The UK risks throwing away its fintech crown as open banking ambition stalls

For a decade, the UK has held the fintech crown of Europe.

The UK must prioritise policies that incentivise open banking innovation and support growth

From insurance companies to challenger banks, we have a sector built on world-beating companies whose success has been driven by our early commitment to pragmatic and progressive regulation and innovation.

Open banking was supposed to usher in the next big wave of this financial innovation. It promised to bring consumers and SMEs greater and fairer access to their finances, increase competition and revolutionise consumer choice.

Yet despite the UK’s strong track record with the likes of Wise, Revolut and Checkout.com, despite fintechs across the country building robust and innovative open banking infrastructure, and despite the promise that open finance brings, the UK’s ambitions for open banking appear to be stalling. Big banks are gatekeeping, while the growth of the sector is held back through inaction and indecision on the part of our politicians and policymakers.

Without immediate regulatory and government support, the UK’s fintech leadership could be lost. And with it, a major source of growth in the UK economy.

Regulatory paralysis

For the past nine years, the UK has been a pathfinder for fintech, underpinned by strong regulatory leadership. We pioneered the UK open banking standard and governance model that is now copied around the globe. Yet the UK is now struggling to maintain its first-mover advantage.

One casualty of the unexpected July general election was the Data Protection and Digital Information (DPDI) Bill, which was abandoned in the last days of the house sitting. This bill was crucial to establish the legal groundwork needed to propel open finance forward and its absence has created a vacuum, stalling progress and innovation.

The incoming government has been quick to bring a new DPDI bill to the house, indicating that it understands how important this regulation is to enabling Open Banking Ltd. But the interim entity of OBL, which is spurring innovation in the sector, is still only being funded on an interim basis by donations from 20 fintechs, challenger banks and high street banks. This isn’t a long-term solution that will encourage investment or expansion of UK fintech.

Cost of inaction

Last year, British fintechs attracted more funding than France, Germany, China, India, Brazil and Canada combined. According to data from Statista, UK fintech companies have collectively raised $54.1 billion (£43 billion) in funding since 2014, and even with the economic turbulence of recent years, the sector still raised more than £9.72 billion alone in 2023.

A report from Innovate Finance recently revealed that fintech could add an additional £328 billion in value to the economy by 2029 if ministers prioritise innovation and cement the UK’s leadership in adopting new technology in financial services. The downside of not underpinning the fintech sector can already be seen in that it’s getting harder to fill roles in the industry. According to Vacancysoft, there has been a 61% annual jump in fintech vacancies since the start of the year, with total vacancies likely to be more than a third higher than in 2023 if the current pace of recruitment continues.

The current regulatory instability threatens all of this. We risk losing our investment and talent, and we could easily see it shift to rival markets, jeopardising the economic benefits fintech clearly brings.

We’re already experiencing a liability shift that is undermining progress. When the PSR’s new APP reimbursement scheme begins in October, receiving banks and other payment firms will share the liability with payer banks and will have to refund victims of authorised push payment (APP) scams. We believe that this will make banks even more cautious and reject many more payments. Instead of fostering a safer financial ecosystem, this new regulation could even bring our critical payment systems to a standstill – which would be catastrophic when it comes to building faith in open banking, as well as damaging innovation and investment.

Getting the UK back on track

Rachel Reeves, the country’s new chancellor, faces a huge in-tray, but open banking must be a priority.

Three things must happen: first, get the DPDI Bill back on track. If we want swift action, the bill should focus on the most critical parts first, namely fast tracking the Smart Data section, and not getting bogged down in other areas like AI. There is no foundation to push forward open finance without this bill, meaning we’ll miss out on the benefits of enhanced financial inclusion, vibrant competition, world-leading innovation, and the seamless integration, convenience, and enhanced security that comes from having a truly transparent system.

Secondly, we must get open banking working. Open banking is the foundation for open finance, and getting it right is crucial for the future of our financial ecosystem. We need the best performing APIs that provide the best customer experience — APIs that are fast, frictionless, and reliable. Unfortunately, too many bank experiences are suboptimal. Customers consistently struggle to pay invoices or send out payroll, which ultimately hinders UK PLC, especially during this cost-of-living crisis where businesses are struggling with cash flow and late invoices can be crippling.

Finally, our leaders need to be more consistent and explicit on the potential for open finance. Countries like Brazil and India have set the benchmarks for promoting open finance through strong governmental backing. Brazil’s Pix and India’s Unified Payments Interface (UPI) have revolutionised their respective sectors, and the UK needs to adopt a similar approach. This includes making access to payment rails easier and more affordable to fuel adoption and educate consumers.

To make these things happen, regulators and enforcement bodies need to come together. We need a unified approach where those governing the future of banking are granted clear decision-making and enforcement powers. OBL must be able to hold financial institutions to account, ensuring compliance, promoting best practices, providing oversight, maintaining high standards, and driving trust and confidence among users and investors alike.

The UK stands at a crossroads: we pioneered open banking and have reaped some benefits. Fintech has already opened up financial services to millions of underserved populations – whether consumers or SMEs. Yet to maintain our fintech leadership and build on this momentum, the incoming government must prioritise policies that incentivise innovation and support growth.

For any government looking to accelerate growth and inflows to the public purse, the cost of allowing fintech to languish in limbo is simply too high.