988: Insights: How can the UK regain its fintech mojo?

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1:10London was the fintech capital, not by accident, not by luck, but by design. Smart regulations, stupid levels of talent, bags of capital, all squeezed with inside the M25 like a pressure cooker. And for years, it really, really worked. We weren't just on the map, we were the bloody compass. But here's the thing about being top dog. Everybody is chasing you, and lately you can feel it. London's just not punching like it used to. The strides have shortened a little bit, the noise has dulled. Feels a little bit like we're writing the memoirs about a golden age instead of building the next one. So what happened?

1:44And more importantly, what now? That's what we're going to be digging into in this episode. Can London still lead the world in fintech and tech innovation? or has the crown slipped for good? This whole thing was sparked by a conversation between me and Val. We chatted about this one on LinkedIn, got into it on DMs, and we thought, bugger it, let's just have this conversation in front of other bunch of people. Like, do we think this is a full-blown interrogation of where London's fintech soul went? Probably, but let's see where this goes anyway. We'll get into what made London unstoppable in the first place, where we dropped the ball, and what it'll actually take to get that edge back.

2:22If you've not watched it already, what I would say, if you want a preamble of this one, go check out the 11 years documentary that we made. It's got something like 250 ,000 views and counting. Tells the story of how we got our thing together, the ecosystem, from the very beginning all the way through that, you know, grit and grind to make it successful. The link will be in the show notes. Check the one out today. I've got two absolutely brilliant voices joining me for this one. We couldn't do this without, first up, Valentina Christensen, and Corporate Affairs Director at Oak North. How's it going Val?

2:54Look what happens when we get into it on DMs. We have to put it on the record in audio, don't we? I know, I've been looking forward to this. So thanks so much for having me on and yeah, doing really well, thanks. No worries at all. And I mean, I've seen lots of content from you on this as well. It's like, it's sort of a pressure cooker vibe, I feel a little bit for both me and you actually. We've both had our little moments where we've been like, oh, this is really annoying and put it down. And actually there's been a lot of momentum on both sides of this argument, I'd say, in terms of, you know, it's not quite Brexit, people being pro and negative, but, you know, very much people are sort of coming out on whether they think it's a positive vibes for the UK or not right now.

3:35100%. I'm a proud European, so I'm glad to be flying the flag today. Literally, yeah. And next up, we have Oliver Smith, who is a freelance journalist. You know, Oliver, if you haven't read something he's done over the last decade or so, then you really can't claim to be a fintech insider, can you? Welcome back to the show, Oliver. How are you doing? Thanks, David. Yeah, really good to be here. Excited to be talking about UK competitiveness and how we're doing. I sadly was made redundant a few weeks ago as news editor of Fortune. There's been a lot of media job cuts recently, but I'm so excited to say that in just a few weeks' time, I'll be rejoining the fintech sector with a new role that I hope I can share more with you guys very soon.

4:17exciting yeah it's a interesting time in the media space but conversely equally lots and lots of interesting things to do and talk about so yeah looking forward to seeing where you foreshadowing where will you pop up shortly so all right let's get into it and have a look a little bit about well has the city has the uk lost its its groove with regards to everything that's happening in the fintech space so maybe if we we sort of start with a an easier one then uh do you think the uk is still the perfect ecosystem for fintech? Val, let's get you in first of all and set the scene because having read, I know what you're going to say.

4:51Look, I mean, I absolutely love the UK and I think, you know, it has so much to offer, right? It's the things we've heard about before. You've got, you know, very forward thinking regulators in the PRA and the FCA, right, with their regulatory sandboxes which have been replicated and copied by regulators all over the world. You've got a common rule of law. You're geographically placed very well to do business with the Far East, with the Middle East, with the US. You've got incredible talent. You know, we have some of the world's top universities here. Four of the world's top 10 universities are, you know, in and around London.

5:31You've got incredible research coming out of those universities. You know, the pool of capital available. It certainly doesn't compete with the US, but it has really developed hugely in the last 10-15 years. And in London, specifically, you've got the tech talent, the financial center, and the policymakers all within a few tube stops of each other. And that is something that you just can't replicate anywhere else. If you look at somewhere like the US, you obviously have the financial center in New York, policymakers in Washington, and the tech in Silicon Valley in California. So, it's a pretty big country.

