In 2019, UK fintech had a bumper year in terms of investment. Japanese conglomerate Softbank poured $1.5bn of venture capital into supply chain financer Greensill Capital, making up a quarter of all investment into the sector that year. Fast-forward to March 2021 and Greensill has gone from tech unicorn status to filing for administration and being at the centre of a lobbying row involving former prime minister David Cameron, who was an advisor to the company.
Greensill Capital was formerly considered one of the leading fintechs in Europe, emphasising cutting-edge software to facilitate supply chain financing, and developing its own tech. It became an international success story, a jewel in the crown of UK fintech. With customers around the world, the impact of its collapse has been felt globally.
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It has embroiled Softbank and Credit Suisse, through which Greensill sold funds comprising supplier invoices that the company had turned into short-term assets for investment. And it has endangered thousands of jobs in companies that used the firm’s services.
The company’s failure has less to do with financial technology than with its attempts at fast growth. Its unravelling reportedly began with a lapsed insurance policy that led to Credit Suisse freezing funds put together by the firm. And its story is a reminder – lest we need it following the 2008 global financial crisis – not only of the importance of regulation, but also of the fact that fintech is integral to the UK’s financial services sector. As such, it represents both the potential of great rewards for the economy, but also of great risk.
The government clearly recognises this potential, commissioning an independent review into the sector, published this year. The review made the case for filling the growth capital gap for fintechs, so that the UK can remain competitive. It also recommended policy and regulation to evolve alongside consolidation in the sector.
Encouraging high growth in such a vital underpinning of our economy should not come at the expense of regulation that guards against recklessness. As Ron Kalifa, the report’s author, told Spotlight, fintech needs to be understood as “part and parcel of financial services, and part and parcel of banking”.
This article originally appeared in the Spotlight supplement on fintech. You can download the full edition here.