The recent Future of Finance report has outlined a new age of banking, stating how financial services can help bring about a multitude of changes. This new age is also designed to help bring the UK in line with the changing nature of the digital economy. As a business integral to this industry, we are looking forward to seeing greater support and drive for innovation, specifically in B2B banking.
Chancellor Phillip Hammond mentioned in his Mansion House speech that the Bank of England (BoE) recognises that a new economy, a new world, and new demographics demand a new financial system. This is encouraging to hear and is definitely a step in the right direction: understanding that businesses need to be part of the ‘fourth industrial revolution’ and be brought up to speed with the times, is a must. As the Chancellor said, “[...] as the first wave of FinTech innovation matures, we must now evolve our policy and regulation too, to make sure it remains fit for purpose.”
The Chancellor has guaranteed that the infrastructure to help foster innovation and competition in payments will be put in place. Even though that is welcoming - and the BoE is expecting to be as open with new providers as it has been with traditional players - we need to help our SMEs make the best of a globalised economy. And, of course, that means being able to bank effortlessly.
The ‘Open Finance’ scheme will certainly help with that. The BoE is promoting the use of Legal Entity Identifiers (LEIs) as a way for businesses to effortlessly move around the financial system. Businesses would be able to pull their data together under a single identity. And because the LEI is globally recognised, it will help businesses access finance for cross-border trade.
Furthermore, the BoE will also partner with other central banks to explore how high-value payments systems could be used to deliver instant settlement in different currencies. This will also help to reduce the costs and delays in cross-border payments.
Solving the cross-border inefficiencies is certainly a step in the right direction, but opening a B2B bank account remains a sorely undeveloped area. Although we live in an instant world where consumers can open a bank account in a matter of minutes, B2B banking still has many offerings weighed down by legacy structures - something that the BoE needs to address.
The fintech heartland
The UK - and London more specifically - is the heartland of fintech. The past ten or twenty years have seen hundreds, if not thousands of fintech start-ups begin to shake up the finance industry. This is largely down to the environment created by the government and regulatory bodies such as the BoE. This has been confirmed by Juniper Research, whose latest report found that fintech platform revenues will reach $638 billion by 2024. This is up from an estimated $263 billion in 2019.
However, with difficulties on the horizon in the form of Brexit, these start-ups - who are now scaling up - need more support than ever to make sure they can maintain their projected growth, and remain in the UK. What the Governor is promising is therefore certainly welcome. But these words need to be converted into action, and for the potential of UK fintechs to be realised, there needs to be a push towards better banking and cross-border practices.
Fintech is a vital part of the UK economy, and supporting it is paramount to supporting the UK economy as a whole.