The global market in fintech is forecast to be worth £380bn in revenue by 2030. If the UK maintains the same level of global market share as today, it would account for £38bn of this forecast. Threats abound, however, as competition to aboard the fintech global 'winners’ podium' is rapidly increasing, and this threat comes not only from recognised fintech leaders such as the US and Singapore but also from the Netherlands, Sweden and Ireland.
The Kalifa Review (the 'Review') highlights the need to address both inbound investment and outbound trade and growth, positioning the UK as an attractive place for global fintechs and reducing the friction UK fintechs experience when attempting to scale their businesses internationally.
While 41 per cent of UK-headquartered fintechs have operations outside the UK and so there is a level of experience in executing international expansion projects and overcoming physical, regulatory and commercial barriers, the Review highlights concerns about the ease of fintechs accessing and competing on the international stage. Specific concerns included the loss of passporting rights for financial services throughout the EU, limitations on access to talent, affordability and the general business environment. While this article looks at the international perspective of the UK’s fintech industry, see our previous articles covering Policy & Regulation, Skills and Talent and Investment on the specific recommendations in these areas.
For the UK to remain competitive internationally, the Review sets out three broad recommendations:
- Fintech International Action Plan 2.0
- Setting the purpose of the Centre for Finance, Innovation and Technology’s (CFIT) international agenda to increasing the global scale and impact of UK fintech
- Launching an International Fintech Credential Portfolio (FCP) to support international credibility and increase ease of doing business
1. Fintech International Action Plan 2.0
The recommendations:
- Launching an international fintech portal which includes metrics illustrating the landscape of the market, contact information for local regulators, fintechs and professional advisors, key local regulatory and operational requirements, and details of financial support and grants available.
- Creating a collaboration hub for international fintechs to identify partnership opportunities which includes webinar sessions from local professional services firms and chat facilities.
- Strengthening the concierge service for fintechs available in high priority markets such as the US, Singapore and Australia and enhancing existing 'Fintech Bridges'.
- Aligning strengths in the UK fintech market with Trade Agreements and identifying opportunities in growth markets such as India, Sub-Saharan Africa and China.
- Increasing promotion of the UK as a country of choice including by establishing a database of potential investors for fintechs both coming to, and expanding out of the UK.
- Launching an international fintech brand strategy led by the Department for International Trade (DIT) and industry.
Our thoughts:
- The Review cites that easier access is required to the latest information and targeted support on legal and regulatory requirements, market navigation, local and cultural support and recruitment. As one of the authors of this article has been in the hot seat in terms of looking to drive forward international expansion by UK-headquartered fintechs, there is full agreement with this observation! Information and support is available, but it is obtained (even created) on an individual basis, and so is expensive and time consuming. As such, it is only realistically available to well-funded and well-resourced fintechs. The concept of a portal in this context makes sense provided it offers a level and quality of information that enables decision-making and project execution.
- The Review highlights London’s strengths in attracting investment with the average early-stage funding per start-up at $486k (the global average is $284k) and £2.7bn+ of fintech VC investment raised in the capital. London is certainly leading the charge for UK fintech in terms of numbers, and is understandably an easy and useful signpost when promoting the UK fintech market internationally. Off the back of the Review, however, there is the opportunity (in fact, imperative) to develop existing strengths elsewhere in the UK and continue the 'levelling-up' agenda – for example, in the Bristol and Bath fintech cluster and the Scotland fintech cluster.
- Encouraging the liberalisation of financial markets overseas (at least to the extent to readily permit UK firms to establish and operate on an equal footing with their domestic industry) should be an important feature of economic diplomacy going forwards.
2. Increasing the global scale and impact of UK fintech through CFIT’s international agenda
The recommendations:
- Positioning CFIT to play a critical role in coordinating and connecting all players involved in driving international fintech growth, mandated by the International Action Plan.
- Creating the International Fintech Taskforce, sponsored by DIT, to drive collaboration to help UK and overseas fintechs grow and to attract more inward investment.
Our thoughts:
- Anticipated activities for the Taskforce include monitoring progress of the International Action Plan, acting as a social media amplifier and highlighting areas in which to develop the fintech ecosystem in the UK and abroad. The industry collaboration described here, and the utilisation of the public-private partnership model, is key to ensuring successful achievement of the international agenda. For international peers, a well-regarded strength of the UK market is the close collaboration between policymakers and regulators on one hand, and industry on the other. This point of historic differentiation is being utilised to effect in other countries and UK collaboration must be maintained and strengthened where possible.
3. Launching an International FCP
The recommendations:
- Launching an international FCP that will provide access to credentials such as identity verification, regulatory compliance and evidence of partnerships with financial incumbents, acting as a sign of quality and standing to participants in international markets and mitigating barriers to entry.
- Leveraging existing standards where they exist to establish a range of pre-defined metrics to appeal to customers, suppliers, partners, regulators and investors.
- Appointing a private sector partner to construct and implement the International FCP possibly delivered through APIs sharing credentials digitally.
Our thoughts:
- In our first Kalifa Review article, we noted the ambitious nature of the recommendations proposed in the Review. Creating an International FCP is certainly no exception. The recommendation provides further examples of the types of existing accreditations that can be utilised relevant to each market participant. This ‘one-stop shop’ of regulatory and market due diligence could have a dramatic impact on the fintech market. Though fintech has made impressive strides in moving towards the mainstream, both uptake and development have previously suffered as a result of distrust and a lack of transparency / regulatory oversight. Integrating trust into the market through a third-party, government endorsed, digital system of compliance verification could improve the levels of partnership opportunities and customer adoption both within the UK and cross-border. It could also encourage calls for the development of regulatory frameworks on the part of market participants who want to showcase legitimacy in their business models, which in turn could help bring new technologies that regulators have so far approached with caution into mainstream use.
As scale and international growth are so heavily interlinked for fintech businesses, the government’s approach to reducing cross-border friction generally – in doing so helping UK fintechs expand overseas and maintaining the UK’s attractiveness for international firms to expand services and even headquarter here – will be really important. If adopted by the government, the alignment of fintech needs with trade policy, and the emphasis on practical and readily-executable tools and mechanisms for fintechs, seem a good step forwards.
Continuing our Kalifa Review series, our next and final article will examine the Review’s findings on ‘National Connectivity’.
This article was written by Martin Cook and Brandon Wong, both members of Burges Salmon’s fintech practice.
If you have any questions or would otherwise like to discuss any issue raised in this article, then please speak to your usual contact or Martin Cook.