Speech given by Tulip Siddiq MP, Shadow City Minister, at the Innovate Finance FinTech as a Force for Good Forum, 11 October 2022, East Wintergarden, Canary Wharf
Thank you Angelica, and thank you Innovate Finance for supporting this important event today and for inviting me to speak about Labour’s vision for your sector.
If Labour has the privilege of forming the next government, one of my top priorities will be supporting the FinTech industry to thrive.
In my 10 months as Shadow City Minister, I’ve had the privilege of meeting many of the tech entrepreneurs transforming our financial services sector. You are tearing down old ways of doing things – whether you’re at Starling and Revolut challenging traditional banks – or the smaller firms boosting transparency and productivity in the City, and providing innovative solutions on areas as wide-ranging as financial exclusion and SME lending.
Perhaps the most important thing I have learnt since taking on the role, is that supporting the FinTech sector to thrive, is not just important for securing the future competitiveness of the financial services industry, but will be crucial in creating the jobs of the future and sustainable growth in every part of the country.
Perhaps the biggest challenge facing our economy over the next decade is the transition to a zero-carbon economy, and I understand that this was the focus of the conference this morning.
FinTech is already playing a central role in driving forward green finance and embedding green finance into capital markets. Earlier this year, Funding Options, the business finance platform, launched the UK’s first Green Finance marketplace to connect SMEs to the funding they need to reach net zero.
While other innovative companies are revolutionising the use of data by providing consumers and businesses with the tools they need to measure their impact and carbon footprint, to take action and make informed choices.
CoGo, the open banking platform, enables consumers to see the carbon impact of their purchases. The app can also suggest businesses to support and, as a result, is already changing the behaviours of major players. For example, they have formed a partnership with NatWest who have integrated CoGo into their core NatWest banking app.
The sector is also providing new solutions to old problems – such as financial exclusion and poor financial wellbeing – which I believe will be addressed by speakers this afternoon.
This has never been more important, as the country faces the worst cost-of-living crisis in decades and a very difficult winter. I have seen first-hand how the most vulnerable people in my constituency are being pushed into the arms of unethical lenders and loan-sharks.
But this is where companies such as Karma can step-in. Karma is disrupting payday loan companies by offering employees up to £300 of their salary in advance, at 0% interest, and with no fees or costs. This can support people through a particularly expensive or difficult month without trapping them in a dangerous spiral of debt.
Or take CreditKudos – a company that builds credit decisioning products using alternative data, including open banking data, to deliver creditworthiness assessments faster and more accurately for loan providers. This includes helping those without a clear credit history to access products from ethical lenders such as credit unions and to improve their credit score.
The strength of the UK’s FinTech sector then, should be celebrated not only for the benefits it can bring our financial services sector and wider economy, but as a tool for policy makers to address some of the most pressing issues of our time.
However, while the FinTech sector is strong it’s also fragile. And there are some serious dangers on the horizon, which if not adequately addressed could seriously hinder FinTech as a force for good.
I am particularly concerned what the breakdown in the UK and EU’s relationship will mean for the FinTech industry. The Government’s Brexit deal failed to secure access to European markets for UK based FinTechs, and many British companies have struggled to attract the talented tech professionals from Europe they need to grow.
On top of this, more than a decade of low investment in skills and training means that the industry has struggled to fill these gaps in the workforce by recruiting domestic talent.
The downturn in the global economy is also producing a challenging set of circumstances for the FinTech sector, particularly in the UK which is forecast to have the lowest growth and highest inflation of any major economy bar Russia next year.
A combination of these factors saw UK FinTech investment plunge in the first half of 2022 – investment was down to 9.6 billion dollars in the first six months of this year, three times less than the same period in 2021. ¹
We are already seeing the consequences of this, for example in the job cuts that Klarna have had to make in the UK. While the market uncertainty around the recent budget could further hit investors’ confidence in the UK economy, including in the FinTech industry.
However, despite all these challenges, the UK remains Europe’s leading FinTech centre, attracting more funding than France, Germany, China, Brazil and Canada combined.
This is because of the remarkable resilience of our financial services sector, and the extraordinary innovations of British FinTech entrepreneurs – many of whom are in this room today – in areas as diverse as peer-to-peer lending, challenger banks, cyber, insurtech, regtech, AI, paytech, tech for good, and blockchain.
However, we cannot be complacent if the UK is to remain the European hub for financial technologies. Indeed, I believe our ambitions should extend further – Britain has the potential to be the global leader in FinTech.
But this will not happen on its own.
If we want to ensure that FinTech remains a force for good, government will have to play an active role in ensuring that the UK is able to take advantage of innovative technologies.
This includes supporting the sector to take advantage of opportunities outside of the European Union. That is why Labour is supporting the Financial Services and Markets Bill, which will allow the FCA and PRA to tailor FinTech regulation to meet the needs of the UK market.
While EU regulation of financial technologies can often be overly prescriptive, Labour would take a more outcomes-based approach to allow the UK to both protect consumers and benefit from the gains in productivity that new technologies can bring, whether in blockchain or open banking.
However, Europe will always remain an important trading partner for the FinTech sector. That’s why a Labour Government would end the divisive rhetoric with our closest economic neighbour, and instead finalise a memorandum of understanding on regulatory co-operation with the EU.
We would also support UK financial services to access EU talent by negotiating for mutual recognition of professional qualifications for our service sectors.
Alongside this, we need to increase the supply of domestic talent and access to investment, particularly for FinTechs based outside of London and the Southeast.
Labour would create Tech hubs in every region by establishing a new expert body – Skills England – to co-ordinate efforts between businesses and the education sector to ensure that the regions have the skills they need to reap the benefits of technological change.
London attracted over 9 billion dollars of fintech investment in 2021 – driving efficiencies in all sorts of industries. This should be celebrated. But this compares to just 700 million dollars invested in financial technology companies based outside London and the south-east.
That’s one of the reasons why our Shadow Chancellor, Rachel Reeves launched a review of start-ups earlier in the summer.
The review will be supported by a group of industry leaders including the former Goldman Sachs chief economist Jim O’Neill, to explore how we can make Britain the best place in the world to start and grow a business, including FinTechs.
If we are complacent, and the UK fails to remain at the cutting edge of financial technology, all the benefits to society that FinTech can bring – whether improved access to green finance for SMEs or supporting the most vulnerable out of problem debt – will be put at risk.
That’s why a Labour Government will champion the interests of the Fintech sector. In partnership we can transform the City, break the UK out of its 12 year cycle of low growth and productivity, and unlock the full potential of FinTech as a force for good.