6:16And so, those are in different time zones and several hours flights from each other. So, I think the UK has a huge amount to offer. I feel like there might be a large but coming. Yes, yes. But I think, you know, we have so many challenges, right, in terms of, and, you know, we've talked about this before, but, you know, we have a real kind of self-deprecating approach in the UK. You know, I'm from Denmark, and I mean, if we had any, if we had even a quarter of the things that the UK has, we'd probably be shouting about it from the rooftops. But in the UK, it feels like, you know, we're always kind of putting ourselves down.

6:56You know, there isn't really much celebration of entrepreneurship in the same way that there seems to be in places like the US and certainly failure. You know, there's a much bigger fear of failure here. So culturally, you know, when someone sort of starts a business, it fails, then they won't necessarily look to start another business. Whereas you could be in a situation in the US where someone starts a business, fails, starts a business, fails multiple times. And then the fifth time they start a business, they build a unicorn company, right? And you just don't hear stories like that in the UK.

7:27Equally, you know, in the US, you have much more of a kind of an ecosystem where those who have exited companies, even if they weren't founders, but they were early stage employees and, you know, that company had some kind of exit or liquidity event. And those people then put that money back into the ecosystem, right? They're angel investors. They maybe go on to start their own ventures. And again, that seems to be much more of the culture in the US. There is a real kind of obsession, I feel, with where companies choose to IPO. And I don't know in a world where money is so digital whether that really matters that much.

8:04But then I can also see the other side of the coin that if you want to be a global financial center you really need a a well-functioning um exchange um so uh so i think yeah there's lots of challenges and lots of stuff that we'll get into um further in the podcast yeah yeah it's interesting isn't it all those all those ingredients all of those things that made it successful you know the organizations the thing like they're still there aren't they but uh maybe ollie coming to you What do you think? Is the perfect mix still here in the UK? Yeah, I think the elements of success that Val identified are still very, very strong.

8:42And I think if you look at the rankings and the league tables, the UK isn't falling down them when it comes to the amount of funding, when it comes to the amount of unicorns. We're very much holding our own. I think what is changing is that the excitement in tech generally has shifted. If I think back to 2018, 2017, fintech was the hot new thing. And there was a lot of excitement around that. But fast forward to today, and it is very fair to say that AI has become the new kind of hotness in tech and in investing more generally. And I think that's what's happened to a certain extent. I don't think the UK has lost its appeal.

9:22I think fintech has shifted. It's become more mature. I think AI has become that growthy area. And a lot of investors are shifting their portfolios towards AI. A lot of fintechs are shifting their categorization into AI. They don't really want to be called a fintech anymore. They want to be called an AI company because they can raise more money. They can get a better valuation. And I think that has, you know, that's kind of hit us as well. Is that a focus thing? you know i've sort of likened it a little bit before to you know uh championship boxer you know like a world title like you know willing to get up at 3am and drink all the eggs and do all the runs and you know get to number one and you know maybe that stuff's a little bit harder to do and like did we did we earn the success the first time by having the right people in the right place in a truly coordinated effort but you know was success actually the the start of the the decline because essentially once you're at the top, it's harder to maintain it than it is to get there in the first place.

10:25Val, what do you think? Yeah, I mean, I think there's probably, there is definitely some truth to that. You know, if you're starting from such a high position, then of course it's much harder to maintain it. Whereas if you're starting from a low position, you know, you can gradually increase from there. I think it's also just what happens in a kind of natural maturation of an industry, right? I mean, fintech, you know, has been going now for, I mean, if you think back to like the OGs of fintech, and you rewind the clock, you're sort of saying like, whatever, 15 to 17 years probably in the UK. So there's that sort of natural process that happens where you have certain players that then continue to grow and they reach very large valuations, they become profitable, they maybe go on to acquire other fintechs.

11:12You have some that kind of naturally, as part of the process, they sort of fall. you know they don't manage to continue and they sort of fall off the growth trajectory but is that is that then the place that we are in that cycle so because like you say if you talk to investors now and they go yeah yeah we've invested in fintechs like you know Revolut and Monzo and I'm like they're like giant companies now like they're really big things like that's not that's not like the startup ecosystem so is it is it just that the startup ecosystem is the bit that uh sort of changed and and actually you know everybody wants to back a winner don't they you know i mean now that all these guys are swinging for bigger and bigger fences then you know their rounds are never not full you know it but actually but it's not it doesn't have the same i i again i i'm i always degrade things down into like basic pop culture reference stuff but it's like the difference between like that bands that nobody knew about and it was the early thing to you know it being mainstream you know and i kind of feel like the the early uh hungry to start a new thing there's a million different problems we can solve there's an alignment between the regulators and the governments and the invent like there's not that sort of gordian not chopping through all of these things like there was you know and maybe that's the bit that we're we're missing or are we just old are we just old and we're like it wasn't as good it was better when we were doing it and that like like i i think it's just you know look covid did change a lot of things and i think also and and really the you know the the months um and even really the you know the years that have proceeded you know that have followed it um you know you saw a real shift in terms of um the kind of the economic landscape um you know for my whole adult life uh interest rates were never higher than 0.75%.

