From 7 May 2024, The North East Evidence Hub is a project of the North East Combined Authority. Find out more at northeast-ca.gov.uk/north-east-lep
FinTech
Financial technology (FinTech) refers to the collective use of technology, algorithms and applications employed to deliver efficient services to the consumer across banking and other financial segments.
This is one of the 16 market profiles produced as part of the Economic Market’s foresight study commissioned by the North East LEP. It provides an overview of the future growth prospects for the FinTech and InsurTech market globally, a summary of the enterprise base serving the market in the North East and relevant regional assets, and an analysis of how the continued convergence of global trends will affect future market development.
These markets were selected as those most likely to present opportunities for future regional growth in the North East LEP. This was done based on a trends analysis conducted by Frost and Sullivan, which identified 37 high impact trends driving continued change and growth in these markets globally. A shortlist of markets from this trends analysis was then cross-referenced against the current North East position by Cambridge Econometrics. This analysis identified the most significant opportunities for the North East LEP.
Each of these profiles also uses findings from the Data City platform to quantify the number of firms serving the FinTech and InsurTech market in the North East. This platform links companies house data to companies’ websites and uses the website text and machine learning to classify firms into Real Time Industrial Classification Codes, which can allow analysis of markets often too emergent to be precisely measured in SIC codes. The data from this platform has been triangulated against ONS data to consider a variety of perspectives on the market.
More detail about the methodology can be found here for the 16 market profiles.
Established status
in the North East and associated value chain
National scope
in terms of firm activities and ownership
Moderate presence
sightly more firms with locations in the North East than the national average
Description and global outlook
Financial technology (FinTech) refers to the collective use of technology, algorithms and applications employed to deliver efficient services to the consumer across banking and other financial segments.
Within the three main sub-markets for FinTech - banking, insurance, and securities - banking continues to be the largest market by revenue, followed by insurance. Insurance technology (InsurTech) is considered to be a sub-segment within the broader FinTech market. Other sub-segments include payments, lending services, and crypto-currencies.
Market drivers
The overall growth in the FinTech market is driven by:
adoption of digital payments
use of AI in complex processes
regulatory support across several markets
emergence of blockchain and crypto currency
increasing digital trade
In terms of segments, growth in banking is primarily driven by increasing demand across payments, mobile commerce, blockchain, and crowd-funding, some of them being supported by post-COVID demand.
COVID-19 pressured revenue growth and increased credit losses, navigating this near-zero rate environment will be even more difficult for banks and financial institutions. Fintech is contributing to the banks’ transformation of their cost base while still providing positive customer and employee outcomes.
The demand for InsurTech is driven globally by its ability to deliver a more efficient risk-prediction model, and the rising need for highly customised insurance offerings.
Within the securities or capital markets, the demand for FinTech comes from increasing use of data analytics, robo-advisors and need for greater customer-satisfaction. One of the fast emerging areas within FinTech is RegTech, which is essentially enabling financial institutions to meet regulatory requirements and compliances by automating and streamlining processes.
The key challenges for the FinTech and InsurTech market are data privacy concerns, Big Data and AI integration, demand-gap among different generation of consumers, and increasing threat of cyber-attacks.
Nonetheless, as the insurance industry has been hit by Covid-19 related claims and consumer demand is changing, with a significant increase in support services for health insurance - insurers will have to focus on transforming and digitising their operating models to build in flexibility, agility and new income streams.
Scale and scope of global market
The global FinTech market size was estimated at US$ 121.3 billion in 2020, and is expected to grow at an annual rate of 10.5% of during the period 2021-2026. The InsurTech market in 2020 was estimated close to be US$ 1.7 billion, with a potential growth rate of 34.4% for the period of 2021-2027. The US is the largest FinTech market globally, with the consumer adoption driven by innovative products, increased security, transparent solution and increasing integration with several other services. In terms of regions, Asia-Pacific (APAC) is the largest market with increasing adoption across several developing countries including India.
$121.3 billion
The global FinTech market size was estimated at US$ 121.3 billion in 2020, and is expected to grow at an annual rate of 10.5% of during the period 2021-2026
The UK is among the leaders in financial services and has emerged as major market for InsurTech and FinTech with its domestic capability.
Several factors such as regulatory support, innovation ecosystems, developed value chains and the ability to attract talent has been critical.
Some of the leading FinTech companies globally are Ant Financial, Stripe, Klarna, PayTm, Chime, Coinbase, Robinhood and Square. Within the InsurTech space Lazarus AI, Relay, Halos, Zego and Quantemplate are example companies.
Capital flows and FDI
Nationally, VC, PE and Buyout deals for private sector capital into financial services has fluctuated over the past 4 years. Fintech has accounted for a large proportion of the private and VC deals completed, with a larger balance of international investment into UK firms than any other market in this report.
