Market trends bolster Scottish fintech aspirations

Bruce Harvie

Earlier this year FinTech Scotland, the cluster management organisation, reported a 24 per cent increase in jobs within the sector since 2021.

Scottish-based fintechs now employ over 10,500 people across more than 220 companies.

The continued rise in Scottish-based fintechs comes as the number of fintech SMEs increases, early-stage businesses achieve growth and profitability, and international companies settle in Scotland; the most recent example being Australian fintech Halo setting up in Glasgow.

With strong momentum behind it, Scotland’s fintech community gathers for this year’s Fintech Summit in Edinburgh on September 25, an event which CMS Scotland is proud to headline sponsor, where I’m looking forward to being among the guest speakers.

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 reported the venture capital (VC) industry, of which the fintech sectors forms a key part, continues to outperform the rest of Europe with British-based companies raising a total of $9.4billion in the first half of 2024 compared to $4.3bn in both Germany and France.

The report focused on Scotland, highlighting how Edinburgh secured nearly £210million in VC investment in the first six months of 2024, up 166 per cent from last year. It named the University of Edinburgh among the top European higher education institutions for creating spinout innovation value, underlining the strength of Scotland’s fintech skills development network across its universities.

Meanwhile, last month’s KPMG Pulse of Fintech report highlighted some notable trends in the market impacting the sector. It noted total UK fintech investment hit $7.3bn in the first half of 2024, significantly up from $2.5bn in the same period in 2023. Interestingly, however, the report highlighted a shift in the fintech deal market – while the 198 M& A, private equity, and VC fintech deals completed in the UK in the first half of 2024 was significantly down from last year, it showed an overall increase in deal values with many British fintechs being acquired by or securing investment from large banks and financial institutions.​

Among recent investments in the sector in Scotland are Edinburgh AI business Aveni, which secured £11m in Series A investment in August led by Puma Private Equity alongside Par Equity, Lloyds Banking Group and Nationwide. Fellow Edinburgh-based fintech 2i Testing also secured investment in May from London-based private equity firm Rockpool Investments.

Investment in fintechs from large financial institutions, often looking to modernise their customer experience through either investment or partnerships (or both), will continue to open further opportunities for Scotland-based fintechs. The decline, however, of available venture capital makes it essential for businesses to offer a strong commercial proposition with a clear route to profitability.

This increased focus on profitability is a positive development bringing new private equity investment opportunities into fintech. While private equity investors typically demand a more hands-on role within a business, they can help quickly develop an aspiring fintech by providing input on financial reporting and information management systems and they can often write significantly larger investment cheques.

As the economy shows signs of growth, Scotland’s fintechs have good reason to be optimistic as we head to this year’s Fintech Summit later this month.