The FinTech Strategic Review

The FinTech Strategic Review (Kalifa Review)is giving the FinTech sector its well-deserved, big bang moment.  The Review is focused around five key chapters; Skills &Talent, Investment, International, Policy & Regulation and National Connectivity.

Each chapter shines a spotlight on a different area which gives rise to a combination of recommendations, being set out in a five-pronged strategy. This strategy will further accelerate the sector as well as providing the space and support needed for it to be an enabler for post pandemic recovery.

A critical component of this growth and recovery opportunity is national connectivity.  FinTech has the incredible power of not only levelling up but also equalling out. A certain way to drive equal growth and opportunity across all pockets of society is to identify and nurture FinTech across the UK. But there’s no time to rest and we must act now.  

In this blog, we take a closer look at the National Connectivity Chapter and its recommendations: co-led by Deloitte and Tech Nation, and influenced and shaped by a panel of founders, leaders and major players from the FinTech ecosystem.  

What is the National Connectivity Chapter?

The UK is bursting with FinTech activity and London isn’t its only home. Deloitte’s analysis showed that this activity appears in ‘clusters’ where financial services, STEM talent and accelerators are present. In fact, a third of all FinTechs sit outside of London and form nine additional clusters of high growth FinTechs. A key focus of the National Connectivity Chapter is to unleash competitive advantage, surface the hidden FinTech gems from all corners of the country and ensure the right support and infrastructure is available to allow these clusters to thrive.

Doing this requires connectivity. Connectivity means easy access to information, investment, skills and talent, and policy and regulation expertise. It means proximity to, and support from, established financial services and technology businesses, academia, accelerators and commercial partners. Moreover, it means better relationships and liquidity of information between individual FinTechs within clusters, between clusters across the UK and with the wider FinTech ecosystem on our shores and beyond. All of which are key catalysts for FinTech growth.

Levelling up to create value

The analysis performed within the National Connectivity Chapter identified 25 FinTech clusters, 10 of which are producing scale-ups. To power success across the country, these clusters need to form an even more collaborative and connected web. To help them reach their full potential, we recommend strengthening the connectivity between clusters. If we do this, we increase their access to the key catalysts of FinTech growth outlined above. This would encourage national collaboration and strengthen international competition, boosting the position of the UK overall. Afterall, this isn’t about Manchester competing with London but Manchester competing with Barcelona, Frankfurt and Sydney. The opportunity is global.

For more information on the UK clusters, please see our webpage.

To do this, we have to connect, which is why we see National Connectivity as vital.  Seizing the growth opportunity and benefits of greater national connectivity and collaboration will lead to levelling up and equalling out. The last thing we as a society or as an economy needs is more polarisation. The greater our connections, the more access we create. And with a potential GVA uplift of £2.4bn - £3bn and potential scope to create over 50,000 FinTech jobs, this means a fairer society for all as we take a step forward, together.

The Three National Connectivity Recommendations 

The chapter recommends three things to strengthen the UK’s collective excellence and drive wider economic opportunity. Together, they help the nation level up, expose its depth of innovation and talent and reinforce our position as a global FinTech leader. They are:

  1. Nurture and strengthen the high growth potential of the top 10 FinTech clusters, with the proven foundational capabilities to optimise their particular areas of excellence.

  2. Drive a national coordination strategy through Centre for Finance, Innovation and Technology (C-FIT), to ensure future fintech competitiveness and growth across the UK. This will deliver national coordination, with supporting data and technology infrastructure, to ensure future fintech competitiveness and growth across the UK.

  3. Accelerate the development and growth of FinTech cluster excellence to take advantage of domestic opportunities and compete on the global stage, through increasing research and development investment in the FinTech sector.

The Drivers Behind the Recommendations

1. Nurturing the top 10 FinTech Clusters

The UK’s clusters have evolved at differing speeds with different drivers, funding, organisational structures, governance, and approaches. They’ve used the foundational capabilities such as proximity to Financial Services and Technology expertise, academia and accelerators at their disposal to greater or lesser degrees. Some clusters have independently grown in duplicative ways.

Presently, cluster leadership has been stimulated through a patchwork of different ownership, governance and funding models. These range from no or little public funding support, to greater levels of seed-funding as well as ongoing project resources.

