The UK is one of the world’s great fintech success stories. 42 fintech unicorns are headquartered in the UK and fintech investment is soaring to $9.1bn – a 24 percent year-on-year increase from the first half of 2021. This represents more than the rest of Europe combined. The UK also has one of the largest fintech adoption rates – with 71 percent of the population now using a fintech company or product.
The UK fintech proposition not only offers access to capital, but world-class talent and a forward-thinking approach to regulation. The country is a natural hub for creating and growing world-class fintechs, but its European counterparts are fast closing in.
Take open banking as an example. As our annual European Open Banking League Table shows, the UK has retained its position at the top of the leaderboard for open banking maturity and adoption, but Germany and Sweden are on the way to matching pace. The EU, having established a strong regulatory framework, is now capitalising on the benefits that open banking can bring for competition and innovation. The EU member states are also looking ahead, moving swiftly to the next stage of the sector’s development: open finance.
While last year was a bumper year for UK fintech, the level of market consolidation has plateaued growth in certain areas. We must ensure fintech continues to generate momentum.
This will be a thought not only for the private sector, but for the government too. In recent months, the government and UK regulators have primarily focused their attention on crypto regulation. But there are other areas of financial services regulation in desperate need of an update to maintain the level of growth and innovation needed.
UK consumer finance laws must be conducive to future fintech growth. Currently it is a complex patchwork of legislation, some of which is outdated given how far financial services has come. The Consumer Credit Act, for example, hasn’t been updated since before the 2008 crash. Regulation needs to reflect the demand of consumers today who expect more from lenders, including access to cheaper credit and tools to improve their credit scores. On the other side, lenders require more confidence in their lending assessments in the face of increasing consumer debt and rising interest rates.
The UK also needs to create the right commercial and regulatory framework for joined-up financial infrastructure in order to build the services and standards consumers expect. This means making sure different financial services speak to each other to create powerful new services, that credit reports from different providers show the same information, and that consumers are able to manage their finances more easily.
The conversation around financial data also needs to evolve. Changes to the current data legislation are due soon, but if we want to really drive the sector forward, we need to adopt smart data. This would replicate the secure data sharing framework already used for open banking to other regulated sectors like energy and telecoms: allowing customer data sharing with third-party providers to give consumers and businesses more control over their information, access to more tailored offers, and easier switching between providers, all leading to stronger competition.
The UK has done well to stay ahead of the race on fintech, but past success is no guarantee for future success. We need to take steps to turbocharge the whole ecosystem and ensure the UK remains a global fintech hub.