The UK holds a strong position in the rapidly developing fintech and digital payments world, but experts are divided over whether this will lead to a major breakthrough next year.
In British economic history, 27 October, 1986 is a seminal date. Dubbed the ‘Big Bang’, a cold Monday morning heralded a significant surge in British capital markets activity and marked the start of the country’s new era of financial services prosperity.
It was the culmination of several policy decisions by then-Prime Minister Margaret Thatcher to re-establish the UK’s economy as it pivoted away from relying on outdated industrial sectors.
As the 37th anniversary approaches, there are reasons to think a ‘Big Bang 2.0’ is nearing. British policymakers have been manoeuvring to re-establish the UK’s premier position in global financial markets, this time as a pioneer of fintech and digital payments.
Led by Prime Minister Rishi Sunak, these efforts are being made against a backdrop of growing competition from other jurisdictions. The global economy has changed hugely in 36 years, which is forcing the UK to adapt.
Riccardo Tordera, head of policy at The Payments Association, sees potential for a breakthrough. “Is the UK able to capitalise on other jurisdiction’s mistakes? I think there is room for that,” he says pointing out the initiative would require new branding to move it away from associations with Thatcherism, as “they will not want to call it Big Bang 2.0”.
“In the beginning, support for fintech was about building back after Brexit, but that has changed. Look at what Sunak has been saying about AI – he is good at putting flags in the ground and saying we are excellent at something. This is the right approach as the world is changed, [the future] has to be about fintech and crypto.”
Others are less confident, and many professionals working in the UK payments industry and fintech sectors are not expecting the breakthrough to occur as soon as next year. Sara Pediredla, CEO of tech consultancy Hedgehog Lab, suggests numerous areas require change to make this a realistic possibility.
“While technological developments advance at speed, regulatory changes often move at a snail’s pace,” she says. “Throw in the unknown variables of consumer adoption rates and potential economic or global crises, and the timings are even more unpredictable.
“While some elements of Big Bang 2.0 are already emerging, a full-on transformation by 2024 would require a perfect storm of tech innovation, regulatory support and market readiness. It’s possible, but I wouldn’t bet on it.”
Opinions are clearly split. So how realistic is it for Big Bang 2.0 to happen in 2024? And, if it is not to be, what needs to happen to create a breakout moment?
Big Bang 2.0: The case for 2024
The Big Bang of 1986 was the product of significant economic and cultural change in the UK, as the British economy transitioned from revolving around industries such as steel, coal and shipbuilding.
British society is again going through a seismic change, this time in how the population interacts with both money and technology.
James Allum, head of Europe for online payment processing platform Payoneer, defines today’s transformation as society undergoing a “technological revolution”. To give context to the change, he points to how expensive and poor-quality international calls were a decade ago.
“Now, we can make instant video calls abroad for free and we take it for granted. The same will happen with payments,” says Allum. “Money movement will eventually be completely instant and free, and before long people will forget it was ever any different.
“The internet boomed overnight after smartphones were introduced. All it takes is for a similar enabler to come through that payments can thrive off.”
Covid-19 was a significant catalyst for digital services, and specifically financial digital services integration in the UK. National lockdowns forced the population to engage digitally with financial services. According to the Banking Industry Architecture Network (BIAN), 24% of Brits now have a digital-only bank account compared to only 9% in 2019.
“With more people using digital-only banks, more people will look to use digital-only payment methods, including contactless or direct-to-bank transfers,” says BIAN executive director Hans Tesselaar. “As this happens, the natural reaction from financial services institutions will be – and should be – to meet their customers where they are.”
The UK population may be more tech-savvy than most, but this trend is not unique to the country. What is unique to the UK, however, is the breadth of fintech brands based in the country – with 3,200 fintech firms headquartered in the UK.
Major digital challenger brands such as Starling Bank, Monzo and Revolut have broken into the mainstream in the UK and are now targeting international expansion. Some experts hail the UK as the leader of this new era of fintech growth, while expecting the country to continue building on its successes in traditional financial services.