Local cluster leadership is an important factor in driving success. The nature of the entity and its governance is also key.  Build a public/private partnership steered by commercially minded leadership with a professional governance structure and you’ve got a more investable entity which more than likely is easier to fund. This recommendation by no means seeks to disregard or discourage organic growth in wider areas. It simply suggests that by focusing efforts and available resources on these clusters we will create the strongest return at the fastest pace.

As part of the first recommendation on nurturing the top clusters, it is proposed that each prioritised cluster will:

  • Produce a three-year strategy to support their continued growth, foster specialist capabilities, and enhance national connectivity.
  • These strategies should:
    • Be set against national baseline data
    • Be entrepreneur-focused (entrepreneur as the customer)
    • Optimise identified areas of excellence and build on existing strengths.
    • Secure funding to support its implementation e.g. LEPs or City Deals where these are available or equip them to effectively access the £1 billion FinTech Growth Fund recommended by the Investment chapter
  • Consider where cluster collaborations, both virtually and physically, might further support cluster goals

    2. Drive a national coordination strategy through CFIT

The UK is undoubtedly a FinTech leader. With greater strategic national coordination and access to accurate and insightful national data, we can be an international powerhouse.  We just need to ensure UK FinTechs can benefit from the key ingredients that drive success and growth.  These are talent, investment, partnerships and expertise from industry peers to name a few.

By elevating emerging world-class UK FinTech leaders onto the international stage, we will maintain the UK’s position as a leader and continue to boost growth of individual clusters and businesses. This we can do by encouraging, for example, the powerful axis between Manchester and Leeds known as ‘The Pennines Cluster’ to compete and co-operate with Barcelona and Austin. To achieve this, we must focus on enabling UK FinTechs to collaborate across the UK, leveraging the related capabilities through increased connectivity.

C-FIT should embed a data-led approach and maintain a national FinTech database, which aims to provide open-access data and ensure an evidence-based approach to sector developments. C-FIT will be governed on the principle that it operates as a small central co-ordinating function. Its broader reach will come through an Advisory Board comprising public/private local/regional representation, government/regulator and investor representation.

Primary objectives of C-FIT should include:

  • Provide strategic cohesion of UK FinTech ambition through facilitating national connectivity
  • Support UK FinTech cluster development

New Green Book guidance requires investment business cases to be measurable and evidence based. To this end, we believe the liquidity of data is imperative for implementing the review’s recommendations by:

  • The promotion of the reform of SIC codes to ensure the ONS is able to measure and analyse this industry using a repeatable and standardised method.
  • Aiding local clusters in understanding their regional capability in a standardised manner, and help them form local evidence based business cases with parity across the country for funding.
  • Creating an accurate map of UK capability on the international stage, informing FinTechs and investors on areas to expand.
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  • Helping inform the national FinTech strategy.

3. Increasing research and development investment in the FinTech sector

Innovation funding is already a key government priority. However, if we really want to be on the road to post pandemic recovery, there needs to be more focus on creating opportunities for collaboration between FinTech research and innovation. Doing this will drive the newest approaches or see those ideas through to commercial exploitation. It would also attract future innovators to the UK to work on their next big product while also incentivising stronger commitment to the UK from companies already here.

Being more aware of, and having better access to, future innovation funding will ensure the development of cluster specialisms. This fosters centres of excellence within clusters, encourages collaboration between industry and academia, and prioritises real-world commercial applications.

To increase R&D investment in the FinTech sector, C-FIT will:

  • Identify and disseminate existing innovation and/or geographical funding streams available to enhance UK FinTech.
  • Provide expert input to assist with industry-led bids to support clusters in accelerating their strengths, for example through FinTech Centres of Excellence, with an emphasis on commercial applications.
  • Liaise with Innovate UK on their intended FinTech R&D pilots, working together to evaluate and consider further routes for FinTech innovation funding.

Capitalising on the success of UK FinTech

The UK must continue to nurture a start-up culture, but also give high growth firms the opportunity to become global giants and category leaders. The Kalifa Review lays out a strategy and model for its delivery, providing a unique opportunity to realise the potential of a decade of growth, innovation and talent.

The National Connectivity Chapter is a key enabler in the levelling up and equalling out of UK FinTech, ensuring that finance and technology is placed at the heart of economic recovery for all.