13:04And then, you know, a couple of years ago, that completely shifts, right? And that does mean that people really have to do a 180 in terms of how they manage their finances. Suddenly, mortgages became so much more expensive. Suddenly, investing became a lot less attractive while saving became a lot more attractive because you could suddenly get, you know, you can make your money go further just by keeping it in a very safe, you know, safe bank account that pays you some interest. And this is where we're now seeing a lot of the debates going on around things like cash ices, right? And the government, you know, obviously looking at reforming that ahead of the budget, you know, but then you've also seen so much fluctuation in the markets driven by things like Trump tariffs, again, COVID and the years that followed the emergency list trust budget and so many other, you know, peaks and troughs, which then have completely changed people's habits when it comes to their wealth management, investing, saving their day-to-day banking and personal finances.

14:06So I think there's been a kind of a real change in the industry as well. We had a real period of a long, you know, of a decade or so. And I mean, if I think about Oak North, we launched in, you know, September 2015. Okay, fine, several months later, the UK made this very big decision to leave the EU, right? So you had Brexit, you then had the negotiation that followed, then you had COVID, then you've had the cost of living crisis. So it's not exactly been a stagnant period, but in terms of things like interest rates, as I say, that was something that for, you know, 13 years, we didn't see interest rates going higher than 0.75%, which was really unprecedented in the UK's history.

14:46And then, of course, they shot up and they're now, you know, we'll see what the decision from the NBC is tomorrow, but there's still obviously several multiples higher than they have been historically. Yeah. Yeah. It's a funny one, isn't it? When you start to sort of look at all of those different things and some of the things that we've done that you know have made changes, but some of them that we didn't even know were going to have these knock on effects on the ecosystem. And I feel like everybody's broken the word ecosystem because consultants have used it so horrendously, but it's like a solar eclipse, you know, but actually like seven planets, like alignment, you know, we needed all of these things in the right variables and the right level of intensity to get the outcome that we got over that period of time.

15:30So, and I guess really what we're trying to figure out here is like, was that a moment or is it something that, can you harness this power to do it again? Or is it something, because as you say, with Brexit or, you know, with COVID, actually where we have lost and undoubtedly, you know, investment has changed and these things have happened and you know we've lost great people other places have gained from it right you know you've seen i mean oliver you you cover and have covered for a long time multiple sort of ecosystems is this is everybody sort of having this kind of conversation or is other people benefited where we've lost i think to a certain extent but i think the the kind of blue ocean um opportunity that that was there in the 2010s has definitely narrowed you know the opportunities now are more niche They're more specific, and they probably don't facilitate the kind of huge mass market consumer, mainstream, as you would say earlier, consumer businesses.

16:29It's really tightened. And that's the same everywhere, because the low-hanging fruit has been picked up, as well as, as Val was saying, the funding environment, the interest rate shifting. That has affected everyone, I think. The question is now, it's more of a, I guess, a war of attrition, where we're fighting over the resources that are left. And some markets are fighting more aggressively than others. I think the UK hasn't done a great job in this new environment at fighting. And I think there's been some signs that that's starting to change. But yeah, I wouldn't say the UK has like performed significantly worse than other markets.

17:05I think we've done okay. I think globally, there's just been a real shift. Yeah, it's an interesting one, isn't it? I've definitely heard this and I know Val you have as well is like there's often a debate every so often about why hasn't the UK created a big tech player like where's our Google, where's our Facebook, why haven't we done these things? What do you say to that? Is that something that we should be aspiring to or is there an easy fix for why we haven't done that or is it just a confluence of all of these I think, I mean, it's absolutely something we should be aspiring to. And it is something we're aspiring to, right?

