A Treasury-commissioned review of the UK’s future in financial technology (fintech) has told the government that it must urgently introduce effective policies in five key areas if the fintech industry is to continue to thrive.
A confluence of disruptive events means that the fintech industry is at a major crossroads, and decisions made now will shape the fintech sector and UK economy for a generation.
London is traditionally seen as the ideal ecosystem for financial services companies to grow, with the UK rapidly becoming a world leader in fintech in recent years. But Brexit and the Covid-19 pandemic have weakened the country and thrown up hurdles to fintech growth.
According to research conducted by market intelligence firm Dealroom and investment agency London & Partners, $4.3bn (£3.064bn) went to London’s fintech firms in 2020.
Adding urgency is the fact that the post-Covid period looks set to see fintech take-up rocket, as consumers and businesses turn to online services, including financial, amid global lockdowns. And if the UK stumbles into this era, weakened on the back of Brexit, Covid and increased competition, it could miss the boat.
The review, commissioned by the Treasury a year ago, was carried out by Ron Kalifa, chairman of fintech giant Worldpay. It sets out steps that the UK must take if it is to remain one of the world’s leading fintech locations.
Notably, the review recommends upskilling Brits in the ways of fintech and fast-tracking foreign talent, dispersing fintech innovation from London across the country, and increasing funding for fintechs at all stages.
According to the government, the review will “help the country’s financial technology firms to scale up, access the talent and finance they need, and deliver better financial services”.
Kalifa makes recommendations in five key fintech areas – skills, spreading the industry nationally, investment, overseas trade, and policy and regulation.
He says the government must ensure the fintech industry has good supply of domestic and international skills, including upskilling the existing workforce and ensuring its easy for fintech talent from overseas to settle in the UK. Fast-track visas for skilled workers overseas and training for domestic workers are recommended in the review.
The review also calls on the government to move fintech beyond London and make use of hubs across the UK, and strengthen the links between them. In investment, it recommends funding be made available throughout the life of a fintech, from idea to initial public offering.
It says overseas trade for fintechs should be strengthened through increased international operational support, while policy and regulations should be designed to nurture fintechs and encourage competition while protecting consumers.
In the review, Kalifa acknowledges major threats to the UK’s strong position in fintech that require immediate action.
The review says competition from regions such as Singapore, Australia and Canada is growing and regulatory uncertainty and potential skills shortages have emerged following Brexit. Meanwhile, Covid-19 has accelerated the take-up of fintech services, which means countries have to be quick to grab opportunities.
Technological change has arrived in financial services, and with it, threats and opportunities, says Kalifa. “There are threats to the UK’s competitive position, but also opportunities to innovate and grow. Threats to consumers and labour markets, but also opportunities for job creation and supporting the development of a digitally capable citizenry.”
Read more about UK fintech
- Demand for tech professionals in the fintech and digital payments sector bounced back strongly after a short pause during the initial Covid-19 lockdowns.
- The importance of immigrant workers to the UK’s fintech sector highlighted by government planned fintech visa.
- Less-established fintechs have been hit the hardest by the drop in investment capital, but there is light ahead for those that survive.
The report says that this time next year, the public and private sector must come back to report on the progress they have made to deliver the recommendations. “The time to act is now,” says Kalifa.
Reacting to the report, Anders la Cour, CEO of banking infrastructure provider Banking Circle, said the review was essential amid current challenges.
He said that although the UK has always been a hub for startups and businesses in fintech, the UK is at risk of losing its leading position. “This would be hugely disappointing to the industry and the country, which has always been proud of its trailblazing position in the financial world,” he said.
“As a result of the pandemic, last year fintech funding was down compared to 2019, but Covid-19 also accelerated the focus on digitisation, especially in the financial services sector, and this means there has never been a more important time to embrace innovation. The UK government needs to capitalise on this as a matter of urgency.”
The review outlines a way forward for “expanding from Silicon Roundabout to creating Silicon Regions that stretch the length of the country”, according to Russ Shaw, founder of tech startup network Tech London Advocates.
Shaw said the report will help businesses overcome the immediate challenges posed by Brexit and the pandemic. “From new stock market listing proposals, to investment in digital skills and new visa schemes – this report is a clear testament of the government’s commitment to bolster fintech innovation and outline its clear ambitions for a digitally driven economy and to work in collaboration with the private sector to make this vision a reality,” he said.
With access to skills a major fear among fintechs amid increased international competition and the loss of the free movement of EU citizens to the UK, the recommendation for a visa for overseas fintech professionals and the retraining of the UK workforce has been welcomed.
Richard Ambrose, CEO at cross-border payments fintech Azimo, described the review as “thorough and deeply credible”.
He added: “We welcome especially the recommendation of a fast-track visa scheme for global fintech talent. The flow of highly skilled workers into the UK has been the key reason why fintech has flourished here over the last decade, but Brexit and Covid are putting that flow at risk. It is essential that we smooth the path for exceptional people to come to live and work in the UK.”
Reskilling the UK workforce is also a vital component of any fintech skills strategy, said Claudia Harris, CEO at Makers, a skills provider that took part in the review. “The Kalifa review is seeking to accelerate the credentialisation of the specific short-form courses required by the fintech sector with the steering committee it proposes,” she said. “We welcome this and look forward to playing our part.”
The skills base will also be expanded if the review’s recommendation to spread fintech across the country is adopted.
Catherine Birkett, CFO at fintech GoCardless, said the recommendation to spread fintech beyond London is a good one. “Recommendations to boost national connectivity and growing fintech outside of London are critically important,” she said. “As someone who grew up in the north and developed several regional offices during my career, I’ve seen first-hand the quality of talent up and down the country – and the prosperity that a booming economy can bring.”
Fintech trade body Innovate Finance acted as the secretariat to the review alongside the City of London Corporation. Its CEO, Charlotte Crosswell, said: “Consumers and businesses are rapidly changing the way they interact with financial services and the fintech sector is ideally placed to respond to this changing dynamic.
“This will result in the creation of new digital jobs to power our most innovative businesses, inspire a next generation of entrepreneurs, and in turn enable the growth of global champions. We must remain an ambitious partner in a sector where we are at the forefront of global thought leadership.”
Read more on IT for financial services
Digital banks could dominate once baby boomers pass on their wealth
Lack of leadership, confusion and frustration - the state of digital identity in the UK
UK fintech investment hits new heights as government announces increased support
Budget 2021: Tax relief for data and cloud, digital skills for SMEs, more IT firepower for HMRC