UK FinTech ‘under threat’ from overseas competition, review finds

The path of UK FinTech is at crossroads of “opportunity and risk,” with competition from overseas and Brexit fallout threatening its leading position in the market, a government-commissioned review has found.

The independent review, led by former Worldpay boss Ron Kalifa, said that countries such as Singapore, Australia, and Canada are trying to “emulate the UK’s success” by investing heavily in capital, skills, and direct support for FinTechs.

Kalifa’s review also found that because the pandemic has accelerated digital adoption across the world, it has created “opportunities for jurisdictions that are quickest to diagnose what’s happening” and “nimblest to capitalise on the opportunities for FinTech.”

Brexit has been identified as another a threat to the UK’s position in the market, with Britain’s exit from the EU creating “regulatory uncertainty in specific areas relevant to FinTech.”

The document said companies must navigate immigration for European Union talent for the first time, whilst “rival jurisdictions are rolling out aggressive attempts to lure talent in.”

The new report outlined a number of recommendations as part of a five-point-plan to ensure the UK continues to progress as a leader in the market.

It advised the creation of a new FinTech scale up visa route for specialists from around the world. Earlier this week, chancellor Rishi Sunak announced plans to introduce new fast-track visas for FinTech employees in the next budget on 3 March.

The review also recommended implementing a ‘scale box’ to provide regulatory support for growing firms and improving UK listings rules with free float reduction and dual class shares.

The analysis also called for a £1 billion FinTech ‘growth fund’ to help firms grow independently and the establishment of a private sector-led Centre for Finance, Innovation and Technology.

Retraining and upskilling adults by delivering access to short courses from education providers at a low cost, was another suggestion.

“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,” said Kalifa, who led the report. “The next powerhouses will not be created by accident."

He added: “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.”

The former Worldpay chief exec said that with the right reforms encouraging entrepreneurialism and investment which make it easy to attract and invest in talent, Britain can “usher in a period of dominance” that can help the UK recover from Covid-19.

“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,” said Rishi Sunak, chancellor of the exchequer. “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.”

Industry reaction

Nik Storonsky, founder of British FinTech Revolut, said that is essential to preserve the UK’s position as the “first choice” to launch and grow a FinTech company.

"I welcome the Kalifa Review and the Government's commitment to ensuring that the UK remains a world leader in innovation and growth," said Storonsky. “As Revolut's founder I know the importance of the UK's commitment to innovation and to being the best place to start and scale a FinTech. I hope the review gives us the pathway to ensuring that the UK retains this leadership."

Catherine Birkett, chief financial officer at global FinTech for recurring payments GoCardless commented on the review: “Brexit - and the uncertainty it has brought - has placed enormous pressure on all businesses. Access to talent, the validity of EU regulations in the UK and maintaining London’s position as the world’s epicentre for FinTech have all been heavily debated for years. FinTechs in particular have been left in the dark about what their future looks like without the EU. It’s refreshing to see the government and industry coming together with the Kalifa Review, to address these concerns and protect and support such a vibrant sector that helps to drive the success of UK business.”

She said that recommendations to boost national connectivity and grow FinTech outside of London are “critically important,” and described the introduction of a new visa stream as an “invaluable step” towards protecting a strong talent pool.

“The review provides crucial steps to demonstrating how the UK can continue to lead the FinTech revolution,” said chief executive of TransferGo, Daumantas Dvilinskas. “Like so many others we have chosen the UK as a base because we believe it has the talent, infrastructure and policies that will help FinTechs thrive and build an inclusive community that equally supports businesses and the customers they serve.”

Simon Cureton, chief executive of Funding Options, said that the review is a “good first step” to reflect on developments in the sector.

“Despite the UK’s rise in FinTech being feted in the wake of the last financial crisis, these businesses were left on the bench as the impact of COVID-19 began to be felt,” said Cureton. "The pandemic proved to be a catalyst for driving change and repairing the fissures that formed so quickly last year.

He added: “Whilst the report’s focus is to create thousands of jobs that support the levelling up agenda, we need to first address a mindset that could once again stifle the industry’s ingenuity. Faced with a crisis, it’s human instinct to revert to type and adopt a risk-averse approach. Whilst talent and investment are key components to driving growth, it’s time to put faith in those who are at the vanguard of this revolution. FinTech has rapidly achieved maturity and should no longer be viewed as a “cool kid” on the block.”

Oliver Prill, chief executive at business current account provider Tide, said that support for UK FinTechs scaling internationally is of particular importance.

“With Tide beginning our journey in the India market and ambitions to scale beyond that in the long-term, we see that the introduction of a Fintech Credential Portfolio to support the credibility of UK Fintechs internationally has the scope to ease market entry significantly,” said Prill. “We hope these recommendations are taken on board by Government and that FinTech can play a key part in post-Brexit trade negotiations.”

Virraj Jatania, founder of Pockit, said that entrepreuners across the UK FinTech sector would “welcome the report with open arms”

“These ideas and initiatives can breathe new life into our industry. They can set the scene for accelerated growth, keep businesses based in the UK, create new jobs and help people develop specialist skills,” said Jatania. “The FinTech sector is a key growth engine of the UK economy, and can be a centrepiece of our Covid-19 recovery. But for the sector to achieve its potential we need to roll out the welcome mat to fintech talent from across the globe and to improve access to investment. This needs to happen now. Today’s proposals must not become lodged in the machinery of government."

Louise Brett, head of FinTech at Deloitte, said: “Today marks the UK FinTech sector’s ‘Big Bang’ moment, setting out a strategy that will accelerate growth over the next three years and be an enabler for post-pandemic recovery. FinTech is providing opportunities for levelling up, not only regionally but also across society."

The number of UK FinTechs has doubled since 2014, to c.2,500, with an annualised growth rate of 16 per cent over the past decade.

Deloitte’s analysis suggests that the UK FinTech sector could employ a further 50,000 people over the next three years, with potential economic uplift of up to £3bn over the same period.

Brett added: “Today’s review reveals that across the UK, embracing London’s super hub status, the whole of the country is bursting with FinTech activity. With a third of all FinTechs now sitting outside of London, providing the right support to enable regional clusters to thrive is vital. This is best achieved through collaboration, access to information, investment, skills and talent, and policy and regulation expertise.”

Jill Docherty from Visa said: "The UK is a leader in payments innovation and enabling FinTech disruption more broadly – and this review underlines the UK’s commitment to maintain this position.

She added: “We will continue to champion British FinTechs and look forward to working closely with the government and the sector to ensure they continue to thrive. Together, we will deliver the innovations that will make it easier for consumers and businesses to manage and move their money.”

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