Is FinTech (Financial Technology) coming of age? The Chancellor, George Osborne, seems to think so, as his Autumn statement spelled out that the UK government is determined to support a more competitive banking sector where new banks, alternative providers and FinTech companies can thrive alongside the established players, competing to offer new and improved services to customers.
Whether the Chancellor sees the UK’s FinTech community as the answer to the banking sector’s well-documented woes or as a catalyst to change the incumbents’ ways is not clear. Whatever the motive, the Autumn Statement is likely to be welcomed by the FinTech community.
But is the Autumn Statement all talk and no action?
Peer-to-peer (P2P) lending
Perhaps the most interesting statements related to the P2P lending sector, as they could be revolutionary for both the business and consumer lending industry. However, the only concrete action resulting from the Statement is bad debt relief on investments made through a P2P lending platform. This will allow individuals to offset any losses from loans which go bad on a P2P lending platform against other P2P income. It will be effective from April 2016 and, through self-assessment, will allow individuals to make a claim for relief on losses incurred from April 2015. This may help to level the playing field between individual lenders and corporate/institutional lenders.
The other proposals are for the government to review and consult on:
- P2P Lending ISAs: whether to allow P2P loans into ISAs and on how this could be implemented. The industry was, however, hoping for a firm commitment from the government on this issue. It is hoped that this is not a climb-down from the government.
- financial regulation which currently stands in the way of institutional lending through P2P platforms. This begs more questions than it answers: will this crowd “the crowd” out of the market? Will institutional money use its muscle to acquire all the good loans, leaving the riskier loans for the individual investors. Will banks’ regulatory capital requirements be reduced for P2P loans?
- a withholding regime for Income Tax to apply across all P2P lending platforms from April 2017. This will help many individuals to resolve their tax liability without them having to file for Self-Assessment.
Access to banking
Access to banking was another key theme of the Autumn Statement. In a bid to support the emerging alternative finance industry, the government will be requiring the big banks to open up access to their credit data and refer on any SMEs that they turn down for finance. There will also be support for FinTech firms that want to use bank data to help consumers and small businesses make better decisions. Gocompare are the first comparison website to commit to launching a Midata current account tool, and intend to make the service available from 1 April 2015.
Building on this, the government is keen to enable more innovation around bank data and, following publication of a report on Application Programming Interfaces (APIs) in banking and open data, will launch a call for evidence on how to deliver standardised APIs in the banking industry. It is hoped that this will enable FinTech companies to develop innovative solutions to allow customers to make better comparisons between different banks and financial products. This will almost certainly force the incumbent banks to innovate in the way they assemble, and price, their financial products.
The government confirmed that it supports action from the new Payment Systems Regulator (PSR) to solve the access problems that have made entry to the UK banking market difficult for FinTech companies and challenger banks (although this is clearly not the only barrier to entry!). Should the measures set out by the PSR prove insufficient, the government expects the PSR to use its strong powers in order to deliver the government’s aim of open, fair and innovative payment systems for the UK. It is not clear whether the word “innovative” includes a nod to virtual currencies such as Bitcoins!
Not specifically FinTech focussed, but welcome to the FinTech industry nonetheless, are the proposed changes to venture capital schemes. The government will introduce a new digital process for investors and companies qualifying for the tax-advantaged venture capital schemes (EIS, SEIS and Social Investment Tax Relief) in 2016, making it easier to use the schemes. A new format for VCT returns will also be developed. This can only encourage more seed funding for the FinTech system (something still sorely lacking!).
Do these measures fulfil the UK government’s ambition to make the UK the leading global hub for FinTech companies? It is certainly a step in the right direction, but there is more to do. A focus on seed investment incentives in this sector would be on this author’s wishlist, so that FinTech’s visionaries can continue to disrupt this sector, driving better outcomes for both the consumer and the economy.