Key takeaways from Innovate Finance Global Summit

The summit, hosted by Innovate Finance, which took place in London last month, covered a wealth of topics including the latest advancements in technology, challenges and opportunities faced by the industry, the current landscape where Financial Services and Technology meet, and forthcoming regulatory and policy developments.

FinTech partner Luke Stubbs attended the conference, which brought together key players such as regulators, politicians, and those across the industry.

Our key takeaways from the summit 

Pioneering the Smart Data Economy

The UK is leading the FinTech revolution with the aim of becoming the world’s top “smart data economy”. This ambition puts the UK’s financial services and technology sectors at the centre of its economic strategy and global influence. The UK’s FinTech sector, which ranks second globally behind the US and surpasses the combined efforts of the rest of Europe, reflects the country’s innovative spirit. The sector has attracted 30% of venture capital investment, equivalent to around 40 billion USD, and the top 30 UK FinTechs have a combined valuation of approximately £70 billion.

The UK’s commitment to nurturing the FinTech sector is evident in its impressive statistics and predictions. With 86% of “digitally active” adults regularly using FinTech services, and FinTech platforms responsible for 60% of lending to small and medium-sized enterprises, the UK hosts 10% of the world’s FinTech companies. The digital finance infrastructure is robust, with 15 million open-banking payment calls each month and digital wallets facilitating 50% of global online transactions. Furthermore, India’s SME landscape, with around 75 million SMEs and the highest mobile adoption rate globally, represents a burgeoning market serviced by 11,000 financial institutions.

Looking to the future, the Bank of England is exploring the potential of a digital pound and a UK Central Bank Digital Currency, leveraging blockchain technology. This concept of “programmable” money, capable of autonomous transactions upon contract completion, signals a new era of financial efficiency. However, challenges lie ahead in retaining growth and navigating regulation, especially as leading FinTechs like Klarna consider listings outside the UK. The government’s response includes the formation of the “Unicorn Council” by the Centre for Finance, Innovation and Technology (CFIT), despite concerns that the FCA Consumer Duty might stifle innovation. The market dynamics suggest a potential contraction due to an oversaturation of e-money and card products, calling for a balance between fostering innovation and avoiding market redundancy.

Navigating the Future of Payments: The UK’s Open Model and Regulatory Evolution

The financial transaction landscape in the European Union is undergoing a significant transformation, with the UK poised to follow suit. The recent Future of Payments Review and the forthcoming UK National Payments Vision indicate a pivotal moment where the UK must decide between aligning with EU standards or charting an independent course to streamline its payments ecosystem. Open Banking in the UK has made commendable advancements but now faces a plateau due to the disparity in commercial incentives between data users and data custodians.

The concept of Open Finance and Open Data holds immense promise, potentially allowing for seamless integration of financial and personal data. However, achieving this vision may require adopting an Australian-style consumer data right and ensuring interoperability across systems. Meanwhile, the crypto industry, despite being notably absent at Money 20/20 in Amsterdam following the FTX scandal, is far from a closed chapter. The UK Government is extending its regulatory reach to encompass digital asset activities, while the Bank of England acknowledges the need to adapt.

Stablecoins and blockchain technology are being touted as solutions for real-time payments, with major players like PayPal and Visa already on board. Crypto exchange operators seek fair treatment, highlighting their adherence to AML checks and superior analytics compared to traditional fiat transactions. The Buy Now, Pay Later (BNPL) model continues to thrive, particularly in markets like Saudi Arabia, with providers emphasising their social responsibility. However, the UK’s regulatory uncertainty casts a shadow over this growth, with calls for an overhaul of the outdated Consumer Credit laws and a desire for clear, swiftly implemented regulations. The financial sector is advocating for more stringent regulation of Big Tech, particularly in holding social media platforms accountable for fraudulent activities facilitated by their services.

Steering Through the FinTech Revolution

Artificial Intelligence (AI) has become a central theme in the financial sector, with its applications expanding rapidly. The integration of AI is no longer a luxury but a necessity for financial firms to remain competitive and efficient. These firms are leveraging AI to enhance Anti-Money Laundering (AML) processes and fraud detection, significantly reducing false positives. AI’s predictive capabilities are refining affordability checks and enabling the delivery of personalised offers to customers.

AI is instrumental in dissecting complex financial contracts into digestible, actionable data. It has also transformed customer service by streamlining contact centres and identifying discrepancies in documentation at scale. Investors are closely monitoring AI deployment, recognising its potential as a collaborative tool in product development. Some firms are at the forefront, co-designing the next wave of AI-driven products, signalling a shift towards a partnership model with technology.

As AI becomes more prevalent, the need for regulatory frameworks grows. Protecting intellectual property while fostering innovation presents a delicate challenge. Divergent international regulations may lead to “siloing” or “forum shopping,” as companies seek the most lenient regulatory environments. Fraud remains a formidable adversary, with AI-powered schemes escalating the threat. The surge in fraud might accelerate the adoption of unified digital identities in the UK. While mandatory reimbursement for fraud losses is on the horizon, it is a stopgap measure that does not address the root cause. Comprehensive solutions are still needed.

Lastly, “Ubiquitech” has entered the lexicon, reflecting the pervasive influence of technology across various sectors and aspects of life.

Conclusion

The summit underscored the UK’s leading role in the FinTech revolution, the potential of Open Finance and Open Data, the growing importance of AI, and the challenges that lie ahead in terms of regulation and fraud prevention. The pervasive influence of technology across various sectors and aspects of life, reflected in the term “Ubiquitech”, was also highlighted. The future of the financial sector will be shaped by how these developments are navigated.