Earlier this year, Ron Kalifa OBE, the former Worldpay chief executive, published his long-awaited report on how policymakers can support UK fintech. In the Kalifa Review he proposed a five-point plan, with recommendations on policy and regulation, skills, investment, the international markets, and national connectivity. In a recent phone call, Kalifa told Spotlight about the risks and opportunities. The conversation has been edited for length and clarity.
Your report pitches a holistic vision for fintech. Is there a part of this that policymakers should prioritise?
The work that I’ve done is to ensure that we are forward thinking and that we’ve got a joined-up approach to protect, to support and scale the sector. Countries around the world look to the UK for fintech thought leadership, but are also in a race to steal the crown from us. It’s an interesting dilemma in the sense that we’ve done really well, but it’s about making sure that we don’t rest on our laurels.
What do you think policymakers least understand about the sector’s needs?
I think policymakers do understand it, which is the reason why they commissioned the review, but I think it’s more about what should be done, particularly given the opportunities that are presenting themselves now in terms of competition happening overseas.
Brexit has clearly happened, and Covid, but how do we drive the opportunities that are there if those are the challenges? The opportunities are about jobs, they are about inclusion, they are about trade. I think policymakers understand it, but I think in fairness to them they’ve got a lot of other things on their plate, so it really is a question of, OK, so what do we do about it?
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You note Brexit as a threat. Can the UK realistically hope to remain a world leader in fintech after leaving the European Union?
Absolutely. We have a dominant [global] market share of 10 per cent. The reason we’ve got that is because of the history, but also because of the trust that the world puts in the UK. If you look at the level of investment that went into UK fintech last year it stood at $4.1bn, more than the next four European countries combined. The gulf between where we are and the rest of Europe is immense.
We’ve got an abundance of financial and technology talent and we have set the benchmark for policy-led innovation, in terms of initiatives such as the Financial Conduct Authority’s regulatory sandbox, open banking, and so on.
We have a very digitally active population who are using the services of at least one fintech company. The last bit for me is that Covid-19 has really been an accelerator, in many ways, of digital activity. Six million people in the very first month of lockdown, that’s 12 per cent of the adult population, downloaded a banking app for the very first time, and fintech lenders dispersed up to 30 per cent of Coronavirus Business Interruption Loan Scheme [CBILS] funds last year.
We are on a very good platform that we can build from as opposed to be worried about, but it requires action to ensure that we are co-ordinated.
Does Brexit present an opportunity for the sector?
So much is written about Brexit that you lose track of where things are, but I think it gives us the opportunity now to set our agenda. The work we’ve done [with the review] is not dependent on regulatory alignment or equivalence within the EU. It allows us to pursue these policies on data strategies, on digital ID, on our central bank’s proposed digital currency, and other things, unencumbered.
You spent a year speaking to a long list of stakeholders for the review. What were start-ups and disruptors most worried about?
They tended to highlight skills as a significant gap that needed to be addressed and filled. That was a reason why one of the recommendations [of the review] is to ensure that we don’t lose out because of Brexit in terms of hiring people. To mitigate that we put a recommendation in to introduce a new visa stream that will fast-track visas for international fintech talent.
France has got the tech visa, Canada’s got a global talent stream, Australia’s got a global talent programme, so we’ve suggested we create this new stream to enhance access to international talent for businesses that are scaling up rapidly.
The other area that was talked about very avidly was the need for help in terms of scaling capital. Government is busy doing many things, so this is about how we get private money to help buoy up a sector and an industry. The second is to look at the regulatory obstacles that prevent our domestic insurers and pension funds from investing in growth companies.
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In our recommendations you will have seen the need to [unlock] institutional capital to create a £1bn fintech growth fund. There’s £6trn in UK pension schemes alone. If we could dedicate a small percentage of that, that would be tremendous.
Fintech is potentially quite a risky investment. Would there be the appetite from pension funds?
