In 1649, Great Britain was the first country to issue permanent banknotes which according to the current Chancellor of the Exchequer Philip Hammond, makes the Bank of England “the original fintech unicorn”.
It’s a line that got a ripple of laughter at the International Fintech Conference in London this week, but underlying the event were some big questions about the UK’s future as a fintech leader. The long shadow of Brexit hung over the conference, with other European nations having made no secret of their ambitions to steal away London’s status as the financial center of Europe.
With those ambitions around financial services, a major sticking point in Brexit negotiations between the UK and the EU to date, goes the emerging fintech sector, for which, said the UK’s top finance minister, Britain can claim to be the “global capital”.
He reeled off stats to back up his claim:
- Fintech contributes nearly $7 billion to the UK economy each year.
- The sector employs over 60,000 people across 1,600 companies.
- London is home to 17 of the top 50 international fintech firms.
- Last year investment in UK fintech more than doubled as UK firms attracted almost four times more funding than Germany and more than France, Ireland and Sweden combined.
As examples of such investment, Hammond pointed to:
- Citi choosing London as the destination for their next Innovation Lab.
- NatWest launching new fintech accelerators in London, Edinburgh, Bristol and Manchester.
- Level 39 expanding into a 100,000 square foot building in Canary Wharf, making it one of the largest fintech hubs in the world.
- Augmentum creating a £100 million fund for fintech investment, here in the UK.
- Estonia’s LHV Bank opening a UK branch to serve the fintech industry.
The UK is, argued Hammond, also a place for entrepreneurs in this field to thrive. He cited the example of Ismail Ahmed., who was born in Somalia and whose family fled to the UK as refugees from civil war. Ahmed used to send money home to family using money transfer agents, paying large fees to do so. As Hammond told the tale:
During this time, Ismail thought a lot about money transfer systems and how to make payments cheaper and more efficient. And in 2010, he founded a little company you may have heard of, called WorldRemit. From its base here in London, WorldRemit raised $220 million from investors to make sending money abroad as easy as sending an instant message. Today, millions of people use WorldRemit to transfer money quickly and affordably in more than 140 countries – and Ismail is one of the world’s leading fintech entrepreneurs.
All that being so, the big trick now is how to keep up such momentum whatever the outcome of Brexit. The answer to that, according to the UK Government, will come through the Fintech Sector Strategy which Hammond launched at the conference. The main elements are:
- A Crypto-assets Task Force consisting of HM Treasury, the Bank of England, and the Financial Conduct Authority, intended to put the UK at the forefront of harnessing the potential benefits of the underlying technology, while guarding against potential risks .
- ‘Robo-regulation’ pilot schemes to help new fintech firms, and the financial services industry more widely, comply with regulations by building software which would automatically ensure they follow the rules, saving them time and money .
- Appointing three new Fintech Regional Envoys to ensure the benefits of fintech are felt across the UK.
Creating a set of industry standards which will enable fintech firms to more easily partner with existing banks .
- Helping new, small fintech firms to provide complex financial services and thereby grow their businesses and reach new customers. Industry and government will work together to create ‘shared platforms’ which will help remove the barriers that these firms face in setting up new systems .
- A Connect with Work program developed by the government’s Fintech Delivery Panel to help fintech firms to take advantage of the UK’s diverse workforce
With a post-Brexit Britain looking to build trading links of its own, there’s also a move towards greater global partnerships in the form of a new Fintech Bridge agreement with Australia.
This is intended to open up the market for UK fintech firms wanting to expand internationally by selling their products and services in Australia. It will also help the two countries to harmonise policies across a range of issues relevant to fintech, and increase regulatory co-operation. Hammond said:
Before today we had signed four Fintech Bridges with Singapore, China, Korea, and Hong Kong committing governments and regulators to collaborate on supporting growth and investment in fintech across markets. This is our most ambitious collaboration to date, bringing together regulators, policy-makers and private sector leaders to collaborate on growing our respective fintech markets in tandem.
As for the post-Brexit prospects, Hammond said that the new strategy would support making the UK an attractive prospect:
It is about championing the UK’s position as a pro-business, pro-innovation environment about making it easier for knowledge intensive scale-up businesses to raise the funding they need. In short, about creating the best possible ecosystem for Fintech to thrive.
As part of our plan to get the best Brexit deal for jobs, business and prosperity, we are discussing with the EU our future relationship with the European Investment Bank and European Investment Fund (EIF). We will keep the financing needs of high growth businesses under continuous review as we leave the EU, and if necessary, we will use the British Business Bank to provide an alternative to the EIF.
He concluded with a rallying cry:
Britain is, and will remain, a great place to do business. It is the global capital for Finance, Fintech, and a major hub of Fourth Industrial Revolution technologies. My priority as Chancellor is to go on pushing us to do even better. We will go on creating the conditions and providing the resources that have allowed pioneers from Charles Babbage to Ismail Ahmed to succeed.
Because fintech offers the chance to connect the world to deliver financial services and innovations that can drive widespread growth and prosperity, create millions of jobs, and build stronger, fairer, faster financial services that serve the common interests of all the peoples of this inter-connected planet.
The sentiment is well-intended and the formal strategy rollout is a welcome development, albeit one that’s likely to be a work-in-progress. That said, the determination by some EU nations, most notably France, to take advantage of Brexit to strip away at London’s financial services center cannot be underestimated. How far the UK Government is ready to go to hold its own remains to be seen - as does how appealing the fintech strategies of other nations will be made. There's a lot at stake here.