Chancellor of the Exchequer, George Osborne, last night delivered his annual Mansion House speech. I was present at the dinner and delighted to hear that the RBS sell-off wasn’t the only piece of interesting news; like his Budget Speech in March, Osborne iterated that Britain’s FinTech revolution was front and centre in his vision for a better future for financial services.
The transformation of financial services
The Chancellor laid out his ambition to increase competition and foster innovation in retail markets offering customers a better service.
Not only is this and a key reason to my joining Innovate Finance this year, but it is also at the very heart of our mission. FinTech is now worth over £20 billion to the UK economy with global investment tripling from $4 to $12 billion in the past year.
Despite these headline figures we are only at the start of a transformation in financial services. The largest four banks still account for over 85% of business current accounts and 90% of business loans.
Although challenger banks are increasing their market share they still constitute approximately 5% of the lending market with one of the barriers to growth being able to efficiently access the UK’s payment systems. Accordingly, the new Payments System Regulator (PSR) has been tasked with driving competitive innovation in payments and to regulate the expansive £75 trillion payments market. Innovate Finance members stand ready to support the PSR in driving that competition and innovation.
According to JP Morgan analysts, marketplace lenders that include peer-to-peer lenders provided £1.3 billion of new lending to businesses and consumers in 2014, more than double the volume originated in 2013. Although this is less than 0.5% of total system lending balances, as a share of new lending this represented over 1% in both SME and consumer lending. Growth in 2015 has been strong, with 1Q new lending running at +88% year on year with SME volumes tracking ahead of consumer.
Stand by for more adoption, more disruption, more innovation
As the Chancellor highlighted new firms are disrupting the status quo and big firms are raising their game in response, but there is plenty of disruption and adoption still to come. Figures from Goldman Sachs estimate, that $4.7 trillion of revenue at traditional financial services companies is at risk of disruption by new technology-enabled entrants.
Mr. Osborne identified that FinTech is also driving a decentralisation in financial services, where it is likely we will see even more high quality jobs in finance across the UK, including Edinburgh, Birmingham, Belfast, Cardiff and the great cities of the Northern Powerhouse.
Innovate Finance is committed to this vision and is delivering its own FinTech regional strategy developing partnerships in Leeds, Edinburgh and with Manchester on the horizon.
FinTech is flourishing
The Summer Budget is approaching and we expect the government will build on its already ambitious FinTech policy programme. From competition in banking to support for digital currency investment – the policy agenda has been bold and enabling, allowing FinTech innovation to flourish and the UK to cement itself as a global centre for investment. We also expect innovative policy approaches such as regulatory sandboxes and the development of RegTech to be built upon in July.
Innovate Finance members are at the forefront of these developments in financial services and are set to help the government and regulators deliver change.
Finding the solution with FinTech
It was fantastic to hear the Chancellor remind my fellow attendees that the financial services industry in Britain has, in recent years, been seen as part of the problem to sustainable economic growth but now it must become part of the solution. Innovate Finance and FinTech adoptions are fundamental in this transformation.
This fundamental transformation is precisely why we are proud to host our first Innovate Finance Week, as part of London Technology week. A wide-range of events are on offer as we work to showcase the UK as the heart of not only FinTech innovation but also the ongoing conversation.
Whether it is cyber-phishing or government policy that you believe is central to the FinTech movement, be sure to keep up to date with our events through our app and Twitter, using #IFWEEK.
Written by Lawrence Wintermeyer, CEO, Innovate Finance