Cryptocurrency and the UK fintech industry

The fintech sector in the UK is booming. With over 1,600 companies, the highest level of investment in Europe ($11,6 billion in only 2021!), and nearly 75% of Britons adopting digital financial services, the United Kingdom serves as a promised land for every startup operating in this industry.

However, the fintech innovation doesn’t end there. With the growing popularity of cryptocurrencies and ongoing blockchain adoption, digital finances can become even more ubiquitous and convenient than they are today. What are the reasons behind this synergy and its potential? Take a look below!

Blockchain revolution in the world of finance

Blockchain technology, based on distributed ledgers, immutability, and trustless transactions, was supposed to revolutionize nearly every industry. Supply chain management, healthcare, education, and even public services – all these sectors were at some point “ready” for the blockchain revolution, with multimillion-dollar investments waiting around the corner.

Well, after over ten years of blockchain development, it’s safe to say that the turning point is yet to come. The novelty of the technology and the relatively high costs of the implementation hindered mass adoption, placing distributed ledger in the role of a “contender” to faster-growing innovations.

Although it doesn’t apply to all industries. The financial sector has already benefited from blockchain-based services by improving the current infrastructure and introducing the exciting world of decentralized finance (DeFi). The main blockchain primitives – immutability, decentralization, and transparency – made it easier and more secure to trade, exchange (also in a P2P manner!), and invest money, encouraging people to join the space. Well, the distributed ledger and the complex cryptography even helped create a real “digital gold” (in the form of Bitcoin) as well as the first widely-adopted digital currencies (in the form of stablecoins and other cryptocurrencies).

What is fintech?

The emergence and adoption of blockchain in finance were often associated with the so-called fintech revolution. Its roots go back to the first digital innovations (like credit cards) that enabled people to manage and spend their money more straightforwardly and conveniently. Today, fintech refers to all sorts of technologies designed for the world of finance and includes, among others:

• Mobile banking apps
• Digital wallets
• Payment platforms
• P2P lending
• Insurtech
• Crowdfunding platforms
• Fully digital banks

How does cryptocurrency impact fintech?

The list of fintech applications doesn’t end there – as in the 2010s, blockchain and cryptocurrencies caught public attention. At first, by multiple scams and frauds, and later, by actual improvements in various industries – particularly in finance. Hence, both these technologies are now recognized as parts of the general fintech landscape. The landscape that needs the improvements offered by blockchain.

While fintech greatly contributed to improving the general UX and efficiency of various financial services, it usually relies on relatively centralized foundations. It’s always convenient to use a well-designed bank mobile app instead of going to the place physically. However, it’s still a traditional bank behind the application – with all its cons and general opacity.

Hence, the decentralization that comes with blockchain can vastly improve the fintech industry, making it more secure and transparent. Moreover, even though distributed ledger is not the fastest way of sending and trading money, it still surpasses the efficiency of most interbank transfers. Lastly, cryptocurrencies that rely on blockchain serve as a valuable and comfortable alternative for fiat currencies, most commonly used within fintech services.

Crypto fintech landscape in the UK

Then, how do cryptocurrencies and fintech intersect in the United Kingdom? First, let us examine the country’s current state of financial technology.

As stated by the International Trade Administration, there are over 1,600 fintech businesses in the UK market, with Checkout.com, Revolut, or Monzo serving as the most popular ones. The entire industry creates a value of around $13,4 billion, making the United Kingdom the fintech leader in Europe. The growth rate of the sector is far above the average for SME companies, and – although it slowed down in recent years – it still looks more than promising:

Source: Deloitte, https://www2.deloitte.com/uk/en/pages/financial-services/articles/uk-fintech-landscape.html

 

At the same time, the blockchain sector in the UK is currently in the “emergence” phase. The number of web3 companies is around 250-300, with only 5-7% of citizens using cryptocurrencies in their everyday life. Both stats are, however, very likely to explode shortly – especially when the regulatory concerns are settled and clarified.

Cryptocurrency adoption in the UK fintech industry

Therefore, UK fintech companies are already integrating cryptocurrencies to prepare their services for the mass web3 adoption. The most visible example of such an approach is arguably Revolut which implemented crypto buying and selling into their app, offering over 90 tokens (with staking features included). The other renowned UK fintech company, Monzo, also merged with the crypto industry, allowing users to connect their bank accounts to a licensed cryptocurrency broker and buy tokens.

However, the fintech & blockchain intersection in the UK doesn’t end on just buying crypto. The market also saw innovations in insurance management (Blocksure – based nearly entirely on blockchain technology), remittance services (Azimo – that integrated Ripple’s blockchain), or digital custody tools (Anchorage – that enables various traditional institutions to store and manage cryptocurrencies). It is also worth mentioning that along with the growing institutional investments in web3, the crypto fintech sector should see more such innovations in the very near future.

The future of cryptocurrency and fintech in the UK

The aforementioned number of 1,600 fintech companies is expected to double by 2030. At the same time, the crypto adoption in the UK is growing rapidly, with the British market serving as one of the most highly invested in Europe. With more and more institutional investments as well as pure technological innovations (such as blockchain interoperability or tools that will solve the infamous “blockchain trilemma^[1]”), these stats should only spike very shortly.

Hence, it’s not risky to say that the forecast for crypto fintech in the United Kingdom looks particularly exciting. However, as always, when cryptocurrencies and other financial innovations are discussed, we need to remember the regulatory threats. Even though the UK still positions itself as a “web3-friendly land”, the potential ban on staking or introducing stricter crypto legal acts can quickly slow down the growth rate of both industries.

Then, let’s keep our fingers crossed that Rishi Sunak’s pro-crypto approach is not just a political double-talk. In the uncertain regulatory environment, having strong support at the pinnacle of power will be crucial. Even despite the antipolitical nature of the crypto world.

 

^[1] For more information, please refer to: https://www.ledger.com/academy/what-is-the-blockchain-trilemma