State of the Fintech Nation: UK Government Publishes Report on Fintech Progress

The United Kingdom has long been a global leader in financial innovation. Of course, London holds a long history as a prominent financial center for both Europe and the world. This established base has combined with a strong entrepreneurial spirit and access to capital to create a vibrant Fintech ecosystem. None of this would have been acheivable without a regulatory environment that is widely viewed as the gold standard when it comes to supporting innovation.

From online capital formation, to digital banking, to payments, blockchain, AI and more, the UK has fostered a robust market of successful early-stage Fintech firms. There is a reason why Marcus, the digital-only bank created by Goldman Sachs, expanded into the UK first. Policymakers encourage innovation and Fintech competition.

In fact, the lead financial regulator, the Financial Conduct Authority (FCA) has established a dedicated Innovation Division to boost and assist Fintech change. Fintechs have a single point of contact to “help firms navigate the tricky landscape of regulation.” Regulators are not viewed as a trap to avoid but a collaborative group needed to enable a sustainable, and compliant, Fintech marketplace.

Compare the UK to the regulatory environment in the US, where there are a dozen or so federal regulators a Fintech may have to deal with – as well as 50 different states each aggressively guarding their relevance, and it quickly makes sense as to how the Brits have established the country as a center for excellence in entrepreneurial financial firms.

“In the UK, regulators have shown that regulation can be a tool for opening up competition.”

Recently, HM Treasury, the Department for International Trade, and Innovate Finance, joined together in publishing a report entitled “UK Fintech State of the Nation.” The report provides a snapshot perspective as to progress in the UK regarding Fintech, as well as providing a roster of ongoing programs created to ensure the UK’s position as a global Fintech hub.

The policy supporting Fintech holds greater relevance in light of the political struggles associated with Brexit and the looming European separation.

So what has the UK achieved?

The document provides the following data points:

  • There are currently over 1600 Fintech firms in the UK. This number is predicted to double by 2030
  • The UK boasts a Fintech adoption rate of 42% in contrast to a global average of 33%
  • 76,500 individuals are employed in the UK Fintech sector. This is expected to rise to 105,500 by 2030
  • 42% of these workers are from outside the UK
  • In 2018, UK Fintechs captured $3.3 billion in total investment, over 68% of the $4.8 billion recorded across Europe.
  • Fintech Bridges have been established in Australia, China, Hong Kong, Singapore, and South Korea

To quote Stephen Carney of Quintain Analytics – referenced in the report:

“Being a heavily regulated industry, conservatism and fear of change can often stifle innovation, however, UK financial services firms have embraced new technology much faster than other centers.”

So things are pretty good today. What about tomorrow?

To quote the report:

“The UK is taking a creative and ambitious approach to financial services trade policy to facilitate detailed discussions on cross-border market access, ensure advanced, fair and transparent operating environments, and support the growth and competitiveness of the UK Fintech sector with new financial services, payments and data at the forefront of policy development.

As the UK’s financial services industry expands it will ensure the continued competitiveness of the City of London as a major global financial centre. This will support growth and jobs in the UK and our partners’ economies, as new policy provisions are implemented and trade friction is reduced to develop more effective shared markets.”

Risk mitigation pertaining to Brexit uncertainty is already taking place. The Exceptional Talent Visa and Innovators Visa are designed to help assure needed expertise and talented entrepreneurs are welcomed in the UK.

Additionally, there are ongoing “international initiatives that the UK government is leading on for the benefit of the UK Fintech ecosystem, both domestically and abroad.” The Global Financial Innovation Network (GFIN) is a good example.

But success too frequently is the mother of complacency. This is a truism that policymakers seem to be keenly aware – an important characteristic to maintain the Fintech hub status.

So what is missing from the report?

Better economic data would be welcomed.

An economic analysis of not just the top line job creation but the multiplier effect as well as wealth estimates, would buttress the need for such a dedicated national policy.

Another missing aspect is the looming competition.

Both France and Germany hope to gain from the British European departure – France is very interested in blockchain technology.

Hong Kong was slow out of the gate but has now set a healthy pace of embracing Fintech change.

And of course, there is always China.

The US has failed the policy/regulatory test but its deep pools of risk capital and entrepreneurial centers of excellence continue to fuel Fintech innovation.

But at least for now the UK has solidified its commitment to Fintech innovation not just with words but action.

Low corporate taxes, incentives, and a pro-business government drive innovation. Expect the UK’s Fintech prowess to continue in the near future.

The report, a good read for policymakers and financial regulators everywhere, is available here.

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