Fintech is the technological revolution changing the way we do finance. It is also an outstanding British success story. The UK fintech industry accounts for 11 per cent of the global fintech market and is currently worth £6.6bn to the UK economy. That figure is predicted to rise to an estimated £13.7bn by 2030. Fintech is a remarkable success, but it still has incredible potential.
I believe that the matter of financial inclusion is one of the most important areas that can benefit from fintech’s transformative solutions. Millions of people in the UK today are financially excluded, finding themselves without access to mainstream financial services or forced to pay more – a “poverty premium” – for essential goods and services. This has proven a pernicious problem that has dogged our nation for decades, putting down potential and ruining individual lives. There is a great deal that fintech can do to solve some of the specific problems that contribute to financial exclusion. Whether through alternative credit scoring or helping people manage debt and save more, fintech solutions can enable people to gain a greater grip on their financial lives.
The opportunity is significant for individuals, but also for the state. Fintech offers the potential to save billions for the public purse through digital payments, improved services, and the removal of intermediaries. Imagine a transformed relationship between citizen and state if tax collection is individualised, automated and trusted. Imagine the similarly transformed citizen experience – alongside the economic and social benefits – if welfare payments are distributed in a way that truly empowers and enables. The Covid-19 pandemic has accelerated the impact of technology on so many aspects of our lives, as seen in the dramatic rise in numbers using online banking platforms for the first time – up 11 per cent since last year.
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Another trend impacted by the pandemic is a decline in cash use, although it is important to note that there are significant regional variations. ATM withdrawals are down 90 per cent in London, for example, but just 43 per cent elsewhere. This is important to remember when considering financial exclusion. It is essential that access to cash is retained for those who want, or need, to use it.
There is a lot of government activity around fintech, not least in the slew of recent Treasury consultations, including those on the payments landscape, the future regulatory framework, and the UK regulatory approach to crypto assets and stablecoins. Two key fintech milestones are Ron Kalifa’s recently published Fintech Strategic Review, or the Kalifa Review, and the Financial Services Bill currently making its way through parliament. The Kalifa Review has made a comprehensive set of recommendations, covering policy and regulation, skills, investment, and international and national connectivity. I hope the government will act urgently on these practical proposals to boost jobs, support scale-ups, catalyse inward investment and develop our regional fintech hubs.
The Financial Services Bill provides a timely and welcome opportunity to address many of these issues. I have put forward several amendments, including the addition of a financial inclusion objective to the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC) of the Bank of England. Other amendments deal with specific emerging technologies such as the need for an artificial intelligence (AI) officer, piloting distributed ledger technologies (DLT), central bank digital currencies (CBDCs), and digital infrastructure.
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Another question for serious consideration is distributed digital identity. We need it – as individuals, as SMEs, as corporate entities. We need it and we need it fast. Similarly, standards across fintech, including crypto, are hotly debated globally right now. The UK could lead in this area, innovating, creating and collaborating on new standards while ensuring safety and certainty, and drawing in investment, start-ups and scale-ups into the UK.
I also propose a centre, a taskforce, a rocket at the centre of government to blast forward everything 4IR(Fourth Industrial Revolution) and fintech. It needs to be at the centre, and it needs to reach right across government. Getting stuff done across government departments is notoriously difficult. This is not apportioning blame but an observation of how the system – built in a different time for a different purpose – continues to function. A UK Centre for Applied Innovation in Financial Services could be a centre at the centre, a place where public policy problems can meet respectfully and thoughtfully with private sector potential solutions. This has been echoed in the Kalifa Review.
Last March, when the Covid crisis broke, numerous fintech firms tried to get involved and help, working up solutions in their own time over weekends. Fintech solutions were put forward for the effective, efficient, fraud-free distribution of Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) support, as well as for funds for the self-employed. It was good that Starling Bank got a tiny piece of the action, but disappointing that many others did not and that HMRC was unable to engage with them.
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Now, as a nation, we are facing potentially hundreds of millions of pounds of taxpayers’ cash disappearing into fraudulent claims. Again, fintech could play a role. Several firms have ready-to-go solutions that could be deployed to track back through these transactions, find the fraudulent activity and repatriate those funds to the state for the benefit of us all.
There is so much potential for the use of innovative technologies in financial services. If we get this right, fintech will play a positive role across our economy and society. This industry has to be about enabling, empowering and unleashing individual and business potential across the whole country. We need agility, experimentation, and the championing and unleashing of curious minds.
Chris Holmes, Baron Holmes of Richmond, is vice-chair of the APPG on Fintech.
This article is from an upcoming Spotlight supplement.
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