What the government should prioritise for fintechs in 2026

13 November 2025
by Payments Intelligence

Insight summary

Finding: The UK’s fintech sector is losing ground globally due to regulatory friction, reduced tax incentives, and uncertainty around digital asset policy.
Why it matters: Without a clear and supportive framework for stablecoins, open banking, and fintech growth, investment will continue to shift overseas, undermining the UK’s status as a financial hub.
Who’s affected: Fintech start-ups, PSPs, banks, e-money institutions, investors, merchants, and technology providers reliant on open banking and digital assets.

Introduction

The UK has long been a beacon for financial innovation. Its rich ecosystem of fintechs, payment providers, and regulatory expertise has made it a global benchmark for digital finance. Yet, that leadership is slipping. A combination of heavier regulation, shifting tax structures, and lack of urgency on open banking and stablecoin frameworks has slowed momentum at precisely the moment global competition is accelerating.

In recent years, fintechs have increasingly struggled with scaling, compliance costs, and diminishing investor confidence. While new initiatives such as the FCA’s and PRA’s Scale-Up Unit are welcome, broader policy reform is urgently needed. For the UK to retain its influence, the government must prioritise regulatory clarity, competitive taxation, and targeted innovation incentives that support the full payments value chain — from start-ups and PSPs to major banks and merchants.

Industry impact at a glance

Fintech providers

Expect greater scrutiny of regulatory compliance and capital resilience as the government reassesses the balance between innovation and consumer protection

Payment service providers (PSPs)

Prepare for higher operating costs as reimbursement requirements take hold and open banking remains slow to mature across e-commerce use cases.

Banks

Anticipate closer involvement in stablecoin and digital asset pilots as regulators seek practical input on redemption models and systemic safeguards.

Merchants

Look for gradual expansion of Variable Recurring Payments beyond utilities and telecoms, opening opportunities to streamline checkout and recurring billing.

The state of UK fintech

Long recognised as a global hub for financial services, the UK government’s pursuit of economic growth naturally turns attention to the fintech sector.

Yet increasing regulatory complexity, rising National Insurance contributions, and the dilution of start-up investment incentives are constraining momentum across financial services. The sharp rise in e-money and payment institutions withdrawing their FCA licences underscores these pressures: an average of 23 firms exited annually between 2018 and 2021, compared with 138 in 2022 and 139 in 2023.

These challenges are not insurmountable. Swift progress on stablecoin and open banking regulation would provide firms with the clarity needed to innovate confidently. At the same time, reviewing the overall regulatory load on fintechs and safeguarding tax incentives for early-stage employees could help restore a more competitive growth environment.

Sound policy is especially vital as the UK’s global standing comes under strain. According to Innovate Finance, the United Arab Emirates (UAE) surpassed the UK to become the world’s second-largest fintech market in the first half of 2025. Although this was partly driven by Binance’s $2 billion raise, the UAE’s broader appeal—light-touch regulation, a low tax regime, and a fast-expanding economy—cannot be ignored.

The UK retains distinct strengths in talent, infrastructure, and institutional credibility. The degree to which fintechs can capitalise on these advantages will ultimately depend on the direction and decisiveness of government policy.

Regulatory priorities for growth

Sustained growth in the UK fintech and payments ecosystem will depend on a regulatory environment that enables innovation rather than constrains it. While the UK continues to attract talent and capital, policy uncertainty and uneven regulatory progress are beginning to erode its competitive edge.

To restore confidence and stimulate long-term investment, the government should focus on three interlinked priorities: establishing a proportionate and internationally aligned framework for stablecoins; ensuring regulation supports rather than deters investment; and accelerating open banking adoption to unlock the next wave of payments innovation.

1) Stablecoin regulation

The FCA has taken steps towards establishing a safe and effective stablecoin regime. The industry has welcomed this; however, many firms believe the proposals in their current form are too complex and risk being less supportive of growth than the frameworks emerging in other leading jurisdictions, particularly the US

The banking community welcomes the move towards treating stablecoins as “money-like” instruments with clear backing and near real-time redemption, which would help build trust and confidence. However, there is concern that the overall regulatory burden could discourage UK-based issuers from launching at all.

This challenge is heightened by the fact that stablecoins issued overseas will still be able to circulate in the UK. Without proportionate, innovation-friendly rules that allow domestic issuers to compete, there is a risk that investment and new products are developed offshore and merely distributed into the UK, rather than being built and scaled here.