It would have to be judicious in terms of the type of businesses that would be accessing that fund. It wouldn’t be just a sort of free-for-all. It would need to be managed and controlled, but frankly we are very good at that in the UK. We’ve got investment managers who are accomplished in terms of assessing it, but it also allows us to start thinking about the future of the sector, the future of an industry, financial services, that’s going to grow.
There are today over a million people employed in it. In many ways, technology is now the enabler of many of the incumbent organisations, the large banks. This is the future of financial services so it makes complete sense for us to do this because it plays to all the agendas for any society, in terms of jobs, in terms of international trade, in terms of levelling up, innovation, inclusion. I think, of course, there is a risk, but the risk has to be led and managed as it does with any investment process.
What were the main concerns you heard from incumbent banks?
Firstly, they were really supportive of the work, and many of them described themselves as fintechs, which may surprise many. They don’t think of themselves as organisations that are left in the past. They are trying to ensure that technology is at the forefront of their services. Another thing that came across is that it’s all well and good to partner with these players but we need help because the regulator looks to us – I mean the large banks – if something goes wrong.
That’s why I recommended something called “the scalebox”, which supports the [FCA] sandbox that played a key role in helping younger businesses who wanted to innovate in the past. This is about the next opportunity to help those organisations moving up the scale to get help from the regulator, get support and advice on how best to ensure that they stay safe for consumers, but also grow their business.
Is there a risk to innovation as the sector consolidates?
Not every fintech, as in not every business, will survive and succeed, so we will see businesses fall away in the same way that we would for any other sector. But we’ll start to see some consolidation happening simply because the ingredients for success tend to be about scale. They tend to be about access to consumers or access to distribution. They tend to be about technology, which can cost a lot of money, and they tend to be about regulations.
Inevitably, there will be adjacent oppositions that might be better off working in a more collaborative way, whether it’s a takeover of a commercial arrangement or some kind of combination. We will see that, but I don’t think that will curtail any innovation going forward. In many ways it can bring diverse ideas together and fuel more ideas for the future.
How different is it for companies operating today compared to what you faced back in the early 2000s when you started to scale up Worldpay?
Worldpay in 2002 was still a nascent business, it was a loss-making business, it had 75 people I think and it was always – as it is for any business, in fairness – hard to get going. But determination, capability and talent within the organisation pushed it through.
The thing that was a bit of a breakthrough for a business such as that, which is still the same I think today, is to ensure that you can find ways to get to scale, and scale in terms of more customers. We signed up at that time some relatively large household names, which was the catalyst for getting more volume onto the technology platform, driving better productivity, lower unit costs, and better margins.
Once you get that going, then you start to have a marquee name, then it starts to show to other potential customers that you have got the capability. I don’t think that’s very different from the work today. Obviously now technology has moved on significantly. Adoption of digitisation and e-commerce is very high.
At that time it was still a relatively young industry in terms of online payments, so there are things that are different, but the fundamentals are the same in terms of where you get customers from. How do you ensure that you are investing wisely on things that you’ve got to spend money on?
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You’ve said that fintech isn’t a sub-sector. How close are we to this being a mainstream view?
The expression “fintech” doesn’t help the industry, I don’t think, because it suggests that it’s something a little bit niche. But the reality is that when consumers think about the way they are interacting with financial services, they are increasingly doing it through a digitised platform. It might be online banking, it might be transferring money.
What I found interesting was that fintech as described by people who are in the sector is quite often thought about as being closer to tech than it is to financial services. I think that gives you a sense of how the ecosystem is evolving. What that infers to me is that we’ve got to get away from thinking about it as a label.
It’s more about making sure that consumers get a better service. Consumers and small business have access to financial services in a faster, better, more efficient way, and I think that’s essentially where it is. As with the term “e-commerce”, that’s lived for a long, long time and will continue to, but it’s evolved – initially, it was thought about as a bit one-offish. I hope in many ways that fintech will evolve as well, so that it becomes considered as part and parcel of financial services and part and parcel of banking, which is essentially what it is today.
This article originally appeared in the Spotlight supplement on fintech.
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