It was from the devastation of the global financial crisis the FinTech revolution emerged. The pandemic will spur a new era of innovation too, and it has the potential to be bigger and even more explosive than the past decade – if we get it right.
Who knew that while we all watched on as queues formed outside Northern Rock, traders left collapsed Lehman Brothers, and banks got bailed out with billions of taxpayer cash, the foundations were being laid.
As the subprime mortgage crisis emerged and toppled the global economy, it is no surprise that the public came to distrust banks and the world of finance.
But out of this nadir opportunity came. The post-crisis environment was unique in its ability to help forge entrepreneurship.
There were the early innovators, the likes of alternative finance pioneers Funding Circle and Zopa, payments firms GoCardless and, 10 years ago, Crowdcube was formed against this post-crisis backdrop.
The wave of digital challenger banks, led by Monzo, Starling and Revolut, followed. It’s hard to think of any facets of the financial world now that have gone untouched by innovation since – from insurance to credit scoring, trade finance to asset management and compliance.
It is not difficult, either, to join the dots from the seeds of distrust sown by the banking crisis and the emergence of Robinhood, cryptocurrencies and the drive behind the WallStreetBets movement.
Just as the financial crisis fueled disruptive innovation, the coronavirus crisis will no doubt do the same. And this time, it promises to be far wider ranging. While the financial crisis fundamentally changed the way we interact with our money, Covid-19 has turned our experience with health, education, the environment and the way we communicate on its head.
The pandemic has served to shine an intensifying spotlight on our relationship with the natural world. We’ve seen momentum continue to build around ESG in the world of finance. In education, the Oak National Academy, created in April last year has delivered 20 million online lessons to children. We’ve created vaccines in a matter of months, not years.
The forces behind the FinTech revolution created the perfect storm of public appetite, technological progress, and policy and regulation.
This time, instead of distrust, public appetite starts from a more positive place. We have supported our community, clapped for the NHS, fought for our kids’ education, and volunteered to give vaccines. Harnessing this goodwill and public empathy is crucial to provide an even stronger springboard for innovation.
Where Britain must not drop the ball is in creating an environment that fosters entrepreneurism and accelerates innovation.
Forward-thinking policy and regulation were instrumental in fuelling the rise of FinTech innovation after the last crisis. The government must, once again, look at the tools and measures it has to hand.
The FCA was handed a unique remit post-crisis with one of its three core aims being to promote effective competition in the interests of consumers. Rather than responding with reactionary overregulation, this progressive approach demonstrates the right mindset for encouraging innovation.
There are a number of ways we must help create a generous environment for startups to succeed.
Rumours of tax rises have hit fever-pitch with the Budget just a few days away. Doing so would discourage new business creation. As The Institute of Directors has already warned that rises would be a disaster for entrepreneurs.
Proposed changes to Capital Gains Tax reportedly being considered by Chancellor Rishi Sunak would see entrepreneurs paying more tax when selling a company or shares.
A survey by Beauhurst of more than 500 entrepreneurs, investors and advisors found 85% of founders would consider moving their company abroad if this went ahead. A similar number said they would be less motivated to build a large scale business, while more than two-thirds of investors would be less likely to invest in the UK.
This would be catastrophic for not only founders and investors, but the wider economy too, with a knock-on effect on jobs.
Let’s not forget the tech industry employs nearly 3m people and despite the pandemic, experienced a 40% increase in advertised roles. Digital secretary Oliver Dowden hailed these figures as a demonstration of “the strength and depth of our tech sector as an engine of job creation kickstarting our economy as we emerge from the pandemic”.
It would also be foolish, at such a crucial time, to take away tax incentives which are designed to support new business and fuel economic growth – and which have a proven track record of doing just that.
Why should these schemes like EIS, SEIS and R&D tax credits, not simply be expanded, having proved their success? We back the IOD’s calls for SEIS to be at least doubled, and for EIS to be made more generous.
We should be encouraging, incentivising and rewarding entrepreneurs for setting up new companies. We have already seen the effective loss of entrepreneurs’ relief, and we cannot afford to see anything similar happen again.
The government must provide the right environment to ensure a similar boom in investment for these businesses – not just for entrepreneurs, but for the wider economy, at a moment when fresh fuel for economic growth is needed.
At a time of often unspeakable horror, we must now look for the rays of hope from which we can create a better future.