Why is the United Kingdom a central hub for the Fintech Market?

By Megan MacDougall 

Earlier this year, The Guardian reported on data published by KPMG showing “Investment in financial tech firms in the UK grew sevenfold last year to $37.3bn (£27.5bn).” An impressive figure – which, as reported, is more than the Middle East and Africa (EMEA) and the rest of Europe combined. So, what has made the UK a hotspot for the Fintech market? 

The digital transformation of the finance sector has grown exponentially in the UK over the last decade. And the forward thinking of financial regulators such as the Financial Conduct Authority (FCA) has largely supported innovation in Fintech across the financial market. Since the mid-2010s, the FCA’s regulatory ‘sandbox’ has allowed businesses to test propositions in the market with real consumers. The world leading approach opened the door for a host of sectors within the financial services markets, and similar initiatives have been replicated by the Bank of England, the oldest central bank in the world. 

Yet a defining moment in the advancement and understanding of Fintech in the UK came in February 2021, when Ron Kalifa OBE published an independent report on the UK Fintech sector. Commissioned by HM Treasury and known as the ‘Kalifa Review’ the report highlighted the “opportunity to create highly skilled jobs across the UK, boost trade, and extend the UK’s competitive edge over other leading fintech hubs.” Noting the trajectory of the Fintech revolution in the UK, the Kalifa review set out a future strategy to consolidate, strengthen and grow the success. The recommendations were categorised into a five-point plan covering, policy and regulation, skills, investment, and international and national connectivity. Yet it also warned of future risks; competition, Brexit, and Covid-19. And as many nations worldwide have enforced financial sanctions on Russia following its invasion of Ukraine, another unforeseen risk may soon be on the horizon of the fintech industry.

Despite the risk of inertia, the Government has taken steps to address the Kalifa review. HM Treasury set out ‘A new chapter for financial services’ in July last year, recognising the UK’s role as a global financial hub, and Fintech’s influence as a crucial part. And, at the 2021 Spending Review, Chancellor of the Exchequer Rishi Sunak confirmed £5 million of seed funding was to be attributed to one of the report's key international recommendations - to drive collaboration through the Centre for Finance, Innovation and Technology, to strengthen coordination and boost growth. And HM Treasury’s Financial Inclusion report released in December 2021 reiterated the importance of Fintech in the financial inclusion agenda. 

It has now been just over a year since the landmark Kalifa review, and industry views of the progress that has been made are largely supportive. In late February, Innovate Finance published an open letter from over seventy Fintech founders. Whilst it notes that good progress has been made by the Government, “rather than resting on our laurels, it is imperative that we continue to build on this momentum and work together to establish an environment in the UK that is even more supportive of and conducive to innovation in financial services.” 

Yet momentum has not completely dissipated. FinTech Scotland, an independent body that was established by universities, the Scottish Government, and the financial services sector – released its innovation roadmap for 2022-31 in March this year. Its ambition – to create 30,000 extra jobs in Scotland, and to increase economic value by more than 330%. Kalifa notes “I believe that this Roadmap can act as a stimulus for purposeful collaboration in UK wide FinTech.”  And late last month, Fintech NI hosted Northern Ireland's first Fintech symposium. Andrew Jenkins, Northern Irelands Fintech envoy added on Twitter “this will unite the local ecosystem, with UK Fintech leader to celebrate the strength vibrancy and potential of Fintech in NI.” And this trajectory is building momentum. This week, John Glen – Economic Secretary to the Treasury delivered his keynote speech at the Innovate Finance Global Summit, as part of Fintech Week 2022. Glen announced that the Government will move to see stablecoins recognised as a valid form of payment. The announcement doubles down the Government’s commitment to the furtherment of Fintech in the financial inclusion agenda.

Collaboration is a vital tenant of the Kalifa Review. And looking forward a synthesised approach is vital for the industry to continue to flourish. Whilst nations across the UK are paving their own roadmaps to support innovation in the sector, there lies an opportunity for regulators and the Government to create robust frameworks, which can crucially regulate and nurture innovation in the Fintech sector. And, as Joanne Dewar, CEO of Global Processing Services says “Many international governments have read the Kalifa Review and rightly view it as a powerful blueprint for the future of FinTech. The challenge for Britain is that some governments appear to be adopting its recommendations faster.”

Whilst businesses, regulators and Government have continued to innovate to keep abreast of encroaching threats to the UK’s Fintech hub, there is still a way to go before the full potential of Ron Kalifa’s recommendations can be recognised.  

Meg MacDougall is an Account Manager at Atticus Communications. 

She works across corporate, technology and third sector clients, delivering campaigns covering government relations, public policy, and strategic communications. She can be contacted at mmacdougall@atticuscomms.com.

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