Is politics monopolizing fintech? – AltFi

London’s fintech and startup scene emerged as a global leader, thanks to a combination of factors fueling innovation, growth and investment. But scale and maturity also bring a new stage of scrutiny, writes AltFi’s Daniel Lanyon.

Image source: Kemi Badenoch MP/HM Treasury

The UK’s fintech scene has always been closely involved in its national politics for two reasons.

It has been a swell “good news” story for several politicians in the various governments over the past decade or so to trumpet. A bright spot in Brexit, pandemic and cost of living crisis economies.

Second, regulation and legislation have been at the heart of starting the boom.

From the early days of reform to the banking sector which led to a series of new banks after a 100-year hiatus, to the FCA’s regulatory sandbox and open banking rules to maintain it, as well as trying to future-proof it through the implementation of Kalifa Review the findings.

Now, however, the future of the UK’s fintech posture has never been more intricately linked to its political class and all its many dysfunctions.

Is politics monopolizing fintech?

The last month or so has brought up three very important questions for the future direction of the fintech industry, as well as, in each case, increasingly being kicked political footballs.

Should Revolut get its banking license pushed through despite apparent concerns from the (non-political) financial regulators?

Is crypto simply gambling or an exciting new technology that a country that Britain should want to be a hub for?

Is the UK’s capital markets prowess still fit for purpose for technology-focused companies in growth mode and looking to eventually succeed in a public listing? Or is the UK an increasingly poor place to do fintech business?

Most operationally, there has been back-and-forth over Revolut’s UK banking license, a core pillar of its future growth strategy and a growing source of frustration for its founders and investors, who dominate this political-fintech axis.

Revolut is by some means Europe’s most valued fintech company and a political poster child for the UK as a tech leader.

It has hit the headlines for several positive reasons related to its growth in recent weeks, ranging from key new product updates, such as the launch of ETF trading across Europe and lending in France to the pursuit of a “buy now, pay later” ‘ acquisition and launch in Latin America.

But it has been a flurry of activity from London headquarters that has raised the most eyebrows with politicians from both sides weighing in.

Angela Eagle, a Labor MP and member of the powerful Treasury Select Committee, said as recently as last month:

“I would be surprised if they got a banking license if they didn’t pass a lot of rigorous tests. “These questions must be answered before they get a banking license.”

“Getting a banking license is not easy and you cannot cheat the tests. There is a worrying backdrop to all of this which I think means regulators will be very cautious. I expect the highest kind of work to be done.”

Conservative MP and business secretary Kemi Badenoch, meanwhile, has wanted a meeting with the company to ease its many criticisms from both UK regulators and the wider business community.

Much of this came to a head two weeks ago when it emerged that Revolut’s CFO Mikko Salovaara had left the fintech citing apparent “personal reasons” unrelated to either the accounts or the banking license application. British bank chief James Radford had also left the company in April after three years.

Salovaara had been with the company for just over two years, starting as CFO before being promoted to Group CFO in April 2021.

This period saw a massive shift in the Revolut machine, with customers doubling from 15 to 30 million and the company making its first profit for 2021. However, we only found that out via the much delayed accounts, published in March 2023, which were later allegedly material misinformation.

Regulations, regulations, regulations

Regulation is a double-edged sword for the fintech industry.

On the one hand, a supportive regulatory framework promotes innovation and attracts investment from institutions.

On the other hand, overly burdensome regulations can stifle innovation and hinder growth through delays, higher costs, and an axiomatic tendency to favor larger companies that can afford to cover those costs.

An ever-growing ‘to-do’ list for the FCA – from ‘buy now, pay later’ to crypto and smart data and new consumer protections creates more work for everyone.

London has struck a delicate balance between innovation and consumer protection, with regulators such as the Financial Conduct Authority (FCA) providing a regulatory sandbox for fintech companies to test their products and services in a controlled environment.

The sandbox has been a key factor in London’s success as a fintech hub, allowing startups to navigate regulatory hurdles and launch their products with confidence. Support from politicians was also of great help.

Both politics and fintech can drive positive change, address societal concerns and increase protection of consumer interests.

Now, with the fintech industry reaching maturity, it is also more closely woven into the political world.