“The UK is leading the way on the fintech journey,” says Nick Botha, global payments manager for regtech provider AutoRek. “Traditional retail banks such as Lloyds and NatWest are accelerating the shift to a cashless society by making it easier to move money through smartphones, rather than requiring customers to go to a physical bank branch. It is exciting to see how the UK’s fintech market will continue to innovate and grow over the next few years.”
One of the reasons for the excitement around 2024 has been the breakthroughs made in AI this year. The sudden success of ChatGPT has caused widespread discussion about what technology will mean to both business and everyday life, with fintech no exception.
Ivo Gueorguiev, co-founder of payment service provider Paynetics, says Big Bang 2.0 is “around the corner” as AI “promises to rewrite the rulebook for financial services”.
“As more sophisticated chatbots, data usage, query handling and product recommendations emerge, financial services will improve overall product design and coding. Take mortgage or life insurance eligibility assessments, for example,” he explains. “AI can streamline entire service operations to speed up consumers’ applications.”
Further technological developments could support fintech solutions to become a more reliable and seamless part of people’s everyday lives. This is already being worked on at YouLend, which provides white label financing and accounting solutions for fintechs providers.
The company has developed a deep neural network architecture that is trained on all available merchant data, learning industry-specific insights from the SMEs it works with. Widespread use of technology, however, still requires further development, according to YouLend co-CEO Mikkel Velin.
“We see improvements in these technologies every day, and 2024 will be a critical year in making them scalable while remaining flexible enough to respond to changing macroeconomic trends,” he says. “Successful machine learning requires very large datasets. Many start-ups and established firms struggle to reach the scale needed to meaningfully apply machine learning.”
A bang, or a whimper?
Despite widespread optimism, there are still many in the industry who do not expect the Big Bang 2.0 to happen in 2024. Highlighting areas where further work is needed, the government recently published an All-Party Parliamentary Group (AAPG) report on how feasible it would be for the UK to become a global hub for cryptocurrency and fintech innovation. This was headed up by APPG chair and MP Dr Lisa Cameron who – while optimistic – says more work is needed to spark a second Big Bang.
“I’ve been told that in France the regulator streamlines everything and ensures authorisations happen in months,” says Cameron. “We need to be competitive and have extra support for the FCA to become a super systems regulator, they need extra resources.
“It is crucial because it underpins the prime minister’s vision of the UK being a cryptocurrency hub. How can we be a hub when we have only registered 42 companies?”
While the AAPG looked at many areas of the UK fintech industry, the role of the regulation attracted particular attention. In her research, Cameron found many fintech firms complained of cumbersome and lengthy processes when dealing with the FCA, often with little communication.
For this reason, she believes a new approach is required: “We need a streamlined regulatory system. [It has taken] some companies… 18 months to two years to get set up, others don’t get any answer. These companies are global, so they will go elsewhere.”
The FCA is tasked with protecting consumers while simultaneously allowing firms to thrive. Balancing the two tasks is not easy, and The Payments Association’s Tordera is sympathetic to its plight as innovation can lead to disruption, with potentially leading to high-profile scandals. However, he warns that this overly cautious approach has resulted in the wrong tactics being deployed.
“When you are a regulator you know it is your responsibility for things to go smoothly and this is why the FCA has been extremely cautious,” explains Tordera. “The problem was they applied models that are not suitable for this industry.”
The policy expert picks out the FCA’s treatment of cryptocurrencies as an example of this and, though he commends a change in approach, he warns the same mistakes must not be repeated.
“The crypto industry has suffered from a massive misconception by the regulators, because they did not understand it and it took them time to do so,” says Tordera.
“The FCA has realised it must change and has started to hire crypto experts and tailor requests to the nature of the industry. I know the industry still complains about the regulator and will likely continue to do so. The FCA should be faster at understanding the nature of the businesses they are regulating.”
The prospects for cryptos divides opinion and invites fear from some within British authorities. The high-profile collapse of FTX in 2022, alongside other widely-reported scams and scandals, has tarnished the reputation of cryptocurrencies and their role in mainstream finance.
Central bank digital currencies (CBDCs) have emerged as a route to legitimacy for cryptocurrencies, allowing digital assets to be used in society with far greater oversight by central banks and regulators.
