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The Key To Creating Scale Amid A Crisis

In A Decade of Digital Transformation in 12 Months, 46 C-suite executives spoke with PYMNTS for its Q2 eBook on what the world will look like as recovery rolls on and the next iteration of normal rolls out. In this excerpt, Allen Simpson, acting CEO of London & Partners, talks about how London’s FinTech ecosystem is an example of how to create scale in a regulated sector, and the five essential things required to achieve it.

Read the entire eBook here.

It’s striking how important new technologies have been for societies in the pandemic. Mobile banking, Netflix, Zoom — none of these had significant scale a decade ago, if they existed at all. How much harder socially and economically would this past year have been without them?  But it’s equally true that the pandemic came at the right time for these sectors. Crises can be graveyards for emerging businesses just as much as they can be launchpads. The year 2008 saw many innovative businesses fail as investors moved to safety and consumers tightened their belts.

The success of many digital sectors in 2020 shows that this is no longer a frontier space. Investor sentiment, customer penetration and technological foundations are now mature.

London’s FinTech ecosystem is an example of how to create this scale, particularly in a regulated sector.

First, you need to have confident adopter customers. In 2008, only a third of U.K. banking customers used online banking. By the start of the crisis, that had reached 75 percent. Similarly, contactless payments have rocketed in the U.K., from 40 percent in 2019 to 90 percent in 2020. Many of London’s retail brands are investing in their digital payment capacity. More recently, companies have been diversifying their digital payment options, incorporating options like crypto; pay, buy now, pay later (BNPL); and biometric payments. The maturity of the consumer base has made digital transactions mainstream in the U.K.

Second, you need deep and broad funding at all stages of the business cycle. Last year, London attracted more inward investments than any other city. Those investors joined a market that was moving from resilience to expansion. London’s 3,000 FinTechs have benefited from $4.1 billion in VC investments since the turn of the year — Europe’s largest by far. Part of the reason is the excellence of the sector, but it is also an output of having a strong growth market in AIM. VCs can be confident that they are investing in an ecosystem with a good funding ladder.

Third, you need nimble-footed regulators that can keep pace with innovation. The FCA built on its successful sandbox regime in collaboration with the City of London Corporation to create a digital sandbox model for firms tackling challenges caused by the coronavirus pandemic, such as fraud prevention and access to finance.

Fourth, you need diverse skills. Betamax is a lesson from history that superior technology itself isn’t enough to guarantee success. FinTech businesses needs design, marketing, B2B sales and commercial management skills. There are relatively few “everything cities” like London that are cultural as well as technological centers, able to bring these skills together.

One FinTech that benefited from the London model during the pandemic is London-headquartered Checkout. com. The firm saw a 250 percent increase in transactions from clients including FARFETCH, H&M, Coinbase, Revolut and Klarna, and tripled in valuation to $15 billion.

High-innovation businesses have proved to be commercially resilient and socially important this year. It’s not a coincidence that so many of them are found in dense clusters of excellence like London.

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