The way we pay for things has changed dramatically in recent years, with Covid-19 accelerating the adoption of digital payments. What financial services people need, in part driven by a generational lack of retirement savings, have also changed. Meanwhile, corporations face constant pressure to adequately tackle environmental, social and governance (ESG) issues on the path to net zero.

The common thread among these issues is fintech, which is transforming what financial services are available and finding novel solutions for emerging issues. Underpinning fintech’s rise, however, is a need for regulation that is supportive of disruptive ideas and technology.

Open finance, which creates anonymised data that nascent companies can use to test ideas, has fostered innovation in the sector and allowed third parties access to data that can help companies understand how they are performing on ESG matters. The UK is the pioneer of open finance, and now more than 30 countries have followed suit, introducing open finance regulation in some capacity. Of UK consumers, 60% will be using open banking by 2030, finds Zopa’s 2021 report titled ‘Open Banking to Open Finance: Bringing consumers along on banking’s next innovation’.

The global open banking market will reach an estimated value of $37.73bn by 2028, according to a report from Vantage. In 2021, the market generated $10.39bn in revenue and is expected to grow at a compound annual growth rate (CAGR) of 23.98%.

More broadly, the global fintech market is booming and set to grow from $115.34bn in 2021 to $936.51bn by 2030 at a CAGR of 26.2% during the forecast period 2022–30, according to a report by the Brainy Insights.

Strong growth forecasts for fintech in the UK

In the UK, the fintech sector is also experiencing significant growth. The UK’s fintech market is forecast to reach $862m by 2025, growing at a CAGR of 2.9% between 2022 and 2025, on par with Germany and France’s markets, GlobalData insights show.

The UK’s fintech market was valued at $791.5m in 2022, making it the fifth-largest globally behind the US, Japan, China and Germany but ahead of Canada, Australia and India. Overall, the number of sector jobs posted grew by 17% between the second quarter of 2021 and the same period in 2022. The growth in fintech jobs far outpaced all other jobs, with postings in the sector rising by 50% over this period.

The UK is the top location for European fintech jobs, and fourth globally behind the US, India and Canada.

There are 92 fintech FDI deals in the UK, representing 2.9% of all FDI into the country. That figure compares closely to Australia and Canada, where the shares are 3.3% and 2.7%, respectively. The UK attracted the most fintech projects globally between 2019 and 2021.

Within the UK, Scotland has the second most fintech projects, behind only Greater London, according to GlobalData findings. There were four new fintech projects in Scotland in 2021, which doubled from 2020 but matched the number of fintech projects in 2019. The UK’s South East was the third best-performing region in terms of projects in the UK, with two projects in 2021.

For a small country, Scotland is punching above its weight in financial services, with a market worth an estimated £8.8bn. The country has the second-largest financial cluster in the UK after London. In the UK, the financial services industry contributes £132bn to the UK economy, almost 7% of total economic output, according to Scotland’s Fintech Research and Innovation Roadmap 2022–31.

Financial and related professional services are the biggest contributor to Scotland’s economy, directly employing around 170,000.

Edinburgh and Glasgow are both ranked in the Global Financial Centres Index (21st and 81st, respectively), and 88% of fintech companies in Scotland are based in these two cities. 

How Scotland's fintech sector is shaping up for future growth

Focused on fintech, Scotland has developed a ten-year sector road map that ultimately seeks to create up to 30,000 jobs in the country and increase economic value by more than 330%, jumping from £598m to more than £2bn over the decade.

The country is committed to research and innovation across four main segments: open finance data, climate finance, payments and transactions, and financial regulation.

Aware of shifting tides and the need to take action on climate change, Scotland is emphasising ‘greener’ fintech. Banks, asset managers, investors, regulators and consumers are all focused on ESG criteria and data. However, they need data to enable transparency on ESG issues to make comparisons more easily and guide future thinking. Figures from BloombergNEF suggest that over the next 30 years, the transition to a carbon-free world will require investment of between $73trn and $92trn globally.

