The independent review of the UK’s financial technology (FinTech) sector was finally published last week, and the industry has been swift to comment on the recommendations.
- A new FinTech scale-up visa stream for specialist firms
- A ‘scale box’ to provide regulatory support for growing companies
- A £1 billion-pound FinTech fund to help startups grow
- The establishment of a private sector-led Centre for Finance, Innovation, and Technology to support national coordination and growth in FinTech
- Changes to UK listings rules, including dual class shares.
The government is studying the report and will respond in due course. However, Chancellor Rishi Sunak signalled his support, saying, “This review will make an important contribution to our plan to retain the UK’s FinTech crown, create more skilled jobs, and deliver better financial services for people and businesses.”
The FinTech Strategic Review, by Network International chair (and former CEO of Worldpay) Ron Kalifa, OBE, maps out a plan to “put the UK at the top of the global FinTech league”, according to the government – which has long claimed Britain is already in a leadership position.
The reality is that the US now dominates the market, with 54 percent of the world’s top 250 FinTech companies, according to analyst firm CBInsights last year, and multimillion-dollar startups across 43 US states (86 percent of the country).
By contrast the UK, currently runner-up in this space, has an industry that is often focused in the City, which is facing growing post-Brexit competition from Frankfurt, Amsterdam, and Paris. However, the Review highlights other talent hotspots in the country for FinTech innovation.
Overall, the UK retains more than 10 percent of a fast-consolidating global market, generating an estimated £11 billion a year for the economy. In 2020, investments into UK FinTechs totalled $4.1 billion – more than the next four European countries combined.
It is unclear what long-term impact Brexit may have on that picture, with Amsterdam in particular already benefiting from falling confidence in London (as previously reported).
With his Budget in the offing, Sunak has been clear about his ambitions for FinTech, describing it as “one of the UK’s great success stories [that] will help us seize new opportunities around the world.
“We must now build on our global reputation for fostering innovative start-ups and ensure firms can access the talent, finance, and support they need to scale up here in the UK,” he said last week.
The Review’s author Kalifa said, “FinTech has the power to change lives, both in terms of job creation and better wages that are so essential to our recovery; and making financial services more accessible and relevant to people’s lives.
“Britain has a proud record of starting-up and scaling-up some of the best known FinTech products, but we cannot rest on our laurels. The next powerhouses will not be created by accident.
“We must continue to nurture our start-up culture, but crucially we must also give our high growth firms the support to become global giants.”
Industry figures have welcomed the Review. Catherine McGuinness, Policy Chair of the City of London Corporation, said, “This is a pivotal moment for the UK. There are significant opportunities offered by FinTech – an area in which London already has unmatched global appeal.
“But for the UK to retain its position as world leader and continue to attract investment into the sector, it is vital to offer an environment which supports innovation. The Kalifa Review offers a roadmap to achieving this.
“We welcome the review’s recommendations, including its call to maintain access to the global talent that is so essential to FinTech’s success in the UK, and urge government to support its recommendations and help turbocharge this vibrant sector.”
Innovate Finance CEO Charlotte Crosswell, said, “This is a vital intervention that has the potential to set the strategic direction of UK FinTech for decades to come. The sector has seen incredible growth, and FinTech firms across the UK are ambitious in building, developing, and scaling their businesses.
“The way that consumers and businesses are interfacing with financial services is rapidly evolving. We must respond to this changing dynamic and ensure we look to the FinTech sector to advance these solutions.”
Guillaume Pousaz, Checkout.com founder and CEO, said, “I founded Checkout.com in the UK a decade ago because of its forward-thinking approach to financial technology.
“The FinTech Strategic Review sets out a clear vision to keep the UK at the forefront of global FinTech, and support the recovery by embracing the digital economy.”
Wise CEO Kristo Käärmann added, “It’s great to see the Treasury seeking to support and improve the UK’s position on the world stage as a growth platform for tech companies in financial services.
“This review, is a brilliant opportunity to keep modernising the regulatory environment.”
Monzo CEO TS Anil said, “At Monzo, we are proud to be part of an industry that is always working to change finance for the better and give consumers more options.
“It is why we are supportive of these recommendations, which would help the next generation of financial technology companies get off the ground, while enabling established companies, like Monzo, to take it to the next level.”
David Nicol, CEO of LedgerEdge added, “We are happy to see this call to accelerate investment and create a vibrant ecosystem for UK FinTech startups.
“There’s a global arms race for talent and money in FinTech, and we welcome the UK’s response to the challenge of providing a thriving environment for our exciting sector.”
However, SFC Capital founder and CEO Stephen Page offered more cautious and critical support, saying, “We need long-term thinking, not short-term support for perceived quick wins.
“As an early investor in Onfido, I hope to see the £1 billion FinTech Growth fund proposed in the Kalifa report supporting the truly early-stage startups. We don’t need another Future Fund for companies that have already secured venture capital funding, which excluded the 99 per cent of ‘true’ startups that are still pre-VC.”
On the proposed tax incentive schemes, Page added, “I believe there’s a further step to be made in simplifying the rules around EIS, which in turn could help unlock huge amounts of potential investment in high-growth companies.
“These changes should include an increase to the limit for the Seed investment stage (SIES) from £150,000 to £250,000, and to change the current restrictions on businesses using the EIS and SEIS schemes from ‘the age of the business’ to ‘the size of the business’.”
Ian Connatty, MD of British Patient Capital, was more upbeat, saying, “Institutional investors are increasingly aware of the opportunities in later-stage UK FinTech.
“As the largest domestic LP investor in UK venture and venture growth funds, we have deployed over £1 billion since our inception in 2018 and, while we are sector agnostic, a significant portion of our underlying portfolio companies are FinTechs.
“A trend common to all tech scale-ups is that these companies are remaining private for longer. One way for institutional investors to gain exposure to these companies, capturing the value created as they rapidly grow, is through venture growth funds. It’s a huge opportunity.”