By director Martin Cook and trainee solicitor Brandon Wong from the Fintech practice at independent UK law firm Burges Salmon

 

We consider the Kalifa Review’s recommendations in the fifth and final article in our series.

While UK fintech has often been synonymised with London, the rest of the UK certainly has a lot to offer when it comes to the fintech market, as evidenced by the UK’s Fintech Strategic Review. There are currently around 2,500 fintech companies operating across the UK covering fintech’s largest sub-sectors including neo-banking, payments, lending, regtech, wealthtech and insurtech. Despite being scattered, the review has identified 10 ‘clusters’ that are producing high-growth fintechs (c.10 per cent of fintechs) and has categorised them according to ‘Super Hub’ (global fintech leader), ‘Established’ (critical mass of fintechs, many that are high growth) and ‘Emerging’ (emerging mass of fintechs, a significant proportion of which are high growth). The clusters identified are:

1. London (Super Hub);
2. The Pennines, covering Manchester and Leeds (Established);
3. Scotland (Established);
4. Birmingham (Established);
5. Bristol and Bath (Emerging);
6. Newcastle and Durham (Emerging);
7. Cambridge (Emerging);
8. Reading & West of London (Emerging);
9. Wales (Emerging); and
10. Northern Ireland (Emerging).

The review has found that the success of these clusters is due to their proximity to financial services and technology domain expertise, academia, incubators/accelerators and investment. But to empower these clusters further, the review calls for more strategic national coordination to improve connectivity to enable easier access to information, investment, skills and talent and policy and regulatory expertise. It cites the challenges that fintechs face in scaling their businesses, in moving from local cluster connections to virtual connectivity at national and international levels, and in finding the connections for investment, talent and partnerships in a virtual environment. Liquidity of information is key, as fintechs cited that details of investors, commercial partnership opportunities and grant funding would be highly valuable.

Challenges to improving national connectivity are also outlined. The first of these is fragmentation between clusters. Rather than taking a cohesive approach to fintech development, each cluster has forged its own path relying on different local bodies, local support and strategies. Leadership is also cited as inconsistent across clusters. Clusters with private/public partnerships have seen better success with investment and funding. Finally, more focus is needed on creating opportunities for collaboration on fintech research and innovation to attract innovators to the UK and to incentivise UK fintechs to stay fully invested here.

To improve national connectivity, the review recommends the following:

• Nurturing the high growth potential of the top 10 fintech clusters, with the proven foundational capabilities to optimise their particular areas of excellence.
• Driving national coordination strategy through the Centre for Finance, Innovation and Technology (CFIT) to ensure future fintech competitiveness and growth across the UK connectivity.
• Accelerating the development and growth of fintech cluster excellence to take advantage of domestic opportunities and compete on the global stage, through increasing research and development investment in the fintech sector.

• Nurturing the high-growth potential of the top 10 fintech clusters

The recommendations:

• Having each prioritised cluster produce a three-year strategy to support their growth and specialist capabilities, set against national baseline data and with funding secured to support its implementation.

Our thoughts:

• Implementing a coordinated and localised strategy through a regional body builds on what has gone before. Of course, regional/cluster organisation and the stage of development reached differs – so it will likely be necessary to address some of the practical delivery points and funding sources to allow really effective collaboration.
• To date, we have seen good co-operation between some of the regional fintech organisations and hope this continues – particularly if there is genuine appetite to ‘level-up’ (i.e. passing learnings and providing support and assistance between regions) and grow the overall ‘pie’ rather than seek to take simply a larger share of the existing ‘pie’. We would need to see additional ties built between the London Super Hub and other clusters.
• Driving national coordination strategy through CFIT

The recommendations:

• Maintaining a national fintech database through CFIT to provide open access data and ensure evidenced-based approaches to sector development.
• Positioning CFIT to work with regional fintech leadership to connect domestic networks in investment, talent, partnerships and academia.
• Having CFIT provide support to fintech clusters by assisting the development of governance models, local leadership’s three-year strategies and cluster bids for available funding streams.

Our thoughts:

• This sounds good in principle, though the devil will be in the detail and the manner of execution. The database will only be as good as the data it contains and it will need to be kept up-to-date and relevant in line with market developments and needs.
• The idea of CFIT providing coordination and support across the country could be a really important development.

• Increasing research and development (R&D) investment in the fintech sector

The recommendations:

• Identifying and disseminating existing innovation and/or geographical funding streams through CFIT.
• Having CFIT liaise with Innovate UK on future plans to support fintech and professional services R&D to consider additional fintech innovation funding opportunities.

Our thoughts:

• The review’s investment recommendations (see our third article here for details) already emphasised the importance of R&D to maintain the UK’s leading position as an innovator in fintech. Whilst these previous recommendations focused on encouraging private investment into R&D through tax reliefs, opening up additional funding routes must be welcome. It may also align well with other regional development agency support which has worked well for those fintechs who have been able to take advantage of such existing support.

Final thoughts

This article marks the close of our Kalifa Review series. We hope you enjoyed it and found it useful. We – like you – will be very interested to see how things develop further; when words and recommendations become action and policy.

It is now incumbent on government to assess the review’s recommendations and decide which proposals (if any) to adopt. While we recognise not all of the recommendations are universally popular we think it vital to address all five themes of the review. In that regard we would encourage government to look at developing policy in all the areas highlighted in the report. In our view, it is necessary to do so given the inter-connectivity of the themes, the obstacles before the industry and the opportunities that lie ahead.

We will continue to monitor fintech policy and market developments and – to the extent we are able – provide feedback and challenge. As participants in the fintech industry we are keen to provide support and play our part and we encourage those involved in the fintech and allied sectors to do likewise.