It has been almost a year since Rishi Sunak announced the launch of an in-depth review of the UK fintech sector, led by then-vice-chairman of WorldPay, Ron Kalifa OBE. What a year it has been, with the economic impact of the coronavirus pandemic and Brexit coming into force. On Friday, the eagerly anticipated report was released, and naturally it’s got the industry talking. But despite all the noise, fintechs have remained quiet. They’ve stepped back, taken a moment to process the outcomes and consider exactly if and how the report will aid their growth. This is what they’re thinking.
Launching a fintech isn’t as easy as simply releasing an app; fintechs are innovating in an extremely complex regulatory environment, and they need to fit in highly interconnected systems, and this can often result in a very long B2B sales cycle. This extended sales cycle can be off putting to VCs, so when one of the most notable report rumours was confirmed, a £1 billion ‘Fintech Growth Fund’ designed to help fintechs with fundamental needs around equity, debt and other funding, it was warmly received. This fund will give fintechs the ability to mitigate the perennial problem – that it takes time to prove worth. A government fund that can take the long view is extremely welcomed and long overdue.
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But as an industry we need more than purely financial incentives; many fintechs were holding out hope that the review would streamline the rocky roads to international scale caused by Brexit. The UK fintech industry is built on diversity and expertise attracting people from across the EU and globally. Despite Brexit, many skilled workers from across the channel still want to base themselves in the UK, and it is crucial that we can access their talent in the future. The report sets out plans to create a new ‘visa stream’ to increase access to global talent. In theory this is great — it opens the tap to maintain the talent funnel. But it also comes with its own complexity, as regulatory tick boxes and lengthy admin will add an unwanted hurdle for fast-paced fintechs.
Talent isn’t the only hurdle Brexit caused; it has made it manifestly more difficult for UK fintechs to access European businesses without having their own European entity. This is not a simple process — it involves hiring more people and proving that you can fit in existing regulatory frameworks. This is often the work of half a year or more, it’s capital intensive, and it’s potentially crippling to fast paced businesses. The review’s solution to this challenge is to launch an international ‘fintech credential portfolio’, aiming to support credibility and increase ease of doing business internationally. This portfolio will include information on identity verification, incumbent partnerships, investors, regulatory compliance and data security. But for disruptors, it would be a shame if the international expansion was hindered by the need for incumbent supporters, the very businesses they’re competing against.
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The UK is in a fortunate position to take existing European regulations and build on them to create a world leading framework, one that allows UK businesses to innovate and create new market segments. The report introduces a ‘Scalebox’, a regulatory sandbox, which in theory will allow fintechs to test, learn and innovate in the regulated market. But the Scalebox on its own won’t solve fintechs’ biggest pain point – the regulatory application – it’s slow, opaque and cumbersome, slamming the breaks on market innovation.
Fintechs have been crying out for a streamlined application process, so it was delightful to see acknowledgement of the shortcomings and room for improvement. But to achieve the report’s top priority, to secure the UK’s position as a leading fintech hub, more needs to be done to make regulations portable internationally and transferable to existing and future markets. Hopefully the report findings will drive change and forge the future of fintechs scalability. If executed correctly this will be the most valuable deliverable born from the report.
The Kalifa Review has been a breath of fresh air for the fintech industry, hopefully enabling fintech to play a key role in driving recovery and growing the economy. It could forge the course to a future where the UK cements its role as the leading fintech hub ahead of challenger nations. But it will only work if disruptors are empowered to disrupt, challengers aren’t stifled by incumbents, and the fiscal gaps are closed between start-up and established. Only time will tell if the impact of the report will be beneficial, but I’m cautiously optimistic.