To support growth, the government and regulators will need to ensure the regime is internationally competitive, avoids excessive prescriptiveness, and is aligned with the broader ambition for the UK to be at the forefront of digital asset innovation. Accelerating clarity on the regulatory framework, while maintaining appropriate safeguards, would help unlock the economic and technological benefits stablecoins can bring, particularly in payments, settlement, and cross-border transactions.

A whitepaper from TPA’s Digital Currency Working Group recommends the following:

Accelerate the UK’s digital asset regulatory framework: Develop a globally competitive framework that supports innovation and covers the full spectrum of digital assets, including stablecoins, tokenised securities, and programmable payments infrastructure. Clarify the Bank of England’s systemic stablecoin regime timelines and reintegrate the FCA’s Phase 1 proposals to avoid delays.
Align with global standards: Ensure interoperability between markets, particularly with euro- and dollar-denominated stablecoins, to remain competitive globally. Create a risk-based regulatory framework that supports evolving technologies like programmable money and tokenised deposits.
Support financial inclusion: Develop a regulatory framework that fosters financial inclusion and innovation, thereby enabling access to digital financial services for underserved communities. Stablecoins can play a key role in cross-border payments and provide financial stability in volatile economies.
Cement the UK’s position as a financial services hub: Create a world-class regulatory regime that supports domestic innovation and attracts global stablecoin issuers. Address barriers like debanking and support the growth of GBP-backed stablecoins to prevent dependence on foreign-issued, dollar-denominated stablecoins.
Support innovation and growth by highlighting use cases: Promote the benefits of stablecoins in areas like cross-border payments, payment processing, tokenisation of real-world assets, corporate treasury, and AI applications. Encourage safe experimentation while preserving financial stability.

Additionally, the Bank of England has proposed capping stablecoin holdings at £20,000 for individuals and £10 million for businesses. These limits, which have no equivalent in the US or EU regulations, have drawn criticism from the industry.

In an article by the Financial Times, Riccardo Tordera-Ricchi, director of policy and government relations at The Payments Association, says, “Limits make no sense. Just as there are no limits on cash, bank accounts, or e-money, there is no reason beyond scepticism to impose limits on stablecoin ownership.”

In a consultation paper published on 10 November 2025, the Bank announced that retailers and cryptocurrency exchanges could be exempt from the £10 million limit on business transactions.

2) Encouraging investment

Although macroeconomic headwinds have deterred investment in fintechs globally, several factors are specifically inhibiting fintech growth in the UK.

A key barrier to new fintech entrants is the Payment System Regulator’s (PSR) mandatory reimbursement requirement, which has raised the cost and complexity of market entry. While this issue was highlighted during consultation, its real-world impact now warrants scrutiny.

There is a growing perception among investors that capital deployed into early-stage UK fintechs risks being absorbed by fraud reimbursement rather than growth, which appears to be dampening investment appetite.

Global investment in fintech

Investment (US$ billion)

Chart: Payments IntelligenceSource: KPMG Pulse of Fintech report H1 2025

For established but early-stage fintechs, another pressure point is the changing tax treatment of enterprise management incentive (EMI) share schemes. These schemes have traditionally been a critical tool for attracting and retaining talent in high-growth firms, offering employees a preferential 10% rate of Capital Gains Tax on exercised options.

The rate has already risen to 14% and is expected to increase further to 18% from 6 April 2026. Weakening this tax incentive erodes one of the key advantages that has supported the fintech ecosystem to date. Combined with increased National Insurance contributions and compliance costs of the new PSR regime, the environment for starting and scaling fintechs in the UK has become more challenging.

The government is starting to take action to support growing businesses. In October 2025, the FCA and Prudential Regulation Authority (PRA) announced a joint Scale-Up Unit to “provide a dedicated point of contact to tackle some of the challenges scaling firms face.”

The unit will initially support banks and building societies, insurers, and FCA solo-regulated firms, providing support for:

Regulatory processes: understanding which are relevant to the business’s scaling plans and coordinating regulator interactions ahead of and during formal submission
Product innovations: early-stage discussions on these plans and the corresponding regulatory treatment
Impact of new policy proposals: the unit will seek feedback directly from scaling firms and feed this into the PRA’s and FCA’s policy-making processes
Sector engagement: the unit will support ongoing dialogue between regulators, firms, and the wider scale-up eco-system.

More details are expected in Spring 2026.

TPA member commentary

“Open banking presents a host of benefits to fintechs but wider uptake is needed to enable innovation. The government should encourage regulators to accelerate availability of Variable Recurring Payments for the e-commerce merchant segment. More broadly, awareness of open banking remains low. Consumers need to understand what open banking is and why it’s safe. Greater familiarity and regulatory support will drive adoption, enabling innovation and growth for fintechs.”

