Why the City of London needs more early-stage fintechs

The City of London has never stood still.

Its continued position as one of the world's leading financial centres has been built not simply on the institutions that occupy its buildings today, but on a willingness to adapt. Markets change, technology develops, new entrants challenge established ways of doing things and, over time, some of those challengers become institutions themselves.

That process is particularly important now.

The Square Mile is already home to more fintech SMEs than any other local authority in the UK, alongside a wider community of more than 2,830 technology SMEs. Many are still at an early stage. That is a considerable asset for the City, but it should also remind us that maintaining London's position cannot only be about attracting established businesses. We also need to create an environment in which the next generation of financial businesses can begin here, find customers here and ultimately remain here.

There is sometimes a tendency to treat early-stage companies as separate from the established financial services industry. I think that misses the point.

A young technology company developing a better way of detecting fraud, automating compliance, processing payments or analysing risk may today employ ten people. In ten years it could be employing hundreds. More importantly, its technology could be supporting banks, insurers, asset managers and professional services businesses across the City.

The relationship is therefore complementary rather than competitive.

Established institutions have scale, expertise, customers, capital and regulatory experience. Start-ups tend to bring speed, specialisation and the ability to approach an old problem without being constrained by a legacy system or process.

The opportunity comes from putting the two together.

We are already seeing the regulatory environment acknowledge this. The FCA's Regulatory Sandbox continues to allow businesses to test innovative products in a controlled environment, while its newer Scale-up Unit is designed to help high-growth firms navigate the regulatory challenges that come with expansion. The FCA has itself pointed to early investment in governance, risk management and controls as important to sustainable growth.

That last point is particularly significant.

The objective should not simply be to create more start-ups. Britain is quite good at starting businesses. We need to become equally good at helping promising businesses make the difficult transition from an entrepreneurial company to an enduring one.

For fintech, the City is perhaps uniquely placed to help make that happen.

Within a comparatively small geographical area, a founder can find potential customers, lawyers, accountants, investors, regulators, advisers and experienced financial services executives. The density of knowledge is extraordinary. Very few places in the world can offer the same concentration.

But proximity alone does not create opportunity.

We need stronger bridges between the large organisations that want innovation and the smaller companies capable of providing it. Procurement processes need to recognise that a ten-person business cannot always respond like a multinational supplier. Equally, founders need to understand why a regulated institution asks difficult questions about cyber security, data, resilience, governance and financial stability.

Neither side is wrong. They are simply approaching the relationship from different starting points.

Capital has a role here too.

Early-stage investment should do more than provide enough money for another twelve or eighteen months of operation. Good investors should help businesses become investable, commercially credible and capable of winning serious customers.

That philosophy sits at the heart of what we are building at Rosary Capital.

We are interested in the space between innovation and institution. We want to identify promising businesses early, but our ambition is not merely to help them raise the next round. It is to help them build companies capable of becoming part of the City's long-term commercial fabric.

The City has centuries of institutional experience behind it. Its future will depend partly on how effectively that experience is connected with the entrepreneurs building what comes next.

Some of tomorrow's important City businesses are probably very small today.

We should make sure they have every reason to build their future here.