British invasion: The UK fintechs taking on the US

London, and the wider United Kingdom, has seen the emergence of one of the most vibrant fintech ecosystems in the world. Now many British disruptors want to take on America, the world’s largest market for financial services.

The UK fintech scene emerged out of the ashes of the financial crisis, at least in large part, but it was largely unknown to outsiders until the past year or so when it was thrust into the mainstream. 

In contrast with the ever-increasing Brexit impasse in 2019, fintech rose to become the brightest spot of the UK economy in the past year as venture capital investment continued to grow substantially as the country comfortably cemented itself as the fintech capital of Europe. Now some of the UK's fastest-growing firms are expanding globally with the US firmly in their sights.

Karen Mills, who served in President Barack Obama’s cabinet as the administrator of the US Small Business Administration from 2009 to 2013, told AltFi back in April that US fintechs will have to take account of innovative UK and European rivals particular as data portability via open banking expertise grows.

“The UK and Europe are ahead of the US, making it clear that customers own their banking data and can designate it to be available to a third party. Open data and open banking are important so that data streams are available to multiple financial institutions and entrepreneurs who could provide new products and services. We have a long way to go in Washington to be fully engaged and intelligent about these issues,” she said.

A number of firms in the UK, such as Funding Circle Monzo, Revolut and OakNorth believe the US can also be a successful market for their expansion.

Marketplace lender Funding Circle has been active in the US for a number of years but said it passed $2bn of loans under management with $1bn of total originations in the first half of 2019. Funding Circle US' loans under management being now one of the 50 largest SME loan portfolios in the US.

British SME-focused bank OakNorth landed $440m of investment led by Japanese conglomerate SoftBank to expand into the US market in February 2019 where it will look to both partner with banks using its tech platform as well as expand its core loan book.

Digital bank Monzo made its first steps into the US last year also with the appointment of ex-VISA boss TS Anil as its dedicated US CEO. It’s even got the backing of leading US startup backer Y Combinator who led a £113m investment round last year to power its US launch.

Anu Hariharan, partner at Y Combinator Continuity, told AltFi in June that she believes Monzo is well-positioned to succeed where others have failed for two reasons.

“Firstly, it's one thing for the old banking system to spin off a new mobile app and say this is mobile banking, versus building something ground up like what Monzo has done with a full tech stack which makes it really easy to become the operating centre of finance,” she said, pointing to features like Monzo’s recently-launched home utility switching service," she said.

“And the second thing which I haven't seen anyone else have is the community. They built ground-up by having in-person town halls and a community of users who are advocates of Monzo everywhere,” she added.

Banking challenger rival Revolut has also been expanding to the US, announcing its plans in 2018, although it has as yet not fully launched operations in the country.

In June 2019, meanwhile, Transferwise become the latest UK fintech to launch in the US. Payments giant GoCardless, another UK success story, announced its plans to launch in the US following a fundraise last year, by opening an office in San Francisco. Checkout.com, another payments start-up hired an industry veteran Cyndi Hoddinott to build its brand in the US.

The UK is also clearly competitive investment destination for US investors with 25 per cent of fintech investment flowing in from North America in 2018. The key thing for these firms expanding to the US is whether customers will bite too.