“The Payment Systems Regulator’s mandatory reimbursement regulation has raised barriers to entry for new fintechs, an issue highlighted during consultations but now requiring reassessment. This is highly likely to have impacted investment, as firms must absorb fraud-related reimbursement costs, deterring investment and innovation. The recent tax increase on Enterprise Management Incentive (EMI) shares (with more increases planned) further reduces the UK’s attractiveness for fintech talent. To preserve the UK’s position as a leading global fintech hub, the government should target policy measures that protect, incentivise, and sustain fintech growth, ensuring regulation and taxation frameworks enable innovation rather than constrain it.”

“The UK government must accelerate timelines for all regulatory changes –including the cryptoasset authorisation and regulatory framework and systemic stablecoin regime. It should use the Data (Use and Access) Act 2025 powers to drive a sustainable commercial structure for Open Finance. It must accelerate pro-innovation AI regulation to maximise productivity (including in wholesale markets), further automate the compliance burden fintechs face, and enhance fraud prevention. Operational resilience is essential and emphasises the need for the UK to push forward with the Critical Third Parties regime and designate major technology providers (cloud and AI) that are essential for the fintech sector.”

“From a Fintech perspective and what I hear from the broader industry, is that a host of issues consume their thoughts, in particular how, through Brexit, many lost sizable chunks of their audience (when passporting was removed), and this has never been addressed, and no solution has ever been suggested.”

3) Accelerate open banking adoption

Open banking enables third-party financial service providers to access customer financial information from traditional banks via an application programming interface (API). Fintechs, as third-party financial service providers, benefit from open banking in several ways:

Enhancing customer experience through personalisation, analysing data across multiple banks to create bespoke budgeting tools and recommendations
The ability to identify opportunities for financial services and products via customer activity data
Improved risk management through access to up-to-date consumer spending and borrowing behaviour
New opportunities for collaboration and partnerships, not only with banks but rail networks, digital marketplaces, and apps.

The government can pressure regulators to accelerate the availability of Variable Recurring Payments (VRP) for e-commerce merchants, as it is currently restricted to government, financial institutions and regulated utilities and telecoms.

More broadly, the government can encourage the adoption of open banking. A survey of 500 merchants run by Payments Intelligence and Opinium found 31% of merchants considered a lack of consumer demand or awareness of open banking to be the biggest barrier to adoption. The government can help with consumer education, as well as encourage the industry to have a consistent brand mark to help increase consumer awareness levels.

Perceived barriers to open banking adoption among retailers

Concerns around the customer dispute process is higher among retailers than other merchants, though a lack of consumer demand remains one of the greatest barriers.

Chart: Payments Intelligence – Source: Opinium

Strategic recommendations for payments leaders

For senior leaders in payments, the direction of travel is clear: stablecoins and digital asset regulation are moving from theoretical to operational. The decisions taken now will shape competitiveness over the next five years.

Assess stablecoin-ready operating models: Review treasury, settlement, and liquidity workflows to determine where regulated stablecoins could reduce costs or improve speed. Identify areas where tokenised liquidity or near-instant settlement would provide a measurable advantage.
Engage early with evolving regulatory frameworks: Monitor the FCA’s developing regime and the Bank of England’s systemic proposals, particularly around safeguarding, redemption obligations, and potential holding limits. Early alignment will minimise future restructuring costs.
Evaluate issuance, acceptance, and custody options: Decide whether your organisation’s role will be that of issuer, accepter, custodian, or integrator. Each carries distinct operational and compliance implications, and early clarity will guide product strategy.
Prepare for new liquidity dynamics: As stablecoin issuers continue accumulating short-dated government debt, consider how this may influence liquidity access, funding costs, and investment strategies. Treasury functions should model multiple scenarios.
Strengthen cross-border capabilities: Stablecoins are likely to play a growing role in B2B settlement and international payment flows. Identify markets where on-chain settlement offers a competitive advantage compared with traditional correspondent networks.
Support consumer and merchant education: As regulated coins enter mainstream channels, firms will need clear communication strategies to explain benefits, risks, and redemption mechanics. Early planning will help build trust and adoption.

The message for leaders is simple: stablecoins are no longer peripheral. Regulation is creating the certainty institutions need to integrate them into payment and treasury architecture. Those who act now will be best positioned to shape the next phase of digital payments.