The Evolution of FinTech and Planning for the Future

The Financial Services landscape has changed significantly over the past ten years. Previously, customers were faced with limited options for banking and other financial services, mostly relying on the major high street banks to deliver these services, usually taking days or even weeks to process.

The same could be said for businesses looking for financial services too, facing the same slow decision-making processes and a limited choice of providers.

However, in the UK we have seen a massive shift in how individuals and firms alike manage their money. With the rise of digital banking companies, we’re now spoilt for choice with the wide-ranging variety of lenders and other financial services firms out there that utilise AI technology to provide loans and financing opportunities almost instantly.

However, for most people “FinTech” seem to be tied inextricably to the buzzing start-up scene of Shoreditch. Although this may be the original case, the industry itself has moved far beyond the confines of the fabled “silicon roundabout”.

The UK has set itself apart as a world leader in FinTech innovation, in part due to our regulators and governments having the wherewithal to create a supportive environment and putting innovation at the top of the regulatory agenda. These initiatives were soon taken on by international regulators in order to replicate the success we’ve seen so much of in the UK. In 2016, we saw the FCA release the first regulatory “Sandbox” that set out a blueprint for other countries to follow suit.

Furthermore, the Bank of England and the FCA’s “New Bank Start-up Unit” was implemented to provide vital advice to firms that were looking to obtain a banking license. This created a boom in digital innovation within banks as they rushed to meet the changing needs of customers and meet the new business demands. Big Tech soon followed suit and moved into this space, shining a spotlight on data led solutions within the financial services sector.

Aside from the massive benefits these changes brought to customers, we also saw a wealth of new opportunities in the job market as we saw industry heavyweights such as Revolut, Onfido and Checkout.com set up their bases in London, solidifying the capitals status as a world leader in FinTech innovation …and the numbers only reinforce this:

• The UK now has a 10% share of the global market with over £11 billion pounds in revenue
• UK Financial Services spent over £95 billion pounds in 2019
• 71% of all UK citizens are now using banking services of at least one FinTech company
• In 2020, the UK saw investment in FinTechs of over $4.1 billion

However, although the changing landscape brought much success and innovation, there are still many risks on the horizon.

The UK are facing stiff competition from countries such as Singapore, Canada and Australia who are investing massively in similar areas. Uncertainty around Brexit has also provided hesitation for FinTech companies that are considering setting up in the UK.

Finally, no one could have predicted the massive effect the COVID pandemic would have on the economy and how we do business. We’re seeing people and firms adopting digital banking solutions on a global scale that was unprecedented, creating opportunities for jurisdictions to capitalise on the new opportunities that have been created for FinTech companies.

However, with innovation comes new job opportunities. In order to recover our economy, continued investment in the industry and in talent, is paramount in continuing our stride as world leaders in this space. However, we also need to keep a sense of inclusion. By supporting citizens and investing in smaller companies, so they have access to digital solutions allows the UK to re-build after economic uncertainty in a stronger and more stable way.

According to the Kalifa FinTech Review, “as businesses, technologies and solutions scale we need to ensure the policy and regulatory approach continues to not only protect consumers but also creates an enabling environment that encourages growth and competition”. As we mentioned earlier, the UK is currently leading the way in creating a fertile ground for FinTech’s to flourish, but more needs to be done in order for us to stay ahead in the game.

The Kalifa FinTech Review recommends that the UK delivers “a digital finance package that creates a new regulatory framework for emerging technology”. The UK must continue to create new regulation to keep in line with new technological developments in such a fast-paced industry, prioritising new and lucrative areas for growth.

The report also recommends that we make permanent the regulatory “sandbox” as well as implementing a “scalebox” that prioritises the scaling of innovative technology. This will be essential in supporting firms during the “growth” phase.

Thanks to our world-class education system, the UK has a wealth of fintech talent. The Kalifa Review recommends that we retrain and upskill professionals to meet the needs of the growing industry, along with lowering the cost of courses in order to attract a diverse and larger group of talent.

Finally, the success of FinTech firms is largely down to private investment but we need to do more to support firms during later rounds of investment. The Kalifa Report advises that the UK must Expand R&D tax credits, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). Along with unlocking institutional capital to create a £1 billion “FinTech growth fund” in order to aid development of a world leading eco-system.

The key take away seems to be, that given the promising success the FinTech boom has had thus far, taking these new measures to capitalise on this success is the way forward in weathering current challenges and promoting much needed growth.

If you're looking for fresh talent within the FinTech space or if you would like to discuss any of the points raised in this blog, schedule a call with our Director of Talent, Dan Waltham by clicking on the link below.