Ben Brabyn, head of Level39, looks at why the UK’s FinTech sector must work more collaboratively with China.
Over the past decade, the UK has earnt the mantle as the world’s leading FinTech centre. The sector generated £6.6bn in revenues in 2015, and attracted about £524m in investment. It has truly become a vital part of the UK economy, and a future engine for growth.
Last week’s Autumn Statement demonstrated the government’s continued support for the UK FinTech industry committing £500,000 a year to support development in the sector, in addition to providing £400 million in venture capital funds through the British Business Bank.
Yet recent headlines have suggested that the UK’s position as a global centre for FinTech is in question. Some point to Berlin as the emergent hub, others to China.
The dominant concern is that uncertainty caused by the EU referendum negotiation process is causing investors to take their money elsewhere.
Whilst some might be concerned, our greatest entrepreneurs and innovators have historically thrived in times of adversity. It was indeed out of the financial services crisis of 2008 that the sector emerged as a phoenix from the fire.
Today, we must look to the future, forging partnerships with priority international markets to increase global market access for UK FinTechs and build on the huge growth the sector has seen in recent years.
UK vs China
It is clear that the UK and Chinese markets are very different. While the UK FinTech sector has primarily centered on existing financial institutions and banking models, in China the leading FinTech innovators are technology firms.
In addition, a striking difference is the sheer scale of the market in China and the consumer base, compared to the UK.
By the end of 2015, the market size of China’s FinTech sector was over $1.8 trillion. With over 30 percent of the 1.38 billion population already using internet payment systems, the potential for international expansion and collaboration is huge.
The recent signing of the Co-operation Agreement by the FCA and The People’s Bank of China, is a step in the right direction, providing a framework for future collaboration.
One central element of the agreement is the sharing of information about innovations in financial services including emerging market trends and developments, and perhaps more importantly, regulatory challenges related to such innovation.
The approach that regulators take to emerging FinTech innovation will play a huge role in determining the future of the industry. Currently, UK innovators have been offered a regulatory advantage through the FCA’s Project Innovate, including the regulatory sandbox initiative to provide innovators with an environment in which they can test their products, whilst maintaining and building consumer trust.
Indeed, the FCA has an increasingly important role as the arbiter of how rapidly and how far non-financial services businesses can introduce innovation and risk into a highly regulated territory.
Increased transparency, and the sharing of regulatory developments between the UK and China will strengthen the ability of the FCA to respond to and support the sector’s needs to break down barriers and take risks, while also protecting the consumer.
In addition to the sharing of information, there needs to be a long term commitment towards not just greater dialogue but lasting business partnerships. This will require greater understanding of cultural and market differences, in order to build strong relationships.
Ambitious UK FinTech looking to set up operations in China will need to research the market and local regulatory environment before proceeding, and greater co-operation between the FCA and The People’s Bank of China will be able to smooth this process.
While cultural barriers such as language do still remain, they are steadily being eroded with Mandarin being taught from primary school level in the UK, over 90,000 Chinese students studying in UK higher education institutions in the academic year 2014-15 and more than 200,000 Chinese tourists visiting the UK in the first nine months of last year.
We are moving into a new, more mature era for UK FinTech , which involves a greater level of cross-border collaboration and partnerships. As home to a global financial capital, a forward-thinking regulator and world-leading talent, I truly believe the UK will firmly remain at the forefront of this vital sector.