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In a recent Fintech Insider podcast Ron Kalifa discussed his Review of UK Fintech. He saw his initial brief as ?defining a strategy for a sector that's growing? by looking through five lenses - skills and talent, investment, policy and regulation, national connectivity, and international competitiveness.
According to Kalifa ?this is a critical moment. We have to make sure we stay at the forefront of a global industry?. Certainly the stakes are high - the UK has a dominant ten percent share of a global market that is predicted to grow from £110 billion to £380 billion by 2030.
Kalifa's strategy is set against the background of three broad threats - from international competition, from Brexit and from Covid-19. Competitor jurisdictions such as Australia, France and Singapore are investing heavily in capital, skills and support for their own fintechs, and he points out the risks that the UK could see its market share eroded as a result.
The review sees increasing domestic skills and accessing foreign talent as among 'the biggest challenges for UK fintech. Brexit gives Paris, Berlin and other European fintech hubs a window to capitalise on uncertain messaging.?
Many consumer fintechs? valuations fell as a result of the economic impact of Covid-19. However, as EY observed: ?B2B FinTechs have in some instances seen the pandemic spur demand for their services.? We have seen this with our own fintech platform Confirmation when usage and adoption increased exponentially during the pandemic. As Kalifa points out, in the first month of lockdown, six million UK citizens downloaded a banking app for the first time.
So how should the UK respond to these changes, while building on its already successful strategies? Kalifa's key recommendation is to create a Centre for Finance, Innovation and Technology (CFIT), which would bring market participants together to co-operate on deliverables such as digital IDs and open finance.
These coalitions would include fintechs, other financial actors such as incumbent banks and insurers, tech providers, universities, policymakers and regulators. A recent article in the Economist argued that UK regulators have been instrumental in encouraging innovation by ?communicating clearly, organising data-sharing, and carving out spaces in which start-ups could securely test their products?.
Kalifa wants to consolidate these interventions by introducing a permanent digital sandbox to encourage collaboration at the proof-of-concept phase and 'scalebox? arrangements that support innovative fintechs in their growth phase - particularly if they are in a priority fintech cluster such as the Pennines or Northern Ireland.
The CFIT would also oversee a market-led, specialist £1 billion fintech growth fund 'to act as the catalyst in developing a world-leading fintech ecosystem.? It would encourage national and international connectivity, increase the global scale and impact of UK fintech and attract inbound global investment.
In pursuing this strategy, the review wants to encourage UK fintechs to list on the London Stock Exchange (LSE). ?Changes could include introducing dual-class share structures, which give founders more control over their business after an IPO.?
Kalifa also believes the UK can be a leading centre for crypto and digital assets. To expand the digital ecosystem and promote the adoption of new technologies like blockchain, he recommends developing a Central Bank Digital Currency, saying: ?We have to take the leadership position to do that.?
Fintechs can offer more than financial growth and job creation. They can play a central role in encouraging financial recovery and inclusiveness by extending affordable credit more widely, especially if they focus on low-income demographics and locations.
Kalifa stressed the value of responsible lending, building ?guardrails for consumers?, and the importance of regulation. Fintechs now need to collaborate with regulators in developing ?buy now, pay later? and other credit models.
To ?keep our place in the world?, and justify Kalifa's optimistic worldview, this fintech coalition has to build many such collaborations between its diverse participants throughout the UK.
Caroline Winch, Commercial Director, Confirmation, part of Thomson Reuters