UK fintechs ask government for help to ease capital shortages

By Elizabeth Howcroft

LONDON (Reuters) -Leaders of the UK’s financial technology industry are urging the British government to increase tax relief and help them raise more investment, as some executives warn a shortage of domestic investors is holding back the sector.

Trade body Innovate Finance’s “Unicorn Council”, which includes the CEOs of Monzo, Revolut’s UK arm and ClearBank, set out policy recommendations on Monday that it said would help the UK maintain its position as a fintech hub.

Global venture capital investments fell to a near five-year low in the first three months of 2024, according to data from PitchBook, as high interest rates dampened risk appetite.

Fintech companies in the UK say there is not enough investment coming from UK-based investors in particular.

“There is a well-documented problem with capital supply in both the UK listed markets and private Growth Capital,” the group’s statement said.

“All of the investment across our biggest fintechs (is) all overseas. Where are the UK pension funds? Why isn’t that growth actually going into the pockets of the UK?” added ClearBank CEO Charles McManus, speaking at the Innovate Finance Global Summit (IFGS) conference held in London on Monday.

Innovate Finance CEO Janine Hirt told Reuters that there needs to be more domestic investment in fintech.

“We know that actually the pension funds from around the world are investing into UK fintech so why are our own pension funds not doing that?” she said.

“There is a necessary awareness that has to happen, with the pension sector, about how investing in our own fintechs is good for our own economy and is good for pensioners as well.”

The UK government launched the “Mansion House Compact” in July 2023 to help channel cash from direct contribution pension funds into unlisted companies, as part of plans to persuade pension schemes to invest some of their funds in infrastructure and technology.

Still, the finance minister has said that Britain will not force pension funds to invest in high-growth companies.

Hirt said that the Mansion House Compact has made some progress but that there needs to be more visibility over where pension funds are planning to invest.

The industry group’s recommendations for the government include abolishing stamp duty – a form of tax – and implementing “existing plans to address these capital gaps”, the statement said, without giving details.

The government should also expand the scope of business asset disposal relief – a scheme which reduces capital gains tax – and provide “a VAT-rebate scheme” for newer fintechs, the group said in its statement.

Despite the slowdown in fundraising globally, some UK fintechs are raising fresh cash.

Digital bank Monzo raised 340 million pounds at a 4 billion pound valuation, in a round led by CapitalG, a fund owned by Google-owner Alphabet.

The UK government has said it is committed to supporting the fintech industry and last year backed the launch of The Centre for Finance, Innovation and Technology, to help remove barriers to the sector’s expansion and boost job creation.

(Reporting by Elizabeth HowcroftEditing by Tommy Reggiori Wilkes and Andrew Cawthorne)