Strengthening the UK’s position as a global leader in the future of financial services

The Fintech Delivery Panel was established to enhance the UK’s position as a global leader in the future of financial services. Supported by HM Treasury and powered by Tech Nation, the Panel develops collaborative initiatives to strengthen the UK fintech ecosystem, help fintechs achieve scale, and create an innovative environment for further development to the benefit of consumers.

The Fintech Delivery Panel achieves its goals by bringing together stakeholders from across the ecosystem including financial services, fintech, investors, regulators, policymakers and think tanks.

The UK has historically been at the global forefront of financial services, and has a strong record in technological innovation. Driven by a fusion of finance expertise and digital tech transformation, fintech has emerged as a competitive strength for the UK economy. In 2019 UK fintech raised £4bn, making fintech the largest tech sub-sector for investment in the UK, with UK fintechs making up nearly half (44%) of all fintech unicorns (companies valued over $1bn) across Europe.

Today’s fintechs are innovating in everything from open banking to insurtech, regtech, payments and more. Individuals are benefiting from cheaper, faster payments, better money management tools, and flexible insurance policies increasingly tailored to their lifestyles. Businesses are able to manage cash flow more effectively, access alternative finance solutions, and offer a wide range of e-commerce options to their customers.

The COVID-19 pandemic has further accelerated fintech adoption, as a broader group of people than ever before have now taken up the opportunity to use internet-based financial services. Six million people in the UK are estimated to have switched to online banking in spring 2020, and there are now more than two million active users of open banking enabled products every month. Challenger banks and non-bank lenders have played their part alongside  larger financial institutions administering government support schemes.

With the increasing digitalisation of all aspects of the economy, these trends are only set to escalate. We have an opportunity now to cultivate the further growth of this world-renowned sector - securing future investment and jobs within the UK, and evolving financial services to best serve the future needs of individuals and business alike.

The UK government has been a strong advocate for the fintech sector. It has created an environment for fintech to flourish, through an enabling approach to fintech regulation and encouraging a proactive attitude to innovation by the regulators. HM Treasury’s renewed investment in the Fintech Delivery Panel recognises the valuable role that working together across the ecosystem has in strengthening the future of the UK financial services sector, and retaining the UK’s international position as a leading fintech pioneer.

After a period of research and consultation, we have identified five areas for the Fintech Delivery Panel’s initial focus. We aim to drive practical and pragmatic change on these issues, using the expertise and resources of Panel members to address roadblocks and aid tangible opportunities for fintech growth.

In addition, the Panel has been invited to provide a source of knowledge and evidence to help inform UK fintech policy, for example in the recovery from COVID-19 and in response to the UK’s departure from the European Union, as well as on emerging business models and new disruptive technologies.

Alongside the Independent Fintech Strategic Review, being undertaken in the UK throughout 2020 into 2021, the Fintech Delivery Panel will also play a part in furthering priority areas for industry and policymakers to support the ongoing success of the UK fintech sector.

The initial flurry of fintech innovation, often fuelled by founders outside the traditional financial services system, was met with a race by many institutions to design and build new products and processes in-house. However, as the move to incorporate technological advances has matured, the appetite for larger firms to partner with - or purchase from - fintechs has increased. Whilst some fintechs will continue to grow independently, competing as the next generation in global banking or international payments, for others partnerships provide a route to drive positive change within targeted elements of the financial system, be it underpinning new customer solutions or transforming regulatory reporting.

Technology remains the top investment priority for the UK financial services sector as firms seek to drive efficiency, improve customer experience and grow market share in an increasingly competitive environment.

• 88% of senior leaders in financial institutions see technology, automation and digital investments as their top strategic priority for the next 12 months.
• 62% plan to increase investment in technology and core systems.
• 32% will focus on improving their fintech offering, either via acquisitions or partnerships.

Banks are prioritising investments in payments, open banking and APIs, followed closely by QR codes and Pay by URL, data format and analytics as well as digital currencies. This is a welcome development with great potential to drive fintech growth. Larger financial institutions have established customer relationships, scale, funding and regulatory knowledge, whilst fintechs can bring the newest, most innovative ideas, specialised technological expertise and the ability to move at pace.

However there are still barriers and constraints which prevent these relationships from being as productive as possible, and “building partnerships” is a top challenge cited by fintech firms as requiring greater attention. Larger financial institutions risk being perceived by start-ups as inflexible and bureaucratic, while smaller fintechs may be presumed to lack understanding of the regulatory challenges and demands of servicing customers at scale.

The Fintech Delivery Panel has already taken steps to facilitate exactly this kind of collaboration. The Fintech Delivery Panel 1.0 published onboarding guidelines Supporting fintechs in engaging with financial institutions. This aims to improve engagement between the contracting parties and provide advice to fintechs on a wide range of matters from market research to successful pitches.

This was followed in September 2020 with the launch of the Fintech Pledge. This world-first commitment, supported by HM Treasury, puts many of the key principles from the guidance into action publicly and consistently across an increasing number of UK banking institutions.

Financial services is a highly regulated industry due to the important part it plays in the economy and individuals’ lives. This can however make it harder for new B2C entrants as it involves substantial investment ahead of returns from increased customer acquisition and reaching profitability. From a B2B perspective this brings opportunities within areas such as Regtech, which draws on the regulatory expertise across the UK to develop market solutions for both domestic use and for international export.

The UK government, PRA and FCA have endeavoured to adopt a progressive approach to financial services policy and regulation in order to enable and encourage greater levels of fintech innovation. For example in 2013 the UK reviewed the authorisation process for new challenger banks and in 2016 established the regulatory sandbox, an initiative which has now been emulated in many international fintech hubs.

