July 17th, 2014 / Insight posted in Articles

Funding the future of FinTech

The rise of the FinTech sector continues apace in the UK as well as across Europe with the launch of the industry body, Innovate Finance (previously FinTech UK) which will bring a welcome voice to the sector.

The organisation which is backed by the City of London Corporation and Canary Wharf Group will seek to promote FinTech innovation by bringing together startups and large financial institutions consolidating the existing achievements of Level 39. This continues the trend of large international banks financing FinTech startups as evidenced by both HSBC and UBS having allocated funds specifically for FinTech companies.London is at the forefront of this financing trend and currently also boasts three FinTech accelerator programmes which are backed by major banks. The launch of several London based FinTech funds recently will also encourage further investment in the sector.

The age old challenge for funding early stage pre-profit businesses in accessing funding to develop into successful, profitable companies is a particular challenge for FinTech.

Initial finance for startups is often provided through EIS and SEIS, which are designed to stimulate investment in risk capital. The income tax relief and capital gains exemptions that EIS and SEIS bring are only available for businesses with qualifying trades. The rules exclude some financial activities as a qualifying trade.

This may have discouraged some businesses from applying for EIS clearance but the majority of FinTech businesses we see should fit within the rules. An active business angel market combined with Innovate Finance’s influence should provide access to finance for the right FinTech business.