A review of FinTech in the UK by Kalifa

We know that for some time that the UK has been quietly undergoing a fintech revolution – in jobs, innovation, improvements to people’s lives, and increased opportunities in global trade. However, the perception is that this movement is focused on East London populated by start-ups and coffee shops catering to the mythologised young laptop entrepreneurs of “Silicon Roundabout”.

We have seen several significant changes with the introduction of “FinTech” such as opening a bank account, about 10 years it took days to open a current account, now you can be onboarded in minutes, and more safely and securely, leveraging Reg-tech solutions and challenger bank innovation.

We have way more options around savings, investments and pensions, and with more regulation about to come into force, these products will need to be suitable over the lifecycle of the consumer.

It's not only people have greater choice and access, businesses also have multiple options which is great when you are in a nation of SME’s like New Zealand. London is envied around the world as a hotbed of fintech activity – and its successive governments and regulators are admired for building a supportive enabling environment that puts innovation at the top of the regulatory agenda.

The Financial Conduct Authority’s (FCA) pro-competition mandate has helped support new fintech firms and ensures a more nurturing regulatory environment. In 2016, the FCA launched the world’s first regulatory “sandbox”,  the Global Financial Innovation Network or GIFN for short. Similarly, the Bank of England and the FCA'sNew Bank Start-up Unit provide additional support and advice for firms looking to gain a banking license. This has meant new players to the market in the form of neo or digital banks. We are seeing the huge value in data-led solutions in financial services. Collaboration is now the new normal and we will continue to see more of this in 2021 and beyond.

We have seen new terminology being discussed “unicorns”, unbundling and re-bundling, Neo and many others. What this all means is the UK Represents 10% of the global market share and ￡11bn in revenue, the UK is a dominant force in fintech. The total tech spends by UK financial services firms was ￡95bn in 20193. SMEs and corporates are all keen users of fintech. UK citizens are becoming digitally active and 71% are now using the services of at least one fintech company. Investment into UK fintech stood at $4.1bn in 2020 – more than the next 5 European countries combined.

Is there any risk, perhaps that even although the UK is well established, its future is not certain?

I see three main threats to the UK fintech leadership position, each of which points to three opportunities that must be grasped through immediate action to create an economy that works inclusively and sustainably for its citizens while securing the ambitions for “Global Britain”.

This has significant opportunity for New Zealand, especially when we are deep in discussion with the UK about the Free Trade Agreement, we have heard from Laura Clark, High Commissioner to New Zealand that our FinTech ecosystem is buoyant and a safe pair of hands for investment. The UK is under threat from other FinTech hubs around the world like Singapore, Australia, and Canada who have invested heavily in capital, skills and direct support for Fintechs.

Brexit has created regulatory uncertainty in specific areas relevant to fintech, one area of key focus is talent and many countries are using aggressive tactics to lure talent in.

Last but not least is COVID which has been a great accelerator around digital adoption however we should consider the potential downfall of countries with challenges around digital literacy, it does, however, pay dividends to be agile to raise capital and take advantage of the current situation.

So know we have considered the threats, what are the opportunities, I believe they are:

Jobs: Fintech is embedded across the UK and in a report in 2020 is creating high-income tech-based employment at a faster rate than more traditional financial services roles, FinTech is working with educators to help play its part in upskilling and retraining the existing workforce. The sector’s direct GVA contribution to the economy is estimated to be ￡13.7bn by 2030, with job creation contributing to 70% of this.

Trade: The likes of the FCA are enabling FinTech’s to achieve global scale and reach via access to international markets, and continuing to lead on regulation and standard-setting in fast-moving tech.

Inclusion and Recovery: One thing the UK Government has done very well across FinTech has been to support its citizens and small businesses to access more, better, and more cost-effective financial services – and doing so in a sustainable way to help “build back better”.

5 possible recommendations from the report: 5

Policy and Regulation

? Deliver a digital finance package that creates a new regulatory framework for emerging technology ? Implement a “Scalebox” that supports firms focusing on scaling innovative technology

? Establish a Digital Economy Taskforce (DET) to ensure alignment across government

 ? Ensure that fintech forms an integral part of trade policy

Skills

? Retrain and upskill adults in support of UK fintech by ensuring access to short courses from high-quality education providers at low cost

? Create a new visa Stream to enhance access to Global Talent for fintech scaleups

? Build a pipeline of fintech talent by supporting fintech scaleups to offer embedded work placements to Further Education and Higher Education students and Kickstarters

Investment

? Expand R&D tax credits, Enterprise Investment Scheme, and Venture Capital Trusts

? Unlock institutional capital to create a ￡1bn “Fintech Growth Fund” of sufficient scale to act as the catalyst in developing a world-leading ecosystem

? Improve the listing environment through free float reduction, dual-class shares and relaxation of pre-emption rights

? Create a global family of fintech indices to enhance sector visibility International

? Deliver an international action plan for fintech ? Launch an international “Fintech Credential Portfolio” (FCP) to support international credibility and increase ease of doing business

? Drive international collaboration through the Centre for Finance, Innovation and Technology, and launch an International Fintech Taskforce

National connectivity

? Nurture the high growth potential of the top 10 fintech clusters

? Drive national coordination strategy through Centre for Finance, Innovation, and Technology

? Accelerate the development and growth of fintech clusters through further investment, such as in R&D

Financial services needed to change and with factors such as FinTech, Brexit and now COVID we have seen global adoption of new tech products. This comes with opportunities and threats, FinTech hubs around the world will be posturing for a position as we no longer need to travel to launch new products or solutions. Processes will be streamlined, jobs created and more capital raised but how will it be invested, as we move towards a global identity and living with COVID it is clear collectively we have a greater chance of moving forward and taking everyone on the journey, what role will you play?