As the sector matures, however, new issues are arising. As fintechs scale they are questioning whether the transition through different regulatory levels is proportionate to their size and risk profile. Open Banking in the UK has rightly been heralded as internationally-leading in the quality of its implementation and increasing levels of adoption, but other jurisdictions may start to leapfrog our ambitions with broader open finance initiatives and greater portability of a wide range of consumer data. To continue to play a leading role in international standard setting, it will also be imperative  that the UK regulatory environment keeps pace with future financial and technological developments, for example related to crypto assets. From a practical perspective, it is also timely to consider how as an ecosystem we might best come together to offer further support and advice to those high-potential firms accepted into the regulatory sandbox.

The Fintech Delivery Panel brings together industry representatives with colleagues from across the FCA and Bank of England to discuss these challenges, and consider how collaborative action can ensure the UK remains the best place in the world to start and scale a fintech.

Whilst the potential outputs of fintech are far-reaching, its effectiveness is often limited by the data that enters the system. Beyond Open Banking, there is a wealth of private and public sector datasets which could be further harnessed if we work collaboratively on the questions which will unleash their potential, ranging from standards and quality to governance and ethics. This will not only incentivise new developments tailored to today’s challenges, but deliver the export products for the markets of tomorrow.

On a macro level there are also significant gains to be made from modernising the UK’s digital infrastructure. The UK has a world-class financial centre, but it has been built on legacy systems, designed at a time when it was more effective for an organisation to own the end-to-end infrastructure. Once a competitive advantage, this has now become a barrier to digital transformation.

Fintech provides the catalyst to change delivery of traditional financial services through the use of cutting-edge technology. This has become even more evident throughout the pandemic as we transition to a new reality of digital dependency, with the heightened cyber risks and vulnerabilities this entails. It has magnified friction across different parts of the financial supply chain and the need to deliver financial services digitally at speed. This brings a renewed impetus to leverage emerging technologies - be it onboarding a customer that you’ve never met in person, or better assessing credit risk in the current economic environment.

The Fintech Delivery Panel will explore the building blocks required to accelerate the next phase of these developments, encouraging the UK to retain its pioneering position at the forefront of international innovation and competitiveness.

There is significant potential for fintech to play an important role in meeting real customer needs through technology, better managing risks and uncertainty, as well as protecting vulnerable customers, often by leveraging data and analytics to unlock new financial insights. This was recognised through an early initiative of Fintech Delivery Panel 1.0, the  nationwide pitch competition “Fintech for All”, which widely profiled over 85 companies that have gone on to serve over 685,000 customers. HM Treasury has also recognised the potential for fintech solutions to serve financial inclusion objectives through its Fintech Challenges on Rent Recognition and Affordable Credit.

Whilst the economic disruption of the Covid pandemic has seen a rise in digital adoption, particularly as many customers see an increased benefit in making use of digital propositions, it has also magnified the importance of serving those who have traditionally been excluded or underserved from the financial system.

The Fintech Delivery Panel will work with partners including HM Treasury to continue to encourage greater integration of financial inclusion features across financial services facilitated by technology, and drive greater awareness of the targeted fintech-enabled solutions available - be it focused on access to affordable credit, improving individuals’ money management, or further supporting vulnerable customers across the many different eventualities where these interventions can make such a difference to people’s everyday lives.

Companies with greater gender and ethnic diversity are more likely to produce products that cater to a more diverse audience, yield higher revenues, be more innovative, and attract better talent. They benefit from a diversity of thinking which is a key catalyst for fueling business growth and creating a fairer society. Yet there remains untapped potential for the UK fintech ecosystem to further encompass a broader range of individuals.

The Rose Review highlighted that overall only 1 in 3 UK entrepreneurs are female. The UK Fintech Census 2019 shows that just 25% of UK Fintechs have at least one female co-founder, and that across the UK fintech workforce roughly 3 in 10 are women. To drive higher proportions of senior female leadership in financial services as a whole we have seen initiatives such as HM Treasury’s Women in Finance Charter, whilst action specifically targeted at fintech includes Innovate Finance’s Women in Fintech Powerlist which shines a light on successful female role models.

When it comes to individuals from diverse ethnic minority backgrounds the statistics suggest even lower levels of representation, with research conducted in early 2020 of eight leading fintechs showing only 9% of directors were from a BAME background. This highlights the significant progress still needed to create an environment where fintech is actively encouraging more ethnically diverse founders and employees across its workforce.

The Fintech Delivery Panel believes further research is necessary to capture and understand the current composition and characteristics of fintech founders and their teams, creating a baseline from which to drive proactive change. The FDP will also provide practical assistance for fintech firms as they consider how best to address this imbalance.

The Fintech Delivery Panel, a shared initiative between the UK government, Tech Nation and key players across the fintech ecosystem, is uniquely positioned to instigate practical change that will help drive the next evolution of UK fintech.

From fintech entrepreneurs scaling unicorns of the future, to financial institutions serving millions of customers every day; from investors supporting the newest innovations to regulators guiding emerging business models, the Fintech Delivery Panel works collaboratively with a targeted work programme addressing key challenges and opportunities facing the sector.

As digitalisation continues to play a key role in financial services, as well as our wider lives and livelihoods, fintech is increasingly an enabler not just of our personal or business finances, but of all levels of economic activity.  In the future, fintech will become synonymous with finance. With the right structures and support, the UK can and will lead the way in developing the innovative, inclusive solutions that power this transformation.