Blog: One year on from the Kalifa review

Just over a year on from The Kalifa Review, what’s next for UK fintech?

For the fintech industry to achieve its full potential we need a potent mix of forward-looking policies, regulation, national connectivity, international trade, and a razor sharp focus on diversity.

Having been heavily involved with The Kalifa Review of UK FinTech in Spring 2021, and given recent government announcements on fintech’s role in driving the UK economy, we take stock, evaluate how far fintech has come, and what the industry’s focus should be next.

February 2021 saw the launch of the momentous Kalifa Review of UK FinTech. To paraphrase Ron Kalifa, fintech is no longer a niche within financial services; it is financial services. What was once a small patch now permeates every corner of the industry, from retail to capital markets, and all the enabling products and services in between. Despite the ample pace of change, capital markets have been slower to embrace innovation, but there is movement. We’re getting there.

Focus on: Skills and talent

We’ve seen Kalifa skills and talent recommendations start to come to fruition in the form of scaleup visas and a renewed focus on university links and apprenticeship schemes.

It’s now vital that we ensure that DEI initiatives are embedded into fintechs from their inception, an area of focus for both Innovate Finance and Tech Nation. A response to the Bank of England, FCA and PRA joint consultation on DEI in financial services is due soon. 

Ultimately, it’s about giving fast growth fintechs the tools and resources they need to embed diversity and inclusion from the very beginning. Unless they have that, when they scale rapidly to several hundred employees, that’s where things can go wrong. Getting it right from the start is crucial.

Focus on: Policy and regulation

We should all welcome the FCA’s proposed scalebox, the FCA and City of London Corporation’s digital sandbox (which is currently building net zero solutions) and the Bank of England’s evaluation of Central Bank Digital Currencies (CBDCs) in the wake of the Review. I am delighted that each of these issues has been recognised at the highest level since the report was published.

What stands out for me is the lack of a cohesive stance on policy. Across meaty issues, we’re seeing multiple government departments and regulators approaching policymaking with slightly different agendas. We don’t have a fintech minister or a department taking the lead – the Treasury, Department for International Trade (DIT), Number 10, the Bank of England, the FCA, and more are all typically involved. That’s something I’d like to see established by the Centre for Finance, Innovation and Technology (CFIT) – which is being founded as a key recommendation of the Review – or at least some lobbying aimed at cohesion on common issues.

To keep the UK as a world leader for fintech, we need wider collaboration outside of policymaking. In the Review, Ron was adamant that 80% of the effort needs to come from the industry itself. Government and regulators can set policy, but ultimately the sector has to self-organise.

Focus on: International trade and reputation

You only have to look at the Innovate Finance fintech investment figures for 2021, a record $11.6bn in the UK, second only to the US. European countries are snapping at our heels but there are often only one or two big unicorn fintechs in each market, representing the majority of investment. The UK market, by contrast, is maturing at all levels. That doesn’t mean resting on our laurels. DIT is working with FinTech Alliance to keep the UK up there.

In the last year, we also saw some immediate changes to listings rules, which are a key part of how the rest of the world views the UK as a place to start and grow a global business. I also welcome the establishment of CFIT’s steering committee which should include national representation from across the UK. That’s important because vibrant regional fintech hubs are fast becoming cornerstones of the UK’s attractiveness internationally.

Focus on: National connectivity

At Streets Consulting, we’re increasingly involved in championing early stage and growth startups across the UK and we’ve been working with Supertech West Midlands to amplify the work they do in supporting and improving access to funding for businesses created in the region and the Local Enterprise Partnerships (LEPs).

Two-thirds of jobs in financial services are now based outside of London, according to TheCityUK. Fintechs typically come to the City to get their funding, and then take it back to invest in their local area. CFIT, as a regionally representative body, should play a role in creating a cohesive voice that spans fintechs across the UK and be a more direct avenue for getting concerns heard or telling success stories to the government. That central body is absolutely vital.

Focus on: Investment

In the last year, we’ve seen Lord Hill’s listings changes, the announcement of R&D tax credits for technology like AI, Open Banking and SaaS, and the British Business Bank’s fund to co-invest with regional business angels. The main gap still to fill here is patient capital, which provides longer term funding with a higher risk tolerance, designed to support entrepreneurs through the sticky stages of growth. In the last month, we’ve seen the government’s response to a consultation on “Enabling investment in productive finance”, looking at how pension funds could back fintech scaleups.

What’s needed are nimble funding mechanisms and advice – as well as cold, hard investment. It’s about giving scale-up firms the tools and platform to grow rapidly. Again, a fintech minister or cohesive body could look at this holistically.

I was proud to join Streets Consulting for many reasons, not least its focus on providing mentorship and support to early stage firms. We mentor Accenture’s fintech Innovation Lab, the Investment Association Engine programme, and the Innovate Finance ‘Women in fintech’ initiative. We’ve worked with a range of talent and innovation schemes, and we also help entrepreneurs deliver compelling pitches, as well as advising them on business and communication strategies. It’s important to play our part in growing the industry.

What we’ll be talking about two years on from Kalifa

We’re not there yet on fulfilling the ambitious recommendations made by the Kalifa Review, but it’s a positive start. I’d like to see CFIT up and running, fulfilling a tangible role as a coherent, cohesive body that holds the government to account for the right mix of support and regulation. A fintech minister or a department for financial services innovation that oversees issues relating to all five chapters of the Review would also be fantastic to see. And there’s still work to be done to unlock that layer of investment in patient capital to support scaleups. But whatever initiatives are launched or continued in the coming year, I know we’ll still be talking about how the UK is a world leader in fintech.