By Robert Whiteside, CEO, EmpowerRD
For much of the past decade, innovation in financial services has been framed as a mere function of technology teams or product units, rather than a core strategic concern for leadership teams. However, today, R&D is increasingly being recognised as a key tool that shapes competitiveness, operational efficiency, and long-term growth, moving beyond incremental improvements at the margins.
When we recently ran a survey of 500 founders, we found that while only 32% of firms in the financial services sector made an R&D claim in the past 12 months, more than four in five (84%) are planning to do so in the next year. These numbers demonstrate a clear shift that financial services are no longer using R&D as just a tax optimisation tool, but a strategic tool for strengthening business resilience, driving growth, and maintaining global competitiveness. At the same time, we’re seeing that the UK fintech ecosystem is facing fierce competition from international players who are introducing more innovative services like advanced mobile payments or interbank systems.
A far tougher funding environment is also accelerating this shift. UK fintech investment fell to a five-year low in 2025, with total investment dropping to around £8bn, falling a fifth from the $13.4bn notched the year prior, according to recent KPMG figures. While headline rounds from established players have helped prop up the totals, overall deal volumes are consolidating around fewer players, pointed towards a more selective market where capital is concentrating on more resilient firms.
To stay ahead, UK firms must innovate fast and at scale – and strategically investing in R&D is one way of doing that. Using innovation as a lever to unlock sustainable growth will help firms remain competitive in their market share, economic power and investor relations.
Investors, too, are now playing a key role in shaping R&D agendas. When we asked 250 investor decision makers where their focus lies this year, more than a third (35%) shared that they are actively focused on financial services, signposting a significant opportunity for those positioned well for investment.
Why fintechs are placing greater emphasis on R&D
R&D in fintech serves as a foundation for improving products, processes, and operations across the business. The work that fintech teams carry out across software, data, regulation, and infrastructure exists to enable and support R&D activity, rather than being the end goal.
Through well-directed R&D in financial services, meaningful innovation could translate into tangible benefits for consumers and businesses alike, such as lower costs, better access to credit, faster settlement, a broader choice of payment rails, and interoperability that allows different forms of money to work together. The Bank of England’s lead for fintech policy recently came out in support of pushing fintech innovation in the UK to avoid being taken over by international rivals. For many years, the UK has been one of the world’s leading and diverse fintech systems. But as Breeden rightly suggests, other jurisdictions are now moving at a pace the UK has yet to match fully. Championing fintech is not about innovation for its own sake, but about backing a proven growth engine that delivers real economic value and long-term productivity gains. That requires policymakers and regulators to work closely with the fintech industry to provide clearer regulatory pathways, actively support experimentation, and encourage ambition, while removing unnecessary friction without compromising trust or stability.
Over time, these efforts will contribute to both competitiveness and long-term resilience, helping businesses to adapt in a rapidly changing financial landscape.
The growing role of investors
R&D tax relief has now become an important strategy to showcase ambition and resilience, evidenced by the fact that almost every investor surveyed (96%) is actively involved in shaping portfolio companies’ R&D strategies. Their impact goes far beyond the money and includes operational leadership, supervision, and direction. Although AI still remains at the forefront of investors’ minds, it seems that more are now turning their attention to fintech, with 35% of them actively engaged in the space. For financial services firms, this could mean that investors may be keen to explore fraud detection systems that can change in real time, building proprietary analytics solutions, or building platforms to accommodate new regulatory environments or customer behaviours to stay one step ahead of the game.
To stand up against an environment where skills shortages and compliance demands continue to put pressure on fintech firms, the ability to properly justify ongoing innovation will prove to be a key differentiator. This adaptability will enable firms to position themselves better to respond to regulatory change, integrate emerging technology and attract specialist talent, which is very important to overall enterprise value. This greater investor involvement only goes to say that innovation has become a shared responsibility between the founders and their backers.
Turning R&D tax relief into a growth strategy
Fintech leaders should place R&D at the core of their growth strategy as it can provide founders with important insights into their innovative efforts, as well as demonstrate their commitment to investment in the future. From fundraising through to operational strategy, prioritising R&D is probably the most powerful lever available to fintech leaders in pursuit of sustainable, long-term growth.