Another major trend is the ongoing transition to digital payments, which accelerated during the pandemic. Yet there are still those who don’t reach for their cards, phones or watches to make payments – in the UK more than five million adults still rely on cash, according to UK Finance’s report on the impact of Covid-19 on UK card payments in 2020.

However, a plethora of innovations are happening in the payments space, and in Scotland, 37% of fintech companies operate in the payments realm.

It is not only those clinging to cash that stand to benefit from innovation in payments. While SMEs play a vital role in many global economies, accounting for 50% of revenue generated by UK businesses in 2020, SMEs often lag in digital transformation. Innovation in the payments space could add tangible value for SMEs that are vital contributors to the country’s economy.

For these companies to operate, grow and succeed, well-crafted regulation is needed. Scotland is inviting fintechs to help shape this regulation and work alongside government to develop policies.

“Ultimately, technology and data-driven innovation specifically applied to financial regulation presents a significant opportunity to support the UK’s future ambition for regulation,” the FinTech Roadmap reads. “It can build confidence across the market, and reduce regulatory costs and burden.”

Support for fintech businesses in Scotland

Up 50% from January 2020, there are more than 200 companies operating in Scotland’s fintech sector, and 84% are business-to-business operators. Yet just five years ago, there were only 28 fintech companies in Scotland. Fintechs in the country are performing strongly, having raised an average of £1.5m in recent years, including funding and grants from internationally headquartered fintechs.

Edinburgh (pictured) and Glasgow are both ranked in the Global Financial Centres Index (21st and 81st, respectively), and 88% of fintech companies in Scotland are based in these two cities. (Photo by Iakov Kalinin/Shutterstock)

Additionally, fintechs in Scotland hoping to partner with major financial services providers to benefit from proximity to those main players.

The country has also developed an ecosystem to support fintechs on their innovation journey. While Scotland’s universities have begun focusing on fintech, with around 200 related courses taught across 19 universities, the road map’s authors report. In 2017, the University of Strathclyde was the first in Europe to launch an MSc in fintech. Now, the University of Stirling, University of Edinburgh and University of Glasgow have developed their own MSc degree programmes in fintech.

At the centre of sector activities in the country is FinTech Scotland, which was recently awarded Cluster Accreditation Silver Excellence by the European Commission body that assesses cluster excellence. This is the highest award for any cluster in Europe. The cluster supports growth in the number of fintech SMEs of 22% year on year and by producing the UK’s first ten-year fintech road map. FinTech Scotland was also recognised for leading the way in increased cluster collaboration between fintech SMEs, large enterprises, universities and public sector bodies throughout the UK, working across different verticals to drive innovation.  

One example of a successful fintech company that has set up offices to grow in Scotland is ClearScore. The company was founded in London in 2015 to provide consumers with free credit scores and reports, along with support services to enable people to improve financial decision-making. ClearScore has since expanded into open banking. The company now has an office in Edinburgh and views the country and its fintech ecosystem as being central to its future growth plans.

“The infrastructure in Scotland, particularly Edinburgh, sets tech firms up for success,” says Andy Sleigh, ClearScore UK CEO. “There are world-class universities and academic research, a vibrant events scene and a deep pool of tech talent. This whole ecosystem makes it easy to get set up and expand quickly and efficiently. We were recently at Turing Fest [in Edinburgh] and the vibe was very exciting.”

Based on ClearScore’s experience in dealing in Scotland, the company has increased investment in its Edinburgh operations and intends to focus heavily on open banking.

“To support our rapid growth in open banking, we recently announced a significant investment in Edinburgh to build an Open Banking Centre of Excellence,” adds Sleigh. “Over the next few years, we plan to employ 50–100 people in Edinburgh, including developers, data engineers, data scientists and product and design professionals. We just opened our new office this month and it is home to the first of many ClearScore team members.”

For more on what support is available to fintechs in Scotland, download the whitepaper on this page.