Fintech is a buzzword that often peppers conversations about the future of the City. But outside of financial circles, is it a term that everyone recognises?
Earlier this year I went to Rayner Stephens High School, a secondary school in my constituency, to give students an introduction on this rapidly growing sector. Sure enough, few of them were familiar with the term. When we explained to them that it meant financial technology, they weren’t much the wiser. But for a generation that has grown up with technology as second nature, fintech holds a magnitude of opportunities, both for their careers and for transforming their financial lives.
The visit was part of the Fintech for Schools campaign, led by trade body Innovate Finance, which is designed to encourage young people to understand the increasing importance of digital skills in the workplace. It explores how young people will increasingly use fintech across their personal lives and how they can work in the sector as part of their professional lives. Crucially, it introduces them to people who have already set up and run their own fintech businesses. It’s a great programme but the visit in my constituency was the first to a school outside of London. I want more colleagues to get involved in spreading awareness of fintech around all parts of the UK.
It was fascinating to see the sector through the eyes of younger people and learn how their upbringing with technology has shaped the way they view innovation. It reinforced my belief that educating the next generation about fintech and the opportunities it holds for them will be fundamental to the future success of the UK as a fintech hub.
Our departure from the European Union poses several challenges for the competitiveness of UK financial services in the future. Fintech has been a leading light in attracting companies to the UK. But to continue to thrive it will need as broad a pool of talent as possible to draw upon. Even after three years of Brexit negotiations, we still do not know how easy it will be to access talent from around the world once we leave. It is a sad truth that the current uncertainty, and some of the underlying sentiments behind Brexit, strongly risk discouraging the talent we need from around the world to come here.
A report produced by Innovate Finance in 2018 found that fintech firms do rely substantially on importing overseas talent, although this is as a complement to UK workers rather than a substitution. Fifty-four per cent of companies they surveyed said EEA migrants were important to founding their business. We know it is highly likely these workers will face much greater barriers to entering the UK in future compared to the situation we have now with freedom of movement. We must, therefore, look to develop a much broader domestic base of skilled individuals, to guarantee a pipeline of skilled individuals who can contribute to the sector into the future.
To be successful, that talent must be drawn from as broad and deep a pool as possible. This means individuals from every background and from all parts of the UK. There is now a solid body of evidence which shows that diverse companies perform better. If companies cannot reflect their customer base, it will only put limits on their potential for success.
New technology brings with it unprecedented opportunities to broaden access to financial services for those who have historically been excluded. I meet companies all the time who are passionate about how their innovations can help tackle social issues. This is an area where fintech could make a huge difference to the public perception of financial services in the UK – solving historic problems and giving people more control over the financial lives.
For example, technology has enabled the creation of tools like automatic safety nets which can be triggered to prevent unauthorised overdrafts. There are ambitious start-ups which allow people to safely open bank accounts who may otherwise have been shut out of banking altogether due to lack of the right credentials.
Advanced data sharing and analysis allows for a better understanding of who customers are and we can use this information in inventive ways. Experian, for example, has partnered with Big Issue Invest, the social investment arm of The Big Issue Group, to create the Rental Exchange initiative. It observes rental payment data in the same way as mortgage payment data, aiming to tackle the financial exclusion renters face compared to homeowners.
When we look at the retail energy market, for instance, we can see that in some areas technology has effectively produced a two-tier consumer market, where savvy hyper-switchers get great deals, effectively subsided by another group of people who are unwilling to engage with the market. It’s very important fintech does not fall into the same trap for financial services, and the signs here are positive.
This is why programmes like Fintech for Schools are so important. As fintech continues to grow and succeed in the UK, we must continue to champion the sector and ensure it fulfils its potential.
Jonathan Reynolds is Shadow Economic Secretary to the Treasury.