How the North East’s fintech boom is helping the cost of living crisis

The North East region has been identified as an emerging hotbed for fintech scale-ups and start-ups which have “almost doubled” since 2019.

As recent figures revealed child poverty has surged in the region and with inflation at a 40-year high, how are so many fintech innovators emerging and what are they doing to tackle the cost of living crisis?

Once largely restricted to ‘Silicon Roundabout’ in East London, emerging and established fintech clusters are now thriving across the UK – including in the North East.

The fintech sector, which covers private and public companies providing services, innovations and solutions in the financial services space, has accelerated at pace over the past decade with a notable investment boom outside of London.

“Investment into fintech in the UK in 2021 was more than double what it was in 2020 so despite everything with Covid, the fintech sector was really flying,” Julian Wells, Director at regional consultancy firm Whitecap Consulting, told Prolific North.

According to Innovate Finance, the industry body for the UK fintech sector, there has been a staggering 237% increase in investment outside of London and the South East, boosted from $206m in 2020 to $696m in 2021.

Both Newcastle and Durham were recognised in the Kalifa Review of UK fintech in 2021 as one of the top 10 fintech clusters in the UK. Whitecap Consulting, also the co-founder of ecosystem facilitator FinTech North, has been collaborating with the public, private and higher education sectors on a three-year North East fintech strategy set to be revealed in September.

Following the vision and recommendations from the review to promote connectivity between fintech clusters and enhance overall national activity, the strategy will aim to pave the way for further expansion and jobs in the region.

With the spotlight steering away from London, the number of fintechs in the region have “almost doubled” since 2019, said Wells, who was unable to reveal more until the strategy is finalised.

What’s behind the fintech boom in the North East?

Whilst Sunderland is home to TSB and Barclays, Darlington was recently unveiled as the location for the new government hub Treasury North, with a significant part of its workforce set to relocate from London creating thousands of jobs.

Financial technology has historically been a feature of many of those government departments, most notably HMRC – who are currently building premises to host 9,000 jobs in Newcastle City Centre – and DWP, Dawn Dunn, Senior Inward Investment Manager at Invest Newcastle, told Prolific North.

“The role of innovation within these organisations is often overlooked, but the highly skilled and motivated workforce is just one of the reasons they choose to locate in this part of the world,” she said.

As global or London-headquartered fintech companies such as Pockit, Global Processing services (GPS) and Railsr, formerly known as Railbank, have established offices in the region they are “tapping into what the region has to offer”.

Expertise from those firms is also branching out to plug the gaps in the fintech world with a raft of specialist companies.

“Success breeds success,” said Dunn. “Through building awareness and championing what we’ve got here, there is a recognition that other companies in the same and adjacent sectors can capitalise on those assets.”

Aaron Holmes, a former Chief Innovation Officer at GPS, is one of the success stories in the region, establishing his own SaaS fintech company, Kani Payments, in 2018. Kani works with other fintechs and banks in the region by working to solve and reduce the complexities of payments data.

“It’s not the sexy side of fintech but it’s really mission critical for a fintech to grow and to scale,” explained Melissa Beckett, Chief Marketing Officer at Kani Payments. “I think a lot of everyday consumers or businesses don’t necessarily realise they’re dealing with fintechs when they use certain services.”

Prior to joining Kani, she was running NatWest’s Entrepreneur Accelerator programme, where she met and coached Holmes. As the North East is a “growing fintech hub”, she said the company set up a base in the region as “ultimately we wanted to give back a bit to the North East in terms of creating jobs”.

The North East boasts a number of trailblazing fintech companies that have established roots and blossomed in the region, including Sage, Newcastle Strategic Solutions, Paid, Honcho, Bottlepay and Atom Bank, the UK’s first mobile-only banking provider which is “scaling and thriving here”, said Dunn.

Clare Framrose, Head of Marketing at Atom Bank, explained how the founders of the digital challenger bank opted to set up in Durham eight years ago to “add value to the region” and cited the “real level of camaraderie in the North”.

“There is this assumption sometimes that London is the place to be and if you want the best quality people you have to be in London or the South East,” she said. “That’s not the case. There’s such a rich scene of talent here in the North East.”

Showcasing the “lifestyle” available outside of London by being able to tap into career opportunities in the region and closely working with universities and schools to seek “growing talent” have all “really influenced the establishment of Atom in the North East,” she said.

The universities in the region are “very actively involved in fintech” either through courses or working with local fintechs, added Julian Wells at Whitecap Consulting.

“When the world is open to working from anywhere, that “anywhere” matters a lot – and we can’t overlook the benefits of the great skills base in our universities, relatively low cost housing and the benefit of our beaches and countryside,” said Dunn at Invest Newcastle.

This is something Dr Emma Black, the co-founder of new digital challenger bank GB Bank and CEO and co-founder at savings platform Cascade Cash Management, agrees with.

“It’s very, very expensive to run a business out of London,” she said. “I think what people are recognising is you don’t necessarily have to be in the centre of London, or Glasgow, in order to serve people in those areas.”

