Fintech Pledge launched to strengthen UK’s financial technology sector

Entrepreneurial network Tech Nation has launched its Fintech Pledge to accelerate the growth of the UK’s financial technology (fintech) sector through establishing standards for “efficient and transparent commercial partnerships” between traditional banks and fintech firms.

Supported by HM Treasury and the Tech Nation-run Fintech Delivery Panel, the pledge consists of five principles aimed at improving the traditional banking sector’s engagement and collaboration with fintechs.

These are to provide clear guidance to technology firms on how the onboarding process works through a dedicated online landing page; provide clarity to tech startups on their progress through the onboarding process; provide a named contact, guidance and feedback; encourage good practice and improvement; and to commit to implementing this process six months from signing the pledge and providing bi-annual feedback in the first year.

“Building partnerships with established institutions is a fantastic route for fintechs to drive positive change in finance, be it underpinning new customer solutions or transforming regulatory reporting,” said Victoria Roberts, director of the Fintech Delivery Panel.

“The Fintech Pledge provides a welcome clarity, setting out clear commitments of what fintechs can expect and how best to create productive collaborations.”

Through their pre-existing involvement with the panel, five major banks – Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander – have already volunteered to be early signatories to the pledge, which will be opened up to more banks following the launch.

“Helping technology companies to start up and scale is a key part of our role as a bank,” said Mark Ashton Rigby, group chief operating officer at Barclays. “The Fintech Pledge will support transparent and efficient collaboration between Barclays and early-stage fintech companies, which will ultimately provide solutions, products and services to benefit our customers and clients.”

Adam French, CEO of Scalable Capital, added that effectively partnering with banks is a critical factor in the success of many fintech firms.

“The Fintech Pledge is a welcome step forward in helping evolve the commercial dynamic between banks and fintechs. Ultimately, customers benefit most when our largest banks are putting innovation at the heart of their business models and embracing fintech to improve customer outcomes,” he said.

However, according to Capgemini’s latest World fintech report from April 2020, complex and manual processes that still exist in their middle and back-office IT systems are stopping traditional banks from having fruitful collaborations with fintechs.  

“Now is the right time for banks to catch up from front- to back-end to offer the best customer experience,” said Anirban Bose, CEO of Capgemini Financial Services, at the time. “With data-fuelled, hyper-personalised experiences in real time, big tech firms and challenger banks have demonstrated their ability to win customers over. 

“In contrast, while traditional banks have invested heavily in front-end IT infrastructure to improve customer experience, efforts so far have not measured up to what has become customary across other sectors, especially with tech providers.”

In July, the UK government launched an independent review of the fintech sector to boost its competitiveness and ensure the UK remains at the forefront of the global fintech market.

It aims to establish several priority areas for industry, policy-makers and regulators through five workstreams – skills and talent, investment, national connectivity, policy and international attractiveness.

“The sector is worth around £7bn to our economy and will therefore be vital in ensuring both that the country bounces back post-coronavirus, and continues to be at the forefront of financial innovation now we have left the EU,” said John Glen, economic secretary to the HM Treasury and city minister, at the time.

According to a report by recruitment firm Roger Walters and market analysis expert Vacancy Soft, investment in the UK’s fintech firms has grown by 500% since 2018, but the market remains very London-centric.

In 2018, for example, 45 of the UK’s 50 fintech deals worth more than £1m involved London firms. Although the UK’s total deals nearly doubled to 96 in 2019, bringing in $48bn worth of investment, only eight of these were into regional businesses.

However, in May 2020 a survey by Qadre revealed that UK fintechs could have lost out on nearly £2bn of investment as a result of the Covid-19 pandemic, while separate research from CB Insights showed global funding for the sector had declined to levels not seen since 2017.

Fintech entrepreneur Matthias Kroener said that the pandemic could accelerate the next iteration of the fintech industry, and that there will be a consolidation due to the high number of vulnerable companies in the still-emerging sector that have taken on high up-front costs.