By Kat Hanna, Insight Associate, London, UK
At the outset of the fintech boom, now some five years ago, nimble start-ups were set to outmanoeuvre cumbersome financial service institutions (FSIs), using customer experience, transparency and personalisation to offer a better banking service. However, the battle that was hailed as David vs Goliath is better characterised as a war of attrition that for now at least, looks set to end in a truce.
‘Move fast and break things’ has proved a tricky sell in finance and, as a result, the impact of fintech start-ups on incumbents is more a case of ‘suddenly and then gradually’ rather than ‘gradually then suddenly.’
Far from being seen as a disappointment, the evolution of London’s fintech sector into one of competition, collaboration and convergence should be celebrated. The sector is feted as one the UK’s biggest success stories, attracting record investment and international admiration, in particular of London’s talent pool and the government’s regulatory reflexes. The maturing of London’s fintech ecosystem is visible not only in venture capital raised – (a record £770m in 2017) – but in London’s geography, built environment and real estate market. Here are three ways in which London’s fintech sector impacts commercial real estate:
Access to the ecosystem is everything:
When it comes to forging partnerships or simply keeping an eye on the competition, proximity matters. There’s no single approach as to how this is best achieved. One option is to open corporate office doors to start-ups, an approach taken by JP Morgan, which can also be a possible solution to grey space or mitigation of headcount reduction. Another is to second corporate innovation teams to co-working hubs in strategic locations – a sort of Trojan horse for tech talent. Proximity is important for start-ups as well as incumbents, particularly for those opting for B2C over B2B.
Some start-ups may scale, but this doesn’t easily translate to headcount:
London boasts some clear success stories, particularly when it comes to challenger banks. Acquisition of banking licences and/or major fundraising success tends to precede relatively rapid headcount growth. Monzo, for example, is set to take on the remaining lease on an office in 38 Finsbury Square. Revolut, initially incubated at Level39, has relocated elsewhere within the Canary Wharf estate to accommodate their rapidly growing headcount. However, co-working space continues to play an important role for start-ups and scale-ups alike. Of the 29 London-based fintech companies featured in the 2017 Fintech50, only half have their own office space. The remainder are split 50/50 between co-working spaces, run by operators including WeWork and The Office Group, and dedicated incubators and accelerators.
Finance hubs want to look like tech hubs and tech hubs are starting to look like finance hubs:
A process of osmosis is taking place, in which the City is taking on not just the types of tenants associated with the City fringe, but the amenities and perceived culture. One example is the diversification of retail and F&B in the Broadgate Estate, reflecting a conscious effort not only to appeal to a broader range of tenants but to the increasing number of financial service employees who are as likely to work as technologists as they are bankers or managers. The City fringe increasingly accommodates occupiers and amenities previously more associated with the traditional CBD. This is driven in part by incumbent strategies to locate themselves in existing tech hubs, acquiring fintech credentials as much by association as by acquisition.
Of course, change lies ahead – most notably in the UK’s EU exit and ongoing regulatory requirements including Open Banking, PSD2, and GDPR. While the exact impact of current challenges remains to be determined, London’s head start in not just adapting to, but leading change in financial services places the capital in a strong position.
If the past five years saw the disintermediation and disaggregation of banking and financial services – a process often referred to as ‘unbundling’ – the next five is likely to see the more recent trends of convergence and contraction of these services. FSIs are likely to increase partnerships and M&As with start-ups while more established start-ups diversify their service offers by acquiring smaller ones.
The boundaries between financial services, banking and tech will continue to blur until all occupiers are tech occupiers. Yet the journey to this likely endpoint is uneven, and in the meantime, occupiers will continue to deploy a range of location and accommodation strategies to navigate the trends of automation, digitisation and regulation.
Kat Hanna is an experienced urbanist and researcher. Kat has a research focus on the built environment. Her areas of research interest include innovation districts, technology, and transport.
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