So far, 130 countries are exploring CBDCs as a route towards fully digital economies according to payabl. UK CEO Sean Forward. He says the UK already has some traction in this field, but this needs to be accelerated to avoid the risk of missing out.
“The UK government is currently working hard to accelerate the development and launch of a CBDC – they have set up a taskforce to explore the issue, and they have also launched a consultation on the potential benefits and risks of a CBDC,” adds Forward.
“However, we’re still behind when compared to the work some other countries have done on this front. Focusing on developing a robust CBDC project could be a game changer in the UK financial services sector.”
Pursuing the cryptocurrency route
Having investigated the issue in her APPG report, Cameron also wants to see cryptocurrencies receive more attention from policymakers. Cryptocurrencies have already enjoyed significant pickup in the UK, with the FCA estimating 5.29 million UK adults own a cryptoasset.
Pointing out a CBDC could give the Bank of England greater insight to movements of digital currencies in the UK, the MP says a lack of knowledge around digital assets means many are fearful of a CBDC being introduced.
“A few years ago, one of my constituents lost money in a crypto rug-pull scam and they asked me who was looking at the issue in parliament,” recalls Cameron. “There hadn’t been any debates on the issue, so I asked my researcher to look into it and there was no APPG on it.
“Millions of people in the UK have some engagement with digital assets but we [in parliament] were not talking about it at all. We are still playing catch up and we need to make this a priority.”
Regulatory and governmental support will play a big role in enabling a Big Bang 2.0, but many experts argue this effort needs to be matched by the private sector. The UK already hosts a thriving fintech industry and the theme of collaboration frequently came up in conversations. For BIAN’s Tesselaar, this is key for the UK to have the right ‘ecosystem’ from which a Big Bang 2.0 can emerge.
“To create a Big Bang and ensure banks are able to bring the best-of-breed technologies to customers and continue this digital momentum, the financial services industry must embrace collaboration,” says Tesselaar.
“An ecosystem alongside fintechs, service providers, industry bodies and aggregators would help banks when it comes to the speed they can introduce new products – and enable the latest in finance technology, including open banking.”
This is crucial to meeting consumers’ higher demands for greater choice in products and services, and the interconnectivity they are able to enjoy between different brands. The success of Apple Pay has come from its integration through a vast range of different providers, giving users the seamless experience which they have now come to expect.
For Angel Blanco, head of platform solutions at supply chain finance platform Demica, this is what a Big Bang 2.0 revolution will look like.
“We’re now witnessing swift and dynamic collaborations forming among diverse organisations, as digitally-savvy businesses and consumers alike increasingly seek greater choice in products and services,” says Blanco.
“These changes won’t be confined to narrow transactional banking services alone. Expect to see synergies across a broad spectrum of financial domains, including personal credit, business lending, supply chain finance, mortgages, insurance, financial advisory, investment management, forex, and even telecommunications and utilities.”
All together now…
Whether or not a Big Bang 2.0 happens in 2024, critics and optimists agree on one thing: it is an exciting time to be in the UK fintech and digital payments world. Greater regulatory support, more cross-industry collaboration and underlying tech developments have experts excited about what the next few months and years could hold.
However, the prospects of a Big Bang 2.0 will ultimately be influenced by the UK population’s relationship with money.
Campaigners have regularly criticised the lack of financial education in British schools and, combined with the fact money is a taboo subject in many British households, there are claims this has led to poor financial understanding in society. For instance, a recent survey of 2,000 British adults by Shepherds Friendly, found only 27% passed a financial literacy test.
Cameron says that supporting fintech and crypto needs to go beyond simply educating policymakers, towards educating the population about finance in general.
“This is fundamental,” she says. “We need to be inclusive and reach classrooms across the UK. When I was at school, I was taught how to be an employee, not an employer. [Conversations about money] is a postcode lottery right now, and I’d like to see it standardised on the curriculum.
“This isn’t just an issue for the Treasury, it sits in the education system, science and innovation department, and in business. There needs to be a cross-governmental approach to make this happen.”
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