George Osborne is “not a great smiler” according to Barry Sheerman, but afforded him his best attempt across the House of Commons following the budget in March 2016. The former chancellor shot Sheerman a “strange grin” on announcing a favourable rate relief for fintech start-ups. “There’s plenty we disagree on,” admits Sheerman, who is the founder of the all-party parliamentary group for crowdfunding and non-banking finance, “but George has long recognised the potential of fintech and noted the step change that is happening.”
Osborne’s final budget raised the annual threshold for 100 per cent relief on business rates from 50 to 100 per cent, a reform which became effective in April this year. This means that around 6,000 small businesses will pay no tax and 250,000 have had their taxes cut. The Seed Enterprise Investment Scheme (SEIS), introduced by Osborne in 2011, was also increased. SEIS is designed to help early-stage companies raise equity finance by offering tax breaks to individual investors who purchase new shares in them.
Sheerman claims that the decision to raise SEIS came off the back of several conversations between the ex-chancellor, himself and two fintech-related APPGs. He says: “George knew of my interests and in particular the work I’d been doing on crowdfunding. He knew I wanted the allowance doubled for social enterprise fintech start-ups, but he actually went beyond that and matched the allowance of the private sector.”
Osborne’s successor, Philip Hammond, has been similarly keen to safeguard the United Kingdom’s booming fintech scene, particularly in light of Brexit. Sheerman is unsurprised, but insists that the fintech industry will flourish “despite Brexit, not because of it.” He explains: “The fintech surge is massive and it’s not surprising that government has tried to keep it going. It has given rise to a new culture of entrepreneurship and investment, but Brexit has made things complicated. A lot of the regulations surrounding fintech – GDPR or PSD2 for example – have been derived from the European Union. If our Brexit terms don’t match up with those, we could be a less attractive prospect for any partners in Europe or beyond. Ultimately, however, I’d expect the fintech demand to keep rising and that’ll probably subsume it. The reality of globalisation, independent of Brexit, is that people will want borderless, boundless financial services. Fintech can help deliver that.”
Sheerman, who describes himself as a “committed and passionate social entrepreneur”, thinks that crowdfunding, whether to facilitate charity, ownership or starting a business, should be considered the biggest feather in fintech’s cap. “The real key sell for crowdfunding projects,” he says, “is in their accessibility. They can help anyone and everyone to achieve an ambition whether it is large-scale or just localised. IIt could be funding a local library or repairing a church roof, or it could be laying the foundations for the next multinational company. Technology has taken the whip-round to a new level.”
Sheerman suggests that the legacy of the 2008 global financial crisis is still being felt by start-ups, but feels that fintech can play a huge part in solving that issue. “Banks don’t want to give out loans as readily as perhaps they once did. A lot of entrepreneurs are hampered by having to present a business plan alongside their ideas from the onset. It’s hard to come up with a long-term strategy when the idea might still be in its infancy. Crowdfunding doesn’t have those barriers and you can set your targets as you go along.” In turn, the veteran parliamentarian suggests that fintech might actually help to upskill the SME sector. “Fintech is about empowering individuals and communities who want to do good. It’s a good way to help them learn how to raise and manage money. It’s social enterprising and campaigning.”
In prescribing how the UK should go about nurturing its fintech scene further, Sheerman recommends “light regulation”. The UK’s principal financial regulator, the Financial Conduct Authority (FCA), was given a statutory objective of promoting competition in 2013, and government policy since has been themed by innovation and cutting red tape. Compared to the United States, which Sheerman says is “perhaps over-regulated” thanks to its size – different laws in different states complicate matters – the UK has a much more streamlined approach. The Office of the Comptroller of the Currency (OCC), an office within the US Treasury, however, published a white paper in December calling for a special purpose national bank charter for fintech companies, which means they would be subject to federal banking rules. This is effectively a license that needs to be applied for.
While the need for responsible business practices is essential, Sheerman acknowledges, it is also important that fintech companies are not blocked from the market needlessly. “The fintech APPGs have worked closely with the FCA to help it to build into its governance, a mandate to promote innovation and more importantly, competition.” Why is competition important? “Competition can only serve to benefit consumers. There has been a desire, since 2008, to break up the old monopolies and offer alternative finance. Innovation should be allowed to be disruptive and it’s good to see that the UK is willing to reflect that through policy.”
Fintech in the UK has been valued at around £7 billion by Deloitte, so it’s no great shock to see the industry feature prominently in all major political parties’ economic strategies. Is this a rare point of cross-party consensus? “I suspect the only difference in terms of an approach between a Conservative or Labour government at least, would be around protection laws. From a Labour perspective, we’d like to see people protected from even losing small amounts of money through crowdfunding or enterprising. I do think that Labour should try to embrace fintech more. As I understand it, Jeremy Corbyn is keen to get back to grassroots, and putting the power into the crowd. After all, responding to the challenges of the industrial revolution is what spawned co-operative, mutual, building societies and so much more. Crowdfunding and other forms of accessible finance give people the chance to take control.”
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