Dear Rishi, Dear Keir,
This year’s election looks set to be a fractious confrontation that centres on huge policy considerations such as cost of living, the NHS and immigration. But whichever one of you triumphs, can you promise that your government won’t dismantle one of the UK’s few success stories – our global leadership in fintech?
Today, London continues to be one of the world’s leading international champions of fintech, with only San Francisco attracting more investment and unicorns. While Asian powerhouses like Hong Kong, Singapore and Dubai are growing fast, it’s not unreasonable to assert that post-Brexit, the UK – and London in particular – still faces no meaningful competition from continental Europe. For now.
Various factors have contributed to this regional dominance – but four stand out: a progressive regulatory environment, supportive tax policies, an innovation culture that encourages close collaboration between academia and business, and high levels of digital confidence among consumers.
This combination has made the UK home to around 2500 fintechs, while London alone has over 130 accelerators, incubators and VCs. This positive snapshot, however, is no justification for complacency. If UK fintech is to continue to shine, Westminster’s decision-makers must pull out all the stops to stave off dynamic global competitors. There can be no faint-heartedness in this pursuit.
This is particularly the case after a difficult couple of years for fintech entrepreneurs – largely due to the global downturn in fintech VC investment. UK-based platform SumUp recently raised $306 million, and UK digital challenger Monzo Bank has just closed a $400 million fundraise increasing its valuation to $5billion. But the overall picture is less healthy, with VC funding for UK fintechs dropping by nearly two-thirds last year. Along with the rise of potentially disruptive tech like generative AI, the UK needs to avoid taking its eye off the prize and waking up to discover it has lost ground to Paris, Berlin, Vilnius or Stockholm – the latter of which has cleverly managed to align its fintech and green ambitions.
Some might argue that the launch of a £1 billion Fintech Growth Fund by Mastercard, Barclays and the London Stock Exchange is evidence that the private sector has the matter well in hand. But, the fact remains that UK fintech has partially flourished so far due to public policy.
Worryingly, however, some fintech insiders have recently criticised the current UK government for a lack of clarity and vision in the UK payments landscape – perhaps a sign that it is tired or distracted.
Rishi and Kier – whoever between you wins the public’s five-year mandate – my view is that your incoming government must align itself closely with the financial services sector, creating a far more coordinated approach that prioritises risk, profitability, sustainability and inclusion. The goal must be a brave and creative blueprint for continued UK fintech leadership, encompassing the following priorities:
Boosting angel investment: Angel and seed investors tend to be less informed about the benefits and risks of venture investing compared to players focused on larger deals (VCs and private equity investors). Bridging this knowledge gap calls for a series of government-backed marketing campaigns to expand the flow of capital further across UK fintech. Messaging should drill down on the complexity, risks and – vitally – opportunities available within early-stage investment. Maintaining the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme will also provide a central advantage for UK early-stage tech investors.
Encouraging international crowdfunding: The disruptive force that is crowdfunding has erupted in recent years; especially when it comes to fuelling the expansion of startup fintechs. The viability of this funding avenue hinges on investor interest. So, while the FCA has an important role in regulating this process, it should also double down on ways to increase crowdfunding access to EU/international investors – negating the impact of post-Brexit barriers.
Using digital IDs to unlock innovation: The UK is one of the few countries that does not have a national digital authentication scheme due to privacy concerns. However, creating a digital ID profile issued at birth would remove the guesswork from providing innovative financial services and products to UK citizens and residents.
Unlocking global finance: It’s incumbent on political leadership to ensure that UK fintech retains its status as a top draw for foreign direct investments (FDI); counter to recent struggles. This means continuing to fly the flag for innovation in key global markets, including the EU, Switzerland, America and Asia. In the same breath, the battle to attract FDI flow also depends on regulators redoubling their efforts to control prohibited transactions. The UK cannot afford the reputational damage that comes from any hint of risk on this front.
Backing crypto innovation: The UK’s tougher crypto rules open up a threat of innovative crypto players basing themselves in more forward-thinking territories. The EU, for example, has been showing greater openness than the UK towards launching a central bank digital currency – with the ECB entering a two year preparation phase for a digital Euro in late 2023. The UK Treasury Committee, meanwhile, has urged the Bank of England to “proceed with caution.”
This difference in attitudes towards a crypto future between London and Brussels is striking – and can’t be allowed to define the UK’s wider crypto ecosystem. Within this uncertain landscape, it’s interesting that Labour has promised to “embrace” the creation of a central bank digital currency in its election manifesto.
Bridging the unbanked gap: Even with all the digital and technical strides made in recent years, more than one million adults around the UK remain unbanked. This means a growing void between those who are financially “seen” – with access to standard payments, loans, insurance and interest rates – and those who are entirely cut off from this raft of essential banking services. The price for such an exclusion? £485 extra a year, according to recent research; a huge penalty that innovators in UK fintech could address, with help from the incoming government.
Final Thought
Access to Talent: In addition to all of the above, the UK needs to create the right conditions for talent to continue entering the UK fintech business. According to Innovate Finance, around 42% of UK-based fintech employees come from overseas.
Clearly, the global recruitment pool is critical to fintech’s continued ability to thrive in Britain. This, in turn, puts the development of a post-Brexit programme for foreign talent top of the new PM’s to-do list.
Yet, we also need to look at spreading our net in terms of homegrown fintech masterminds. This entails looking beyond the usual university recruits to other, non-graduate recruits (following the lead of Germany’s Berufsausbildung initiative); as well as making concrete efforts to expand fintech funding beyond its London stronghold.
About the Author
Alessandro Hatami is former director of Lloyds and PayPal and an expert on banking and fintech. He co-authored Reinventing Banking and Finance voted best banking book of 2021 and 2022 by Investopedia. Alessandro contributes articles and comment business and finance titles including Sifted, The Banker, Times Raconteur, Global Banking & Finance Review and is a regular speaker at Money 2020 and he recently chaired Milan Fintech Forum. Alessandro is also a member of The Council for Inclusive Capitalism.
Jean Jacques Le Bon
