Scotland’s fintech sector continues to thrive. Earlier this year, FinTech Scotland, the cluster’s management body, reported a 24% increase in jobs in the sector since 2021.
Scotland-based fintechs now employ more than 10,500 people across more than 220 companies.
The continued increase in the number of fintechs based in Scotland is driven by an increase in the number of fintech SMEs, increased growth and profitability of early-stage companies and the establishment of international companies in Scotland, the most recent example being the establishment of Australian fintech Halo in Glasgow.
With strong momentum, the Scottish fintech community comes together for the 2019 edition Fintech Summit On 25th September in Edinburgh, an event that CMS Scotland is proud to sponsor and where I look forward to being a keynote speaker. As we assess the opportunities and challenges facing the sector, a key area of focus will be the importance of investment funding, partnerships and deal flow for Scottish fintech companies.
In July, the HSBC Innovation Banking/Dealroom UK Innovation Update Q2 2024 report reported that the venture capital sector, of which fintech sectors are a key part, continues to outperform the rest of Europe, with UK-based firms raising a total of $9.4bn (£7.1bn) in the first half of 2024, compared to $4.3bn (£3.3bn) in Germany and France.
The report focused on Scotland, highlighting how Edinburgh secured nearly £210m of venture capital investment in the first six months of 2024, a 166% increase on last year. It ranked the University of Edinburgh among the top European higher education institutions for spin-off innovation value creation, highlighting the strength of Scotland’s fintech skills development network across its universities.
Meanwhile, KPMG’s Pulse of Fintech report last month highlighted some notable market trends that are impacting the sector. It noted that total investment in fintech in the UK reached $7.3bn (£5.5bn) in the first half of 2024, a significant increase from $2.5bn (£1.9bn) in the same period in 2023.
Interestingly, however, the report highlighted a shift in the fintech deal market: while the 198 fintech M&A, private equity and venture capital deals completed in the UK in the first half of 2024 were down significantly on last year, they showed an overall increase in deal value, with many UK fintechs being acquired or securing investment from major banks and financial institutions.
Notable recent investments in the sector in Scotland include Edinburgh-based artificial intelligence company Aveni, which secured an £11m investment in August in a Series A round led by Puma Private Equity alongside Par Equity, Lloyds Banking Group and Nationwide. Another Edinburgh-based fintech, 2i Testing, also secured an investment in May from London-based private equity firm Rockpool Investments.
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Investment in fintech by large financial institutions, often looking to modernise the customer experience through investment or partnerships (or both), will continue to open up new opportunities for Scotland-based fintechs. However, the decline in available venture capital makes it essential for companies to provide a strong business proposition with a clear path to profitability.
This increased focus on profitability is a positive development that opens up new opportunities for private equity investment in fintech. While private equity investors typically require a more hands-on role within a company, they can contribute early to the development of a fintech by providing input into financial reporting and information management systems and can often write much larger investment checks.
With the economy showing signs of growth, Scottish fintechs have good reason to be optimistic ahead of this year’s Fintech Summit later this month.