How the UK has Led the Way in Fintech
The UK is a world leader in fintech innovation and was named as a leading European tech innovator in KPMG’s Global Technology Innovation report. It’s undoubtable that being the first to introduce open banking has played a part here, but other countries are now adopting this open data approach also and could soon be catching up. So what exactly has been behind the UK’s success and how can other countries replicate that? We believe there are a number of ingredients:
Rapidly growing open banking ecosystem – over 135 entities are now approved by the Financial Conduct Authority to provide open banking-enabled services to consumers and SMEs. While full bank implementation will only be completed in September, valuable products and services are already in the market. Interestingly, there are some emerging use cases that were not initially anticipated such as propositions around legal aid and welfare support advice – showing the potential of the open data revolution.
Wider support – from local council funded incubators across the UK to the establishment of the FinTech Alliance, and the founding of the Open Banking Implementation Entity (OBIE), there is plenty of support behind innovation and open banking-enabled products and services. Successive governments, opposition leaders, city mayors and industry leaders have all committed support and resources to maintaining and building our leadership in this space.
Thriving fintech sector – the overall size of our fintech sector is certainly a factor and this is likely owing to the support that exists. There are estimated to be over 1,600 fintech firms in the UK and estimates suggest this will more than double by 2030.
Regulatory foresight – it’s widely acknowledged that the introduction of open banking has been one of the most significant pieces of legislation in the history of the financial sector. As part of its Retail Banking Market Investigation, the CMA initiated the current version of open banking to increase competition in the UK banking market. The CMA’s package of measures also included the Open Up Challenge 2018, designed and operated by Nesta Challenges. The challenge was designed to unlock and accelerate the next generation of financial products and services for small businesses by incentivising agile, innovative fintechs to develop new ideas – and it worked. The winners of the Open Up Challenge have gone on to become some of the important trailblazers in the fintech and open banking sector including Fluidly, OpenWrks, Swoop, Funding Circle, Coconut and Funding Options.
The success of the first Open Up Challenge has seen the recent launch of the second challenge prize, Open Up 2020 Challenge. This time the focus is to create open banking-enabled products for consumers and especially for the financially excluded. The prize has recently closed to applications with finalists due to be announced in the coming weeks.
Inventiveness and entrepreneurship – our ability to develop open banking architecture and the corresponding technologies is unsurpassed, and our home-grown entrepreneurial talent is something to be proud of with a range of successful start-ups run by Brits such as Coconut and OpenWrks. Indeed, the UK is ranked fourth in the GEDI Global Entrepreneurship Index.
Sustained investment – the UK remained the top destination for fintech investment activity in Europe with over $20.7bn in deals in 2018. According to KMPG, total investment activity in the UK in 2018 was almost four times higher than 2017 levels ($5.6bn).
There are still gaps and wrinkles to be ironed out in open banking, such as improving payments functionality around refunds as well as expanding it to cover other financial products, such as pensions. However, I am confident that the UK’s ingenuity, inventiveness and positive investment climate will strengthen our ability to resolve these issues and ensure we continue to lead the way in fintech.
This is why we’re so excited about Open Up 2020 – it’s essential that fintech pioneers are encouraged and supported to innovate in order for us to remain as leaders in this space. At the same time, we must ensure that new open banking-enabled products and services support as many people as possible, as only if people adopt these tools will the fintech sector continue to succeed.
A version of this article originally appeared on Finextra: https://www.finextra.com/blogposting/18038/the-recipe-behind-the-uks-fintech-success