for start-ups such as eToro, an Israeli social stock trading company, that is planning its European expansion from the UK.
“We are bringing the social layer into finance and into investment and we believe that having a base in the UK is a natural fit to building the future of our business,” says eToro CEO and co-founder Yoni Assia.
At the same time Level39 is hosting a series of “access to innovation events” for a large number of established financial services and banks, says Eric Van der Kleij, Level39’s director and previously the CEO of London’s Tech City.
The banks are increasingly recognizing that they need to bring innovation in from the outside and some, like Barclays, are even starting to open their APIs. “This is a huge step,” says Van der Kleij.
While there is lots of positive progress he cautioned that there are “very big policy issues that we should be watching carefully.” These include “ensuring that Europe remains a single addressable market for inward investors,” he says.
The government will favor incumbents
That’s not all. Unless a group representing both traditional financial instutions and startups can be convened and hash out agreements on industry issues the danger is that, when it comes to regulatory issues, the government will favor incumbents.
That is why Britain’s bid to become a global hub for fintech companies is “by no means a slam dunk,” says Errol Damelin, founder and chairman of venture-backed Wonga, which competes with banks on consumer loans.
Due to regulations, upstarts are forced to ride the rails of the incumbents and that does not make for a level or healthy playing field, Damelin says. The UK government has a chance to play a leading role by easing regulations on payment and banking services that limit what start-ups can and can not do. “If we don’t get it right other people will” and fintech companies will set up elsewhere, he says.
“We can’t have one-sided fiscal policy,” agrees Udayan Goyal, a co-founder at London-based Anthemis Group, an investment and consulting group focused on financial services.
Nobody else in the world has the ingredients we have
“The regulators need to be sensitive to new business models coming in. In our mind a little bit of finesse is required to nurture a new business model and not use blanket regulation to control them. Otherwise start-ups will go away and establish themselves in other jurisdictions.”
That said, if the right regulatory policies are put in place and spaces like Campus London and Level39 can help bridge the gaps between the City and the start-up world, then London does have a good shot at becoming a global fintech capital.
“Nobody else in the world has the ingredients we have,” says Goyal.
“We are not there yet — the City of London is by and large very backward looking and not very proactive about adopting business models for the 21st century — but if we can build a bridge to the fintech sector then I believe that London can be to finance what Silicon Valley is to tech.”