Early Metrics, the international rating agency for start-ups and innovative SMEs, has now looked in detail at 1,500 firms across Europe. One of the key themes to emerge from its ongoing analytical reports is that London’s leadership in fintech is increasingly challenged, but that, even with Brexit exacerbating this, the UK capital is likely to remain Europe’s fintech hub in the medium term.

The independent agency’s 1,500 detailed research reports of start-ups, which focus specifically on non-financial metrics, are used by its clients - hundreds of blue-chip corporations around the world - to engage with innovative enterprises through corporate partnership, venturing or buy-outs. These reports give Early Metrics unique insight in to the start-up/SME community, what makes an early stage venture likely to grow, and how they engage with corporates.

From its ratings, Early Metrics found that fintech startups present the second highest rating average amongst all the 15 industries covered, only after retail and eCommerce. 40% of rated fintech start-ups are in Early Metrics' first quartile of best rated start-ups.

In 2016, London hosted 17 of the top 50 fintech companies in the world, the biggest cluster ahead of San Francisco (16). Despite uncertainty over Brexit, the first half of 2017 showed that UK-based fintech start-ups pulled in $564 million of venture capital investment, surpassing pre-Brexit levels.

This came at a time when many observers speculated that the short-term effects of the British Pound’s devaluation and uncertainty about corporate passporting would reduce the availability of capital to young start-ups.

Antoine Baschiera, CEO of Early Metrics, commented:

“The UK is currently facing its most serious challenge so far as the fintech hub of Europe.

“Although it’s too early to draw any definitive conclusions on what impact Brexit will have, companies are already assessing the implications of fundraising, talent acquisition and talent retention. Many fintech businesses rely on fast developing technologies in order to maintain a competitor advantage. This requires a company to be able to move quickly and have access to the right talent across borders.

“However, amidst the long-term Brexit uncertainty and competition from elsewhere, London remains an attractive hub for talent and a dense cluster of financial institutions. London will maintain its fintech influence if this landscape does not change. Positioned as the gateway between the US and Europe, the UK already possesses expertise in successful fintech ventures and the capability to continue this trend, demonstrated by the $564 million invested in fintech start-ups this year alone.”

A more concerning threat is the possibility surrounding the UK’s exclusion from the Digital Single Market, Single European Payments Area (SEPA) and overall banking regulation, especially for companies in the payment space. Investors and start-ups in wealth management are also cautious about the implications of passporting rights post-Brexit, given that the technology behind fintech start-ups is highly dependent on third party integration. More than 75% of fintech start-ups rated rely on external technology (API and others) to integrate payment solutions or draw market information, according to Early Metrics.

In addition, further competition is growing beyond Europe with the emergence of new fintech hubs in peripheral markets. Both Asia and Africa host a pool of talent and capital to establish new fintech centres and achieve significant market growth. While London currently benefits from strong streams of US investment, just under half (42%) of the top 100 fintech companies were non-Western. Asia is already setting its own pace, havingraised $4.8 billion in fintech investments when Brexit was initially announced.

Antoine Baschiera added:

“The UK has the infrastructure and capabilities to maintain its global fintech leadership position. However, the British government must negotiate the best outcome regarding free movement of talent, the Digital Single Market and SEPA.”