Our Future of Britain initiative sets out a policy agenda for governing in the age of AI. This series focuses on how to deliver radical-yet-practical solutions for this new era of invention and innovation – concrete plans to reimagine the state for the 21st century, with technology as the driving force.
The UK’s fintech sector has emerged as a global powerhouse over the past decade, with innovative startups leveraging cutting-edge technology to revolutionise financial services. From mobile banking apps that make the managing of personal finances more accessible to AI-powered lending platforms that expand access to credit for entrepreneurs, fintech has the potential to be a major driver of economic progress. It can help individuals take control of their finances and can boost savings across the economy.
However, to fully realise this potential, the UK needs a policy environment that empowers people to launch and scale fintech startups, and ultimately see them thrive. That is why the Tony Blair Institute for Global Change has collaborated with the Startup Coalition to deliver a vision for the fintech sector, which launches today.
Financial innovation and technology represent powerful tools for a progressive, mission-driven government – tools that were far more nascent even a decade ago. Harnessed to its full potential, fintech can fuel economic growth, break down barriers to opportunity and accelerate open finance.
Fuelling Economic Growth
Fintech firms can fuel economic growth both through the continued expansion of the fintech industry itself and by enabling innovation and efficiencies across the wider economy. Government needs to get the basics of the policy environment right – from R&D tax credits to export opportunities and regulation – to ensure the UK remains one of the best places in the world to start and scale a fintech business.
For example, the R&D tax-credit scheme has been systematically undermined over the past two years through a combination of policy change and poor administration by HM Revenue & Customs (HMRC). Today most startups have seen their average R&D tax reliefs fall by 40 per cent, even as HMRC is taking longer to process claims. Reviewing the system and its administration should be a priority for a government that is serious about growing the tech sector in the UK.
It also means building export opportunities for UK fintechs by forging regulatory agreements with key international markets. And crucially, the next government must provide regulatory certainty through regular updates for policymakers and industry on upcoming initiatives, in the form of a biannual Policy Initiatives Grid.
By getting these fundamentals right, the UK can unleash the full economic potential of fintech – not just as a vibrant sector in its own right, but as an enabler of growth and productivity.
Breaking Down Barriers to Opportunity
Fintechs have a crucial role to play in breaking down barriers to opportunity and increasing equity for people across the UK.
From increasing the returns for savers and pension holders to reducing costs for small businesses, financial innovation is already increasing choice, competition and financial empowerment. To build on this, the next government should develop a national financial-inclusion strategy with fintech innovation at its core.
This could include measures such as unlocking pensions to invest in startups, cultivating more competition in how small businesses accept payments, and launching a dedicated Financial Inclusion Sandbox to drive consumer-centric solutions.
Accelerating Open Finance
Looking to the future, a critical opportunity lies in the continued evolution of open banking: the game-changing data initiative that has already transformed how people manage their finances. By building on this success and unlocking the full potential of open finance (open banking on a bigger scale), the next government can create a major new growth sector while also empowering consumers and businesses.
Open finance would expand the principles of open banking beyond just current accounts, giving people secure access to a far wider range of financial data such as savings, pensions, mortgages and investments. This would give individuals greater control and visibility over their finances, while also spurring fintech innovation to develop new services that can help people make more informed financial decisions.
For businesses, open finance could revolutionise everything from loans for small and medium-sized enterprises to insurance. This would unlock a wave of fintech-powered solutions that reduce costs, improve cashflow and expand access to capital.
The opportunities are immense, which is why our report with the Startup Coalition calls on the next government to introduce open finance within its first 100 days in office. Coupled with the other recommendations in the report, this would cement the UK’s position as the global leader in financial innovation – and, crucially, ensure that innovation delivers tangible benefits for people and businesses across the country.
Fintech at the Heart of a Growth Agenda
Ultimately, the vision set out in our joint report is about harnessing the power of financial technology to drive growth, improve lives and build a more equitable economy. By supporting fintech firms, breaking down barriers and unlocking the potential of open finance, the next government can place fintech at the heart of a people-focused agenda for growth.
It would be an undeniably ambitious agenda. But with the right policies and the right political will, the UK can become the best place in the world to start, scale and grow a fintech business – and in doing so, deliver fintech’s transformative ability to create jobs, increase opportunity and build a fairer, more prosperous future for all.
Lead image: Getty