The majority of capital flows in financial services are however expected to come from corporate group investments into regional hubs from larger banking coroporates wishing to relocate or invest in existing North East locations. These corporates are themselves funding R&D and providing extensive capital for development of Fintech IP, both internally, and with local firms and research organisations.
UK government-backed funds for R&D associated with Fintech and broader Financial Services remains an accessible option for innovative ventures.
North East presence and capabilities
Regional overview
According to the ‘Global North East’ report there is a rapidly growing North East FinTech sector. Expertise is present in open banking, blockchain, mortgages, savings, insuretech and fraudtech. Five fintech sub-sectors are thriving in the region: payments; software; data analytics; platforms; and cybersecurity. The new Stellium data pipe brings low latency and increased bandwidth advantages to North Shorers, especially trading houses.
The North East is the best represented region outside London in the Tech Nation 2019 FinTech programme, with 13% of the total cohort and a third of all regional participants (Honcho, Kani Payments, Paid). Many leading Fintech companies are located in the North East.
Global company Sage, Newcastle Strategic Solutions, Kani Payments and True Potential are all headquartered here, as well as Atom, one of the UK’s foremost neobanks, which is based in Durham. HMRC has its digital delivery headquarters in the region and employs specialists across various technical digital fields to deliver new digital technologies to its customers.
The region is also home to several enterprise software development companies that have tech teams embedded in top-tier investment banks. This cohort is set to grow even further as several other regional operators have banking licence applications well underway. A report by Whitecap consulting identified 58 firms in the North East. The report also estimates there are over 3,000 people in FinTech related roles in the North East, with 53,000 employed overall in the financial services and technology sectors across the region.
Fintech companies moving to the North East have a huge choice of dedicated office accommodation and innovation hubs, including Sunderland Software City, TusPark and Salvus House all nurturing fintech, insuretech and cyber businesses.
The National Innovation Centre for Data, based at Newcastle Helix, joins up businesses with university research. It also delivers key technical and practical data skills into organisations. This improves business competitiveness and drives growth by unleashing the huge potential for innovation offered by the explosive growth in digital data.
The North East LEP area has a strong and diverse university sector, with over 85,000 students studying at four universities: Durham University; Newcastle University; Northumbria University and University of Sunderland. In 2018/19 there were 31,475 enrolments in the four universities in the North East LEP area.
The North East LEP area has a strong and diverse university sector, with over 85,000 students studying at four universities: Durham University; Newcastle University; Northumbria University and University of Sunderland. In 2018/19 there were 31,475 enrolments in the four universities in the North East LEP area.
It has been a priority of the North East LEP to increase the enrolment in STEM qualifications. Overall, the change in total graduates between 2014/15 and 2018/19 and who studied a STEM related subject has been roughly in line with the UK average at around 10%. However, some subjects have experienced a much faster increase in graduates, most notably in computer science, where the number of graduates increased by over 40% in the space of four academic years, compared to 19% in the UK as a whole.
According to the North East LEP local skills report, 3.5% of employment in the area was in digital occupations, comprising 42,700 people - a smaller proportion than England as a whole (4.4%). However employment in these occupations has grown faster in the North East LEP area between 2015 and 2020 than nationally (Growth of 24% in the North East LEP area compared to 18% nationally).
Notable occupations at the three digit level that grew faster than England excluding London between 2015 and 2020 were Information Technology and Telecommunications Professionals (grew by 39% in the North East compared to 19% in England excluding London) and Research and development managers (140% growth vs 27%)
FinTech North is a not-for-profit, collaborative project conceived and created through the partnership of White Label Crowdfunding and Whitecap Consulting.
The FinTech North initiative aims to
generate collaboration and knowledge share by building a FinTech community across the Northern Powerhouse
enhance reputation of the Northern Powerhouse as a FinTech region
generate tangible economic benefit for the region and the cities within it
They do this by
managing a predominantly event-based FinTech entity focused on the the Northern Powerhouse
providing a platform for sharing best practice
showcasing regional talent and facilitating connections
They also engage with key public and private sector organisations and higher education establishments in the region.
Dynamo North East (an industry led, not for profit group set up with the core mission to ‘Grow the North East tech Economy’ through collaboration, innovation, and skills) also has a Fintech Cluster group.
Analysis of GVA and employment by SIC sectors
Figures 2 and 3 summarise the findings from socio-economic data and economic forecasts, presenting headline findings for both of the IT Services and Financial and Insurance industries – the most relevant SIC classification industries to Fintech. Both sectors are large employers in the North East LEP area. Although there are no outstanding industry specialisms relative to England less London – productivity rates are near, or at the average for England less London. Both of these industries have demonstrated high rates of historic growth, and are forecast to growth strongly in future years.
IT Services
The table summarises the findings from socio-economic data and economic forecasts, presenting headline findings for IT Services, which, along with Financial and Insurance industries, is the most relevant SIC classification industry to Fintech that Cambridge Analytics data is available for. Both sectors are large employers in the North East LEP area. Although there are no outstanding industry specialisms relative to England less London, productivity rates are near or at the average for England less London. Both of these industries have demonstrated high rates of historic growth, and are forecast to growth strongly in future years.