17:44I mean, Labour has said that they want to create, you know, a trillion dollar company in the UK, you know, and, you know, while they're in power. So I think, you know, it is it's definitely a worthy aspiration. And, you know, we see some fantastic businesses that are obviously like, I mean, they've still got a very, very long way to go. but they're certainly in the, you know, Decacorn status, you know, so we have all the ingredients to achieve that. I think the challenge is that you end up with, you know, businesses reaching a certain scale, and then maybe they get a large chunk of US investment or Middle East investment, and then they don't really feel as tied to the UK.

18:25Like, you just don't have the growth investors in the UK that you see in other markets in the Far East, in the Middle East, in the US. So, you know, the nine-figure mega rounds, or even, you know, 10-figure rounds like we're seeing with OpenAI, right? Like those just don't happen in the UK or even really in Europe, right? You see rounds of, you know, a few hundred million. You never really see rounds of several hundred that are being led by a UK European investor and certainly not rounds in the billions. So I think then, you know, you have a natural bias towards a market like the US if that's where a lot of your cap table is.

19:07You know, the Lonson Exchange Group has put out a lot of research around trying to bust some of the myths around valuations in the UK versus the US. And actually, it's true that if you're a European or UK business that doesn't have a particularly large US presence, there is a question mark as to why the US is the right place for you. Because if you don't have that brand awareness, it's a bit like, why would you choose the US? But if you think, you know, to businesses like, it's not a fintech, but Meta or Facebook as it was back then, right? When Mark Zuckerberg was offered a billion dollars as like an 18-year-old for Facebook and he turned it down.

19:44And you just think, you know, what kind of 18-year-old would turn down a billion dollars? You know, but he obviously, even at that point, could see and was obviously being advised by, I'm sure, a lot of very smart people that the company was worth a lot more than that. and that if he kept growing it with his team, that it could be worth, you know, many, many multiples more than that in the future, which is very much the case. But I think how many, you know, UK 18-year-olds would turn down a billion dollars for their company or European 18-year-olds, you know, the number's probably very, very small.

20:19And it's just because, again, it comes back to this kind of culture, like America is very much like it's the American dream. It's blitzscaling, it's fail fast, it's move fast and break things. It's all those kinds of cliches, but they're sort of kind of true. And I think that is something that you really can't change overnight. It's not something that we're going to say, oh, it's going to happen in the next few years, or it'll happen with the next government, whatever. I think it's something that happens over decades. But that is something that is definitely in the water in the US that we don't seem to have here.

20:55an ingredient. Yeah, I mean, and it's funny, isn't it? The ecosystem that we referred to earlier on, the sort of everything in the M25, you know, vibe, actually, you know, the beauty of it is that it's all close. The negative of it is, is this is actually a tiny little island, isn't it? You know, so, you know, the sandbox that the FCA created were essentially we were a fintech sandbox for the world, you know, and actually, inevitably, when things scale beyond our borders, I don't mean that in a brexiteer or a uh you know uh immigration stance in any way shape or form i mean it more like you know when it goes out of our jurisdiction actually it doesn't belong to us anymore does it you know and that that is a problem isn't it but equally it's like anything look you know the internet was invented here but it has to scale for it to be globally successful doesn't it it's just we seem to be a an island of inventors without having the ability to execute at scale does it And I think a lot of these markets are playing, you know, quite aggressively.

21:52I've heard of the regulators in the Middle East who very much want boots on the ground and offices opened and headquarters moved to unlock the opportunities that they have out there. Or you often hear about American venture investors who want offices opened in the US if they're going to put that money in. So there's a very, you know, a competitive game happening, which is pulling companies away from the UK. It's incentivizing them to relocate to open offices. You know, Stripe is often held up as a US success story. I'm always reminding people that actually, you know, it was founded in Ireland.

22:27It was originally, it was here before it went over there and had all that success. And the UK, we don't play that game as much or as well, maybe. We are, as we said earlier, much more conservative, quiet, you know, in our success. less and we're less aggressive in trying to keep companies here. We're reading about Monzo, Starling, you know, looking to the US already, IPO-ing over there potentially. It's really a shame to see because it'd be great if we could do more to keep them here. I think the point on aggressiveness really hits the nail on the head because, I mean, I've heard from so many fintechs and certainly our experience that you get kind of the red carpet it being rolled out by NASDAQ and by the New York Stock Exchange.

23:14You know, it's like every time you have a big announcement, they're like, we'll put it up on all of our screens in Times Square and we'll put it all over the, you know, the trading floor and, you know, come on our podcast and we'll do, you know, you know, a TV segment for our YouTube channel, et cetera, et cetera. You know, and I think, again, like, you know, we're just much more modest in the UK, you know, and we, you know, we aren't as aggressive. And so if those conversations, you know, are happening, you know, years before a company's going to IPO, then the relationship building and everything is happening there.