Both from a financial perspective and for employee wellbeing, “it’s cheaper to operate out of the North East, it’s also a faster pace, it’s a nicer environment. People can own their own properties”.

Investment is playing a key role too. “Inward investment agencies in the North East are very committed to fintech,” said Wells, pointing to the variety of networks in the region from Invest Newcastle, Business Durham and Invest North East England.

Dunn at Invest Newcastle highlighted a rising interest from organised angel investment groups such as Fund Her North and NorthInvest, as well as private investors and the British Business Bank.

“That combination between tech strength and some financial sector strength is what you need to grow fintech capability,” said Wells.

The collaborative approach and partnerships between Invest Newcastle, Sunderland Software City, Digital Catapult, NewcastleGateshead initiative and Dynamo North East are central to fuelling the growth of the evolving tech sectors in the region.

“It’s important to become part of that wider northern ecosystem – it gives us the opportunity to tap into the talent and supply chains in neighbouring regions and means that they can benefit from our network,” said Dunn.

“We continue to be a cheerleader for all the digital and technology growth in the North of Tyne Combined Authority area and fintech is a very important part of that growth. We help individuals and organisations get the information they need to successfully grow or establish a business here and can act as a ‘front door’ for information on office premises, funding and access to talent.”

Tackling the cost of living crisis

There’s no surprise that the cost of living crisis is a high priority for some of the fintechs in the region. Inflation has hit a 40-year high of 9.4%, according to the Office for National Statistics (ONS), as the cost of living continues to soar. Stark new research carried out for the End Child Poverty Coalition by Loughborough University discovered child poverty increased by 38% in the North East.

At Atom Bank, the company is working on providing clear information and signposting within its app to ensure customers can register any concerns about financial struggles.

“If you’re lying there thinking I’m not going to be able to pay my mortgage, I’m going to lose my home, me and the kids are going to be out on the street, that just starts spinning in your head,” said Framrose at Atom Bank.

On the lending side, Atom has a set of “warning signals” and proactively gets in touch with customers with solutions which provides a “real sense of relief” if they are navigating financial pressures.

“We encourage customers to be as honest as they can about their circumstances because that’s the way we can help them the best,” she said.

“All they actually want is for us to reassure them and to help them to understand that if it does get worse, get in touch because it’s easier for us to help you from the start and to put measures in place.”

At Cascade Cash Management and GB Bank, Dr Emma Black said a “greater purpose helps us get out of bed every morning” by “serving the underserved”.

Cascade, set up in 2012, already supports its customers with cash and savings solutions, while GB Bank plans to boost economic growth by becoming a dedicated lender to SMEs and property developers.

“What we’re seeing at Cascade is people are now [saying] ‘well rates are rising, the high street banks are not passing that fully on,” she said, which leads to customers shopping around and looking to the fintechs with solutions to help instead.

The cost of living is not just impacting customers – it’s impacting pay packets too as wages are not rising with inflation, according to recent research by the Office for National Statistics.

“We’ve now got 26, soon-to-be 40 people in the team, we’re just recruiting now but the cost of living is impacting us,” said Melissa Beckett at Kani. As the “enabler for other fintechs and banks”, the cost of living is “impacting them [other fintechs] as it is with everyone.”

“We’re having to look at our own internal strategy, so how do we help our team for starters,” she said. “We are finding that salaries now, developers for example, are requesting just as much as they do in London because they can, because of remote working. The salary levels are just going crazy at the moment, across all roles but specifically the technical side and programming.”

Challenges and a look to the future

Croydon MP and former Digital Minister Chris Philp predicted the tech sector in the North East could see a boost of almost 14,000 jobs by 2025.

There is no doubt that the fintech sector in the region will play a pivotal role in this, but surging salary demands, nurturing and retaining talent remain key issues.

“There needs to be a level of strategy [to] grow this fintech hub, there needs to be academies or fintech academies or accelerators specifically for fintech. We need to be shouting about it and the fintechs here, they need to be getting involved,” said Kani’s Melissa Beckett.

Similarly, Dawn Dunn at Invest Newcastle added the organisation is working “really hard to address the talent issue”.

“From STEM ambassadors in early years education, the further education colleges, our universities and with global recruiters too. There is no ‘quick fix’ but together we can work to improve things in many ways and develop our pipeline of talent.”

For Framrose at Atom, the “best thing” for regions outside of London is to “share opportunities with those young people and show them why staying in the region can be a really good thing for them”.

As the three-year fintech strategy is nearing completion, “anything you can do to create jobs, create prosperity, innovation is fantastic”, said Dr Emma Black.

As part of the development of the strategy, Whitecap Consulting is asking those with an interest in the North East fintech sector to complete a short survey via its website, to support its research.

Melissa Beckett at Kani hopes it will “bring the required attention to the North East and to the North in terms of being a growing fintech hub”. She added: “Ultimately, I hope that it does highlight the benefits of being in the North.”

“With regard to the wider digital and technology sector, the world seems to be waking up to the benefits the North East has to offer,” added Dunn.

Credit: ProlificNorth

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