In the midst of UK Fintech Week, ClearBank has published a report on the UK Fintech ecosystem, addressing its status in the country and what it needs to move forward and grow. The UK has long been a top global Fintech hub, supported by an entrepreneurial population and forward-thinking policy.
It is estimated that there are 4,600 Fintechs in the UK, generating more than £213 billion in revenue and employing over 357,000 people across the country. Over 70% of consumers use Fintech services, and the majority of SME lending is fulfilled via digital lenders.
Of course, London’s long history as a key international financial center means that industry participants are keen to support this vital sector of the economy.
ClearBank, an eight-year-old digital bank, has emerged as a successful Fintech with over 800 employees, clearing around £297 billion worth of payments in 2024. In ClearBank’s experience, the regulatory environment was pretty good when they commenced, but then became “increasingly challenging” for Fintechs. Today, the bank believes the pendulum may be swinging back in the right direction, but it seems too early to be certain.
Noting that the Chancellor of the Exchequer has called for regulators to reduce red tape and support innovation, the shift in posture still holds many hurdles for established and emerging Fintechs. The report surveyed Fintech insiders, along with more in-depth interviews of industry participants, many of whom believe past successes are being taken for granted, and this is not the time to be complacent.
When asked about the regulatory environment, over half of the insiders proclaim: “The UK was a favourable place for starting a business … the reverse is true for growth, with four-fifths saying the current regime holds them back from scaling their business. Not a single respondent reported that listing on a public market would help their business to scale.”
“71% Believe the regulatory landscape hinders [Fintech] scaling.”
Additionally, approximately 70% say the current regulatory environment is not conducive for competition:
“Regulation needs to be rethought urgently, reviewing the existing rulebook to consider rules which lack proportionality for small and growing firms and dampen competition.”
ClearBank highlights six recommendations to boost Fintech development in the United Kingdom. These include:
- The Bank of England should increase the MREL total assets threshold to £50bn, remove high quality liquid assets from the calculation, and introduce a greater degree of proportionality as to how it is applied for smaller and less complex institutions.
- The government should extend APP fraud mandatory reimbursement liability to social media and telecom sectors; and the Home Office in its upcoming Fraud Strategy to announce plans to improve information sharing between the payments and social media and telecoms sectors.
- Parliament to pass without delay the Digital Use and Access Bill (formerly the Data Protection and Digital Information Bill), enabling the next phase of Open Banking and the Open Finance implementation.
- Government and regulators need to create a regulatory regime in the UK for the use of Stablecoins in payments as a matter of urgency.
- The Government should extend the statutory objective for growth and competitiveness for the Bank of England in all regulatory capacities outside of the PRA, compelling the Bank of England to consider growth and international competitiveness specifically in setting resolution and payment and settlement related requirements.
- The FCA and PRA should create scale-up units to expedite regulatory agreement on and authorisation of new products and services for high-growth firms.
While much of the feedback is UK-specific, the report holds experience that is insightful for any jurisdiction. In brief, policymakers must adhere to a mission of supporting innovation, entrepreneurship, and market-driven services. If regulators act only as hammers, looking for a nail, near-term victories may completely undermine the actual reason for their existence.
This is a good report. You may download it here.