No quick fix for fintechs - Why the sector must help itself

In a volatile economy over the last couple of years, the fintech sector has been a rare, unalloyed success for the UK. Last year, the sector here attracted $3.6 billion in investment, according to Innovate Finance, the industry body representing the UK fintech sector. The sum represented almost half (48%) of all fintech investment in Europe and 11% of the global total. It trailed only the US. 

Britain is home to nearly half of Europe’s fintech unicorns, and London, particularly, is firmly established as Europe’s fintech capital, with a rich ecosystem of start-ups, investors and sympathetic regulatory support. The sector is also an increasingly important employer, providing jobs for over 82,000 people already, according to Innovate Finance, and on course to pass 100,000 in the next two years. 

It is no longer just hype, if it ever was. Profits at major players, such as online bank Revolut and business bank challenger Allica (the fastest growing private company in any sector, according to 2024’s Sunday Times Hundred), have demonstrated the sector’s commercial maturity and scalability. UK fintechs lead across a whole range of services, including mobile banking, digital wallets and cross-border payments, setting global benchmarks for user-centric financial services. 

The UK government is keen to foster and build on this success. Since coming into power in 2024, it has consistently prioritised fintechs as a strategic pillar of a digital economy. In the keynote speech at the Innovate Finance Global Summit 2025 in April, Chancellor Rachel Reeves reiterated its commitment to the sector.  

“I am determined to make sure that the UK remains one of the best places in the world for fintechs to start-up, scale-up and to list, benefiting from our stable and liquid markets,” she told the audience. 

Nor is it just rhetoric, with practical aid forthcoming on a range of fronts. Those include extensions to the UK’s venture capital schemes (the Enterprise Investment Scheme, Venture Capital Trust scheme and the Seed Enterprise Investment Scheme) in September 2024. More recently, the Spending Review 2025 in June included a £25.6 billion expansion of the British Business Bank, a record £22bn annual R&D funding, £2bn for AI adoption and £750 million for a national supercomputer. 

“[W]e are backing our innovators, backing our researchers, and backing our entrepreneurs,” Reeves asserted.  

How strong that backing continues as the government faces tough choices approaching the next budget remains to be seen, however. The government’s Industrial Strategy published in June was encouraging, promising to make the UK the “world’s most innovative full-service financial centre” and recognising financial services as one of its eight prioritised high-growth sectors. Several more concrete commitments were also of interest to fintechs.   

The next test will be the Financial Services Growth and Competitiveness Strategy, due to be published this month, which will put more flesh on the Industrial Strategy’s ambitions.  

It’s important that the government gets this right because, despite the sector’s strength, fintechs in the UK face significant challenges. Some of these are, at least partly, of the government’s own making. They include regulatory complexity, exacerbated to an extent by consolidation; the merging of the Payments Systems Regulatory into the FCA has led to considerable confusion. Diverging global standards, meanwhile, complicate international expansion and compliance as successful fintechs grow.  

Regulation has also contributed to funding pressures in the sector, with 2024 marking a five-year low in funding, despite the UK’s haul. Developments such as the stricter compliance requirements for the digital assets and online payments sector mean that, although the UK remains a top destination for fintech investment, investors are particularly cautious around early-stage companies. Profitability and sustainability are key concerns.  

At the same time, a wide range of other challenges: Competition from traditional, incumbent banks, which have been rapidly digitising and acquiring fintech capabilities; regulatory, ethical, and technical hurdles in integrating AI and deploying it at scale; market saturation as the fintech sector becomes increasingly crowded; and growing expectations around ESG, with regulators and consumers demanding the sector demonstrate ethical practices and environmentally sustainable operations.  

The industry also faces the widespread challenge of finding and retaining professionals with highly competitive skills in AI, compliance and cybersecurity.  

Whatever the government’s growth strategy for financial services does or doesn’t include, there’s a limit to which it can address these issues. It’s not simply the fiscal constraints the government faces; it’s also competing claims on its support. It wants a vibrant traditional financial services sector, as well as fast growing fintechs, for example; and its net zero commitments mean it’s unlikely to relieve pressure to bolster sustainability. 

To ensure their future, fintechs must also help themselves. Fortunately, there are several steps they can take to help secure their success:  

• Build sustainable models, focusing on profitability and resilience rather than growth at all costs. Successful fintechs will need to be able to weather funding volatility and economic uncertainty 
• Prioritise cyber security and transparent data practices to build long-term customer confidence 
• Diversify capital to explore alternative funding sources, such as crowdfunding, revenue-based financing and international investment 
• Innovate responsibly, solving real customer problems with scalable, compliant solutions rather than chasing hype-driven technologies 
• Develop the workforce, upskilling teams in AI, compliance and product design, and fostering a mission-driven culture to attract and retain top talent 
• Expand internationally strategically, targeting international markets with regulatory compatibility and localising offerings accordingly. 
• Demonstrate impact by tracking and reporting on ESG metrics and customer outcomes to differentiate your business from competitors  
• Don’t just compete, but collaborate strategically and tactically across the ecosystem, partnering with banks, big tech, and other fintech to co-create solutions and share infrastructure 
• Engage with regulators, participating in consultations and regulatory sandboxes to help shape policy and stay ahead of compliance changes 

For those who take up this challenge, the future for fintech remains bright, whatever support – or otherwise – that the government provides.