How can we make the UK a fintech superpower by 2030?
Last month, the government announced a new £360m plan to boost investment in innovation, attract talent to the UK and position the country as a science and technology superpower by 2030. A key driver of growth in technology is set to come through. investment in fintech. This is a positive step in the right direction, but for the government to become a leader in digital innovation, more must be done.
While the government’s recent spring budget contained a number of developments that will benefit fintech, including increased tax credits for research and development (R&D) and relief in new investment zones, it does not adequately address some of the larger obstacles holding back fintech innovation. If the UK wants to become a tech superpower by 2030, it needs to look at accelerating fintech through open finance. The UK has long held the crown in open banking, but it is time to move into an open financial world to keep pace with innovation underway in financial services across the rest of the world.
Accelerating open banking: the next wave of growth
There is no doubt that open banking has had enormous benefits, which is evident in the 7 million consumers who now use open banking-powered products and services. We have seen open banking services open up access to current account data and how this can be exploited by digitally native fintechs to drastically improve services and offerings. For example, we’ve seen a wave of new borrowers take advantage of open banking to improve how they assess the creditworthiness of borrowers. As a result, the industry is rethinking the entire lending lifecycle, from underwriting to repayment, and new approaches to helping people manage their money and building safety nets amid economic turmoil.
However, the scope of open banking remains narrow, minimizing the potential for innovation in the sector and limiting the benefits for consumers. For the next wave of growth in the sector to really be unlocked, we need to see an accelerated transition from open banking to open finance.
There are several threads to expedite this transition. Firstly, we need to see the scope of the regulation that is in place around open banking expanded to include open finance. Second, we need a sense of urgency across industry stakeholders and government to avoid momentum slowing. Finally, we need to build on the lessons learned from the implementation of open banking as we implement the first two steps. This should include, for example, offering greater incentives for financial institutions to encourage uptake.
Moving forward with pro-innovation regulation
As part of the government’s plan to become a tech superpower by 2030, it wants to leverage post-Brexit freedoms to create world-leading pro-innovation regulation and influence global tech standards. It is promising to see the government make such a statement. Given its ambitions to become a fintech powerhouse, the UK really cannot afford to delay open financial regulation any longer.
Last month, Technology Secretary Michelle Donelan re-introduced the Data Protection and Digital Information Bill after it was paused in September 2022. The bill is now going through Parliament and the update reflects progress on open finance in the UK, proposing regulation for identity verification, smart data management of consumer information and a UK GDPR. The Bill is important for the processing of personal data, automated decision-making and international transfers of data, which will be key for open finance to flourish, but we need to see the transition faster for the UK to keep its crown as a leader in the industry.
Currently, third-party providers (TPPs) only have access to consumers’ payment account data. However, open finance will enable businesses and individual consumers to share their own financial data with authorized TPPs. This includes sources such as wages, taxes, utilities, pensions, savings and investments. As the availability of data grows, so does the potential to offer businesses and consumers more tailored, personalized services such as cashflow-based lending, automated tax filing, micro-insurance and a holistic view of their finances – all of which can benefit them as they struggle the cost of living crisis.
Enabling open finance faces certain challenges that need to be addressed, such as creating a cross-cutting consumer data right, creating a clear liability framework, expanding the licensing scope of TPPs, and stimulating the market to build open finance infrastructure. There must be a fairer distribution of incentives across central constituencies. In particular, financial institutions should have more incentives to expand use cases and share richer datasets. The regulation should not be a burden for them, but rather an opportunity to develop their products and drive innovation in the sector. If we can continue to develop regulation within the sector, the UK will be well placed to not only retain the title of ‘fintech-forward’, but also to become a tech superpower by 2030.