Financial & Insurance
The table summarises the findings from socio-economic data and economic forecasts, presenting headline findings for Financial and Insurance, which, along withIT Services, is the most relevant SIC classification industry to Fintech that Cambridge Analytics data is available for. Both sectors are large employers in the North East LEP area. Although there are no outstanding industry specialisms relative to England less London, productivity rates are near or at the average for England less London. Both of these industries have demonstrated high rates of historic growth, and are forecast to growth strongly in future years.
The Data City findings
The Data City provides company data based on an AI-driven taxonomy search of terms and content on company websites. This is then connected to companies house data for each company – and allows an aggregate analysis for new industry and market definitions. The data captures the number of business branches in the North East LEP area.
There were 187 firms operating within FinTech and InsurTech sector within the North East LEP area in June 2022 according to the Data City. This was 2.1% of the total firms in the sector in the UK.
Local Authority location quotients
The data suggests that FinTech has a strong presence in the North East. All seven local authorities had location quotients of more than 1, meaning that they had more firms in this sector as a proportion of their total business base than the UK average. In addition, North Tyneside, Newcastle and Northumberland all had strong location quotients of 2 or more, with the first two ranked among the UK's highest 35.
Connections with other regions
According to the location data from the Data City 68% of firms operating in the FinTech sector in the North East had additional locations outside of the North East region, compared to only 22% of FinTech firms nationally with locations in two or more regions.
The most common other region for North East firms in this sector to have a location in was London, with 56% of firms having a location in the capital. However, this was slightly lower than the proportion of FinTech firms that had a location in London overall. Relative to the rest of the UK, the North East had strong connections to Wales, Scotland, the East Midlands, Yorkshire and the Humber, the North West and the West Midlands.
North East LEP clusters
FinTech firms are located across the North East LEP area, however there are particular clusters in Newcastle and North Tyneside.
Fintech and sector crossover
One of the innovative features of the Data City methodology is that it allows firms to be classified in multiple sectors. The platform does so through real time industry classifications (RTICs), which are constantly evolving classifications generated by an AI from companies’ websites. Firms can be classified under multiple RTICs at any one time. This means the data can be used to demonstrate interdependencies where sectors overlap.
In the North East, there were two RTIC sectors (outside of FinTech) in which more than 10% of North East FinTech firms also operated in. These were Software as a Service and Data Landscape. Compared to FinTech firms nationally, firms in the North East had a stronger overlap with Software as a service, which may suggest that a regional specialisation in this area.
Across the whole of the UK FinTech and InsurTech, firms operated in 45 different sectors, 21 of which were operated in by firms in the North East LEP area.
FinTech and subsectors
The Data City methodology also includes individual subsectors within the RTIC taxonomy which allows detailed analysis of the North East’s focus within the FinTech sector.
There were seven subsectors in which at least 10% of North East firms specialised. Among these, compared to nationally, FinTech firms in the North East had very strong specialisations in buy-now-pay-later technology and in software as a service related to real estate. They also had strong specialisations in the PropTech and professional services subsectors of FinTech, and more moderate specialisations in the cyber security and online banking subsectors of FinTech.
Overall, in the UK FinTech firms operated in 207 different sub RTICs, of which firms in the North East LEP operated in 68.
Key search terms
All of the search terms identified in red below were found at least 25 times on the websites of North East LEP area FinTech firms. Media and design were in the top 10 terms found nationally but not in the North East, which may suggest that North East LEP area FinTech firms were less likely to work in these areas.
Regional prospects
A critical part of this study is to shortlist which emergent markets represent “hot prospects” for the North East economy in the future. Using the findings from the study, and the assessment framework below – Fintech is rated as a market with:
established status in the North East
national scope
moderate presence in the North East, with 2.1% of firms in this market having a North East LEP location (compared to 2% of firms in all markets)
Demand for Financial services and related technologies is expected to continue to grow in tandem with the world economy. Financial services are also a traditional strength of the UK, so it is anticipated that the UK in general will be at the forefront of this growth. The challenge for the North East is to develop a distinct offer in a market where other regions including London, Leeds and Manchester have core strengths.
A specific opportunity exists to align Fintech with Payment processing to develop a competitive niche in Financial services. Several innovative cross-over business models are beginning to emerge from the interaction between the traditional financial services sector and these new digital capabilities. The intersection of Fintech and Payment Processing, both markets where the North East has a particular focus, could allow the North East to develop a competitive advantage relative to other regions.
The key dependencies for the market are the digital capabilities required to store and protect data especially in Software development, Cloud computing, Data analytics, Blockchain and Cybersecurity. The North East must be mindful to develop the required support capabilities if it is to develop a regional specialism.
