The Kalifa Review recommendations, if implemented, would represent a big leap forward in creating a framework for the evolution of UK digital financeig leap forward in creating a framework for the evolution of UK digital finance.
The Review reflects several of the recommendations in our recent report Building Digital Finance in Europe: FinTech for Social Value. In particular:
** The need to provide significant patient capital through an investment fund to encourage both start-ups and scale-ups and to prevent the FinTech ecosystem from being absorbed by incumbents.
** The need for active and balanced competition policy.
** The importance of an international outlook to create the scale needed for success starting with the FinTech bridges.
The Review also makes some welcome innovative suggestions such as the setting up of a ‘scalebox’ to complement the existing regulatory sandbox and focus on scale-up opportunities.
Maybe unsurprisingly for a report commissioned by the UK Treasury, the Review takes an industrial policy approach to digital finance – focusing on jobs and the creation of financial wealth. There is insufficient focus on the societal perspective and social policy.
The Review seems to take for granted that benefits will naturally flow to customers and SMEs from the digitisation of finance, but provides no evidence that this is the case.
Our view is that, while many individual companies are focused on adding social value, added social value at scale is unlikely without active public policy intervention. This view is supported by a small survey we conducted with financial services professionals who also don’t see digitisation as transformative (see above).
Most believe that main benefits are going to flow to existing players in terms of improved efficiency (and profitability), and banks locking customers into their own digital ecosystem.
These opinions were reproduced almost identically in a similar survey of financial regulators.
When asked about their prime area of focus, financial regulators were overwhelmingly focused on financial stability. Market transformation and social value barely featured.
We suggest that more attention should be devoted to this area. Societal benefits will only flow from financial digitisation if such an outcome is a clear focus of the public policy framework. It will not happen spontaneously.
Much of the talk around FinTech gravitates primarily towards what one might call ‘banking’ services. We suggest that other, large sectors of finance such as pensions and insurance offer opportunities for adding significant value and should be explored further.
We suggest a more detailed review of the potential benefits from digitisation in the pensions and insurance industry.
Join our discussion…
We are now embarked on a set of discussions around how policy makers in the UK and Europe can get financial digitisation to add meaningful social value.
Please get in touch if you have ideas to share or would like to work with us on this initiative.