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Fintech revolution: who stands to benefit?

Author: ICAEW Insights

Published: 26 Apr 2021

ICAEW has cautiously welcomed the government’s support for the UK’s burgeoning fintech sector as a driver of post-pandemic economic recovery but warned that developing the sector without addressing social and financial inclusion issues would be a missed opportunity.

In a keynote address to open UK Fintech Week on 19 April, Chancellor Rishi Sunak confirmed that the government will adopt a series of recommendations outlined in the Kalifa FinTech Review and Lord Hill’s Listings Review to support fintech growth across the UK and make our financial markets more efficient.

They include a Financial Conduct Authority-backed ‘scale box’ to help fintech firms to grow, a new sandbox delivered by the Treasury, the Bank of England and the FCA that has so far helped 137 firms test and develop Distributed Ledger Technologies, an industry-led Centre for Finance, Innovation and Technology and a new UK Central Bank Digital Currency (CBDC) Taskforce co-chaired by Jon Cunliffe, Deputy Governor of the Bank of England, and Katharine Braddick, Director General of Financial Services at HM Treasury.

“If we can capture the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre,” Sunak said. In his Spring Budget, Sunak outlined plans for a fast-track visa scheme for start-ups and high growth companies to make it easier for fintech to recruit specialist skills from abroad.

Growth of the fintech sector has seen the emergence of products offering consumers new ways to pay, insure and access advice. Today seven in ten consumers use the services of at least one fintech company, according to the FCA, and the UK was the top destination for fintech venture capital investment in Europe last year, attracting $4.1bn according to fintech industry body Innovate Finance.

However, strategies to help the fintech sector grow must go hand in hand with the need to address issues relating to social and financial inclusion, ICAEW warns. Philippa Kelly, ICAEW’s Head of Financial Services, said she welcomed moves to support development of the fintech industry, but added that competition wasn’t enough to solve some of the challenges the financial services sector faced.

“There is the potential for it to lead to plenty more options and apps with more bells and whistles, but will it genuinely promote inclusion for the UK’s 27 million vulnerable customers who may not be well served by the financial services industry?” Kelly asked.

She said ensuring that the digitally and financially excluded benefitted from the fintech revolution needed to be a priority. “The government and regulators are taking a very clear approach in terms of supporting fintech, but we need to think about who most needs to benefit from innovation and investments in financial services.”

Kelly added that social inclusion issues and the digital divide had been thrown under the spotlight by the pandemic but admitted that reconciling the needs of vulnerable customers with the need for fintechs to manage the inherent risks posed by selling to this tranche of the market.

In February, the FCA published guidance for firms to help ensure vulnerable consumers are treated fairly and achieve outcomes as good as other consumers. Nisha Arora, Director of Consumer & Retail Policy said the impact of the coronavirus pandemic meant it is more important than ever that firms get this right.

'While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.

Also speaking at the UK Fintech Week event, FCA Chief Executive Nikhil Rathi said the choice created by competitive markets was in itself not a social or economic good. “It only becomes one when it delivers better or cheaper products, an improved or more tailored service, and pushes incumbents to fight harder to attract and keep their customers.”
 
Crucially, consumers must be armed with information they can readily understand to help them make the right choice for them, Rathi added. Meanwhile, the FCA says by autumn it will develop plans for a regulatory ‘nursery’ to create a period of enhanced oversight as those newly authorised firms develop and grow used to their regulatory status.

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