23:50And it's sort of bringing that comfort to a company, even if they don't necessarily have a big U.S. presence at that point in time. Yeah. And we have seen, you know, the one that sort of jumps to mind is Barney over at Clio. You know, actually, we've seen organizations that have done sort of okay over here, but then just done amazing things when they're going off to the US. Because exactly like you say, Val, they've been sort of embraced for what they're trying to do. There's not a, you know, a dirty feeling about them wanting to go and make money and make things happen. And yes, there needs to be a win-win, but it's like, actually, no, the sort of, like you say, the American dream of it becoming a success and you becoming a success.

24:30That's not, I feel like we're all doing sort of slightly bad Hugh Grant impressions of apologizing for everything that we're doing and what we've done. And that actually almost leads to it being a negative cycle, doesn't it, rather than a positive one. There's definitely a stigma around wealth creators and wealth in the UK. And that's really been, you know, obviously something that's been in the headlines so much since we've had the new government coming in because of some of the changes that were announced in the last budget. And you sort of, you know, you hear so many of these stories about X number of millionaires are leaving the UK and going to places like Dubai and Milan, you know, and Florida and other places like that.

25:11So, you know, I think there is just seem to be a bit of a stigma around that. Whereas like, you know, in the US, again, that's really celebrated, you know, if you go to like a philanthropic event or a charity event, it's like a competition of who can write the biggest check and almost, you know, shout about it in the room full of everybody in front of everybody, which again is just so not the British way. And we support a number of charities at Oak North, we donate 1 % of our profits to charity. And we work with a lot of charities that have a UK and US presence and you go to the events and you're just like, it's just a complete chalk and cheese in terms of what the kind of philanthropic community is like in both places.

25:52And the UK is incredibly generous, but it's just much more modest. And I think this is the same about celebrating everything, success, wealth, creation, entrepreneurship. um but again i think it's like it's a cultural thing i don't really know how you change that because a lot of that british modesty is also really wonderful and important for so many other business contexts um you know but as you say i think you know a nation of inventors but then it's like how can we how can we scale that and uh create companies that could you know be trillion companies one day. Yeah. How much do you reckon, you know, there's loads of process and actually there's loads of policy and regulation and all these different things.

26:34But how much of it comes down to like people as well? You know, like because actually, you know, whether it's, you know, Rishi or whether it's Anne or whoever, like, you know, you've got to have like mad people who are going to go and try and do something that probably they shouldn't try as well. But equally, how much of that comes down to the people in the processes and ecosystems and everything that's there as well. So like the, you know, Chris Wollard over the FCA, you know, would say himself, like he wasn't like a regulator, we used to work at the BBC, you know, like, it's like, actually, you bring people in who sort of know better and don't know better at the same time, you know, and I'm thinking of, you know, Charlotte over at Open Banking, Anna Wallace in the FCA, you know, loads of different people in that ecosystem that felt like uh it felt like a collective of people who were just razor focused on making everything better and collectively like there was nobody i never ever felt like there was anybody who was like this is how i get my mbe obe or whatever you know i mean it felt like it was for the greater good of the ecosystem so like how much are we sort of missing missing those gatekeepers, but in a good way?

27:46I mean, look, I think, you know, we still have, you know, we still have, you know, those gatekeepers and, you know, we saw so much time and investment go into fintech, right? We had the Khalifa review a few years ago, led by Ron Khalifa. That's another, you know, person's name I'd sort of put in the mix there of people who are just so forward thinking and innovative and, you know, have a real passion for the sector. Absolutely, you know, if you're an entrepreneur, whether it's the, yeah, Rishi Coasters of the world, Joel, Nick Staronsky, Anne Bowden, like, I mean, you know, there's, you know, there's obviously a huge number of amazing entrepreneurs and you have to be a little bit crazy.

28:22We've obviously seen some of those entrepreneurs. I think about people like Christian Face, I think about people like Tom Blomfeld, who have gone over to the US, right? And, you know, I think Tom has been pretty vocal about how, what a stark difference he sort of finds being in the sort of Silicon Valley ecosystem versus being in London. And I've been to Silicon Valley before, but I've, you know, very, very briefly. So I guess I don't really have a clear view of how different it is. But most people I speak to who, you know, who have either come from there or who have spent a lot of time there do feel that it's very different.