By Samir Chekini
It is now more than a year since Kalifa Review of UK Financial Technology was published, so let us reflect on progress in the UK Fintech Industry. Fintech is one area where, despite good intentions, the Government is still unable to maximise the potential of FinTech to wider economic productivity and growth.
According to the Department for International Trade, the Financial Technology sector contributes over £11bn to the UK economy (DIT). The sector also has a much wider impact supporting the UK’s wider Financial Services industry, which contributed over £173bn to the economy (HoC Library)
The sector’s direct Gross Value Added contribution to the economy is estimated to be £13.7bn by 2030 (KPMG report), with job creation contributing to 70% of this. Research shows up to 76% of Brits feel confident using technology to manage their finances and their top reasons to use Fintech are attractive rates and fees.
As a trend, UK Fintech ‘getting big’ is a good thing, however SME Fintech adoption in the UK (18%) still trends below the Global average of 25%. The UK is doing a little better than South Africa with about 16% and Mexico 11% but far behind from the global leader that is China at about 61% of SME adoption rate (EY Adoption Index). Network and aggregation effects means that the further the UK falls behind, the harder it will be to catch up in the long term.
There is a real consumer appetite for Fintech but the level of adoption by UK SMEs isn’t reflecting the potential. The struggles of UK SMEs during the Covid pandemic make capitalising on this potential all the more important.
Labour could think bigger and capitalise on the 5 points identified by the Kalifa Review which are “Policy and Regulation, Skills, Investment, International, National connectivity”.
There are multiple ways in which UK Fintech can help SMEs improve how they operate. Payments is one area where SMEs are already benefiting from more efficient processes. Greater adoption across the entire population of SMEs will significantly improve the efficiency of many sectors through the accumulation of small gains.
In other cases, UK Fintech will be helping SMEs to onboard customers, improve accounting processes, support regulatory compliance, enable cheaper remittances, improve personal budgeting, help retail businesses trade online better – and in some cases supporting their high street presence. Again, the accumulation of small gains will have a big impact by reducing costs and freeing up entrepreneur’s time to focus on their core business.
Fintech has already transformed the financial sector through the development of new types of services and increased efficiencies. Deploying these innovations throughout the wider economy will benefit consumers and SMEs.
By providing a more holistic policy framework, better signposting and encouraging connections between SMEs and Fintech developers, Labour can ensure that the benefits of fintech are not just confined to the City.