The future of the UK fintech industry

• United Kingdom

• Financial services - Digital Financial Services

01-12-2020

Independent Strategic Review signals structural changes to support scale-ups

On 9 November 2020, the Chancellor of the Exchequer confirmed in his statement to the House of Commons that fintech is one of the three principal pillars on which the future of the UK financial services industry will be built. He also indicated that this pillar is likely to be shaped significantly by the outcome of the Independent Fintech Strategic Review which is expected to make recommendations to HM Treasury towards the end of Q1 2021.

Led by Ron Kalifa, Non-Executive Director at the Bank of England, the Independent Fintech Strategic Review is designed to identify priority areas for industry and policymakers to support the ongoing success of the UK fintech sector, including how the UK can continue to foster innovation, maintain an ecosystem that supports growing firms, and promote the integration of new technologies across financial services.

What are the key areas of the Independent Fintech Strategic Review?

The Review is focussed on five key issues:

• Skills and Talent: building a robust and diverse UK workforce qualified in areas relevant to emerging financial trends, through developing a domestic skills base and addressing barriers to attracting foreign talent.
• Investment: diversifying the UK investment landscape and addressing the challenges to attracting growth funding.
• National Connectivity: supporting the growth of regional fintechs through improving intra-region connectivity and leveraging the strengths of other fintech hubs.
• Policy: enabling and fostering wider adoption of innovation, including supporting cooperation between fintechs and financial institutions, whilst promoting competition.
• International Attractiveness and Competitiveness: promoting UK solutions to overseas markets and supporting international exports, as well as promoting the UK as a key market to establish and grow a fintech company.

On 26 November 2020, Mr Kalifa provided an update on the Strategic Review at a webinar organised by the Whitehall & Industry Group, the leading forum for constructive collaboration between government, industry and the not-for-profit sector. Whilst the Review has not yet run its course, it is apparent from Mr Kalifa’s remarks that the ability of the UK to attract and foster scale-ups is considered to be a weakness in the national fintech CV which needs to be addressed as a priority.

Recommendations of the Review to HM Treasury

Whilst the UK is arguably the leading location globally for fintech start ups, the country is weaker when it comes to fostering growth through the scale up phase. Some of the issues which impact this issue and are likely to be addressed in the Review’s recommendations to HM Treasury include:

• the need for a clear, central vision for fintech which cuts across the multiple (and sometimes overlapping) public and private sector initiatives the UK has currently
• removing barriers to investment for scale ups and fintechs in the pre IPO phase. There is a series B funding gap in the UK which needs to be addressed
• removing legacy regulatory barriers and promoting greater collaboration and interoperability between fintechs and incumbent financial institutions
• looking at how the immigration system can flex to ensure that scale up talent shortages are addressed.

If the recommendations of the Strategic Review reflect these priorities when published in 2021 they are likely to be warmly welcomed by the industry as a whole. Converting the UK’s leading role as a home for start ups into a rich pipeline of sustainable scale-ups, sales and listings is key to ensuring the long term health of the entire fintech ecosystem, as well as ensuring the Chancellor’s vison for a innovation led financial services industry is met.

We will continue to keep you updated on the Strategic Review and the implementation of its recommendations as the future UK fintech agenda begins to crystallise in 2021.