Business finance news

What this snap election means for the future of fintech

Rich Watts on June 27, 2017

It’s that time of year again. We’re all experiencing the fallout of Theresa May’s terrible June idea to re-awaken our political opinions, make us fall out with all our friends and colleagues and vote in an early general election.

We heard a lot of spiel from politicians in the last two months, seen a lot of dodgy press interviews and heard a fair few ‘alternative facts’ about what the next five years will bring. The end result has not put anyone’s uncertainty at rest, with the Conservatives forming an unstable alliance with the DUP – its anyone’s guess what the future will hold. 

One thing is clear: for our country to continuing flourishing in the fintech arena, we’re looking for a strong pledge each from our potential leaders. And there’s a lot at stake.

Fintech today

Currently, the UK’s digital economy comprises of a massive 3 million workers, and, accounts for 16% of UK domestic output. Added to this, between 2012 and 2016, the digital sphere attracted more venture capital than any other country in Europe (£28bn).

The UK FinTech sector contributes £7bn to the economy and employs over 60,000 people – so it’s certainly not an area voters should have overlooked.

We’re not the only ones who are concerned. Innovate Finance, the membership association for global FinTech,  called upon all political parties in the running to support its FinTech Election Pledge.

According to them, our world-leading position in FinTech is ‘far from assured’, since the Brexit outcome has forced the country to enter a period of enormous political, social and economic change. Whilst VC investment in global FinTech rose to $17.4bn last year (an increase of 10.9% from 2015), over the same period UK FinTech saw a 33.7% decline in investment– which presents a worry.

According to innovate finance, all political parties need to be pledging three very important things to secure a prosperous fintech future:

  1. To attract global and develop local talent

For this to take place, the UK needs to welcome a highly skilled and diverse workforce, since the UK’s fintech industry is global in nature. One in five of the 3 million workers in the digital economy were born outside of the UK, and a third of these are from countries in the EU, so negotiating a Brexit deal that welcomes international talent is important.

According to Fintech entrepreneur Taavet Hinrikus, co-founder of Transferwise, Brexit is making it hard to source tech talent.

He said: “There is a lot uncertainty and uncertainty doesn’t help business. So for starting up a new fintech company, [London] is not the best place any more.”

He told the BBC: “We came to London because of a great environment for entrepreneurship and a regulatory system that gives access to 500 million people in Europe. Today these things can’t be taken for granted. We know that passporting of financial services is not going to happen anymore, so it’s the right thing to consider whether you should do it in another city in Europe.”

Innovate Finance are asking the Government, as well as political parties, to pledge that we have an efficient visa system, immigration policy, and highly skilled domestic workforce – that continues to prioritise both local and global talent.  

So which parties would deliver this?

Well, according to the UK FinTech sector, The Conservatives aren’t the party for the job. Their proposed immigration policy could cause huge damage to the ability to attract talent from overseas workers. The Conservatives plan to:

  • Reduce net migration figures down to the ‘tens of thousands’;
  • Toughen visa requirements for students (keeping overseas students in immigration statistics);
  • Double the immigration skills charge on companies that employ migrant workers

In contrast, the Labour party proposes a new migration management system “based on our economic needs, balancing controls and existing entitlements.”

The Financial Times reported that a rapid reduction in net immigration to below 100,000 a year, after Brexit, could reduce the potential size of the UK economy by between 1.5 and 3 per cent by 2025.

And last week, Accenture reported that the UK FinTech Revolution has ‘stalled’.  It said: “The spectre of Brexit is casting an uncertain shadow over the UK’s financial services industry, and is placing a new urgency on issues like attracting talent.” 

  1. To create a deeper, more connected investment environment

According to the Fintech Times,  The UK FinTech ecosystem is at a critical juncture, so as we move away European funding frameworks like the European Investment Fund (which between 2011- 2015 gave €2.3billion to UK based venture firms) we’ll need to do more to create a healthy digital economy. For this to happen, UK leaders will need to instil a more dynamic agenda to support investment in this sector.

They’ll also need to start investing in our future digital talent. In fact this is something the Conservatives plan to deliver in the future – aiming to prioritise skills development for the digital economy. This includes creating new institutes specialising in tech and STEM disciplines, backed by employers and universities .

Labour also have big plans to “Appoint a Digital Ambassador to promote Britain as an attractive place for investment, and provide support for start-ups to scale up and become world-class digital businesses. Our Digital Ambassador will help to ensure businesses are ready to grow and prosper in the digital age.” 

  1. To transform the nature of the state with 21st-century regulation

To tie it all up, Innovate finance ask the Government to put technology and innovation at the heart of their operations, and commit regulators to a digital transformation, gearing investment towards growing their technological understanding, and to encourage responsible innovation.

In an interview with Forbes, Innovate Finance CEO Lawrence said: “We can only hope that any future government will also back further research into technology, as this will form the foundation for an industrial strategy fit for the digital world. Pursuing the promise of digital identity, to shared utilities, and technology-enabled regulation could enable the United Kingdom to maintain its position as a world-leading digital economy,”

A tall order for our Government then. Lets hope its one they can deliver on.