It’s that time of year when you need not be a soothsayer to know that the predictors are on the prowl, in the words of the late, great Barry Norman, and why not.
So, for a slightly different perspective, I offer you Holmes’ Fintech hopes for the coming year.
This year, like last, is obviously going to involve significant change and challenge. The economy remains on pause but my great hope is that fintech will be fully deployed for financial inclusion. As I have written here before, one of the most exciting ways fintech has the potential to change the world is in addressing the shocking, yet incredibly stubborn, problem of financial exclusion. Financial exclusion exists for a variety of reasons: too low or unreliable income, no fixed address, no credit history or past financial failures and the trouble with financial exclusion is that it is punishing. If you cannot use the banking system, how do you get a loan? How do you pay? One truth, which should never have been tolerated, is that those who have the least, have no choice but to pay the most and it is a trap that can so quickly become a cycle. Once you fall into poverty you take more risks; you’re more likely to be overdrawn; you’re more likely to use lenders who charge more; you find yourself stuck outside the system wondering how to get in. Add to this that the UK also has one of the lowest levels of financial literacy in the developed world and the prospects do not look good. But fintech has the potential to address the array of issues which add up to financial exclusion, and they must all be thoroughly considered and those that really nail it, adopted. There are some outstanding examples that have grown out of the Covid-19 crisis such as LightningAid, a Railsbank financial inclusion initiative that helps with distributing financial support to those in need. Getting this right makes sense on every level: individual, social, psychological and economic.
Another hope for the year is that we will see even more fintechs move into profit and I’m confident that there are big moments ahead. Starling has definitely made promising steps towards profitability and is showing that new fintech digital banks can indeed be profitable. I’m pleased that the British Business Bank included companies like Starling, Funding Circle and Ultimate Finance when selecting companies to process SME applications for the government’s business interruption loans – after a somewhat slow start. Last summer the government asked industry how they could better identify and support the technological trends that will drive growth and productivity in the post-Covid economic recovery. I followed up with the Minister by asking how many responses they had received to this request for submissions. Apparently, BEIS received over 450 documents from 285 stakeholders across the UK and “they are working through these inputs, which will inform the Government’s thinking”. My sincere hope is that they will listen to the advice – and perhaps even look harder for it – 285 stakeholders is good but with 1,600 fintechs in the UK there is more knowledge and experience to tap in to. There is so much more that fintechs can contribute to addressing the consequences of the current crisis and I hope that a great deal more is done to engage with the fintech community and get solving some of the problems we are facing.
I fear that the banking industry has not engaged with technology in the way that they need to. It is a tricky situation and it would be, not only short sighted, but a valuable missed opportunity, if it is only the front end user experience that improves with behind the scenes banking remaining unchanged. I hope there will be greater focus here. I hope also for some better news on the perennial scale up funding question and look forward to some important recommendations in the Strategic Review to be published soon. I hope that the review will also provide practical advice on how to improve government oversight and support for fintech companies with the industry often falling between departments, we need intervention that can push this agenda across Whitehall. There is significant potential for fintech to provide solutions within government, from payments, procurement, agility, speed of response, reduction of risk, a greater grip on potential fraud (for example mitigating the fraud we have seen in the coronavirus Bounce Back Loans Scheme)
Finally I hope to see real progress in terms of Central Bank Digital Currencies. Optimised, efficient, effective, giving currency real currency! Significant questions remain, should it be underpinned by distributed ledger technology (as blockchain for bitcoin) or not? Should we be looking at wholesale, retail? Crucially, it will happen, as China shows, it is happening so I would rather we glean all the benefits through public-private partnership, joint endeavour and collaboration rather than the looming private play of Libra, now Diem. There is a need for greater speed in ’21, the Bank of England’s role is fundamental, to radically revolutionize currency and the entire relationship of citizen to state, citizen to citizen. I sincerely hope this will be the year of UK fintech.
I look forward to meeting and discussing with so many of you across fintech at our upcoming APPG events through 2021. Please do be in touch with thoughts, ideas, or comments.
About Christopher Holmes, Lord Holmes of Richmond MBE:
Lord Holmes is Britain’s most successful Paralympic swimmer winning a total of 9 golds, 5 silvers and 1 bronze. Lord Holmes is a passionate advocate for the potential of technology and the benefits of diversity and inclusion. In Parliament Lord Holmes has been a member of Select Committees on Democracy and Digital Technologies, Intergenerational Fairness, Artificial Intelligence, Digital Skills, Social Mobility and Financial Exclusion and has published reports on Distributed Ledger Technologies and Reducing Friction in International Trade.