Applications for FCA’s sixth regulatory sandbox drop more than 30%

The Financial Conduct Authority (FCA) has revealed its sixth cohort for the regulatory sandbox, which launched back in 2017.

From 68 applications, the UK regulator picked 22 start-ups to join its ranks. This is seven less firms than were admitted in last year’s cohort, which received a record 99 applications.

This means 2020’s cohort saw a 31.4% drop in interest compared to last year.

The submission date for applications was December 31 2019

Why the drop?

It’s unclear whether the drop – which comes to almost a third of last year’s competition – is down to any one factor.

The submission date for applications was December 31 2019, so it’s unlikely that COVID-19 had a huge impact on the drop if applications were counted from that date only.

But if the FCA is counting from a later date, then some start-ups which might have applied may not have done due to the pandemic. Either because they failed to raise money or delayed launching.

Jamie Campbell, co-founder of new cohort member Fronted, tells FinTech Futures that this “may point to the lower figures”.

Whilst the pandemic may not be the reason for this year’s drop, it could certainly be the reason for a further – perhaps even more drastic – drop in applications for cohort seven.

FinTech Futures has approached the FCA for comment on the drop in applicants from last year, but has not heard back at the time of writing.

Looking beyond COVID-19

Putting COVID-19 to one side, Max North, a financial services consultant at Publicis Sapient, tells FinTech Futures that fintech funding has long been in decline.

“Fintech funding has been declining for some time now,” he says. “Partially as the route to profitability for many fintech business models remains unproven and can be copied by incumbent banks.”

Industry sources say the drop in sandbox applicants is not down to an overcrowded UK market

North puts this, in part, down to why there is “less money and fewer new ventures getting the level of support they would need to get to the position of applying to the FCA sandbox”.

Sarah Kocianski, head of research at 11:FS, adds that “the lack of easily accessible information on the success of previous sandbox cohorts” may have also had a part to play in the application volume drop.

She says this makes it hard for firms “to know whether to apply or not”. She refutes the idea that the UK fintech scene is perhaps getting a little overcrowded.

“There is still a lot of opportunity, particularly in the insurance space,” she says. “And for firms catering to specific demographics with specific needs.” She cites those successful applicants offering environmental, social and corporate governance (ESG) focused products, and sharia-compliant services.

Focus of cohort six

This year, the FCA wanted start-ups to focus on the propositions which “make finance work for everyone” and “support the UK in the move to a greener economy”.

More than half of applicants focused on financial inclusion, whilst just two – successful – applicants focused on developing sustainable finance models.

Who was successful?

The two sustainable finance start-ups were Climate Chain, which encourages users to spend money on eco-friendly purchases, and Hitachi Europe Limited, a finance platform mobilising capital towards green projects.

My Ahmed, a sharia-compliant e-money platform, was also a successful applicant. Other Islamic fintechs such as Kestrl, though sharia-compliant, are focusing on the wider sustainable finance sector.

Blockchain and distributed ledger-based start-ups admitted included e-money platforms AID:Tech and Moneyfold, smart contract invoicing platform Crowdz UK, and collective investment fund platform FundAdminChain.

Among these there was also a project led by ING Bank, in collaboration with ABN AMRO, BNP Paribas Securities Services, Invesco, Société Générale’s Forge, State Street, and UBS.

Project Pyctor is a decentralised permission network aiming to provide digital asset safekeeping and transaction services.

Regtech DLA Piper landed a spot in the cohort, focusing on the issuance of digital assets, and YourBlock was also successful, offering a consumer privacy focused platform.

AgeWage, a pension pot saver, and HUB Financial Solutions, an automated advice service for people approaching and in retirement with modest pension savings, were both successful.

Fellow cohort member Nest Insight, sitting in a similar sector as AgeWage and HUB, offers a payroll deduction emergency savings tool to boost short-term financial resilience and increase pension contributions.

Cohort member Fronted, a start-up offering rental deposit cash advances, offers both a unique product and sector coverage. So does insurance start-up Weather Solutions, which compensates for heightened energy costs in colder winters.

Successful lenders included CrediCar, Student Finance, and Huozhi, whilst financial wellbeing apps Mintago and NestEgg also bagged a spot.

Payments fintechs in the cohort included Faizpay, HipayUK – which will be partnering with Alipay and Tencent’s Wechat Pay for UK QR code payments.

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