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Is politics monopolising fintech?

London's fintech and startup scene emerged as a global leader, thanks to a combination of factors fuelling innovation, growth, and investment. But scale and maturity are bringing a new stage of scrutiny too, writes AltFi’s Daniel Lanyon.

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Kemi Badenoch MP/HM Treasury

The UK’s fintech scene has always had close involvement with its national politics for two reasons. 

It has been a swelling ‘good news’ story for multiple politicians of the various governments over the past decade or so to trumpet. A bright spot in the Brexit, pandemic and cost of living-crisis economies. 

Secondly, regulation and legislation have been core to kicking off the boom. 

From the early days of reform to the banking sector that prompted a flurry of new banks after a 100-year hiatus, to the FCA’s regulatory sandbox and open banking rules to sustaining it as well as trying to future proof it through the implementation of the Kalifa Review’s findings.

Now, however, the future of the UK’s fintech standing has never been more intricately linked to its political class and all of its many dysfunctions. 

Is politics monopolising fintech? 

The past month or so have provided three highly important questions for the future direction of the fintech industry as well as having in all cases become increasingly kicked political footballs.

Should Revolut have its banking license pushed through despite apparent concerns from the (non-political) financial regulators?

Is crypto simply gambling or an exciting new technology that a country such as the UK should want to be a hub for?

Are the UK’s capital markets prowess still fit for purpose for technology-focused companies in growth mode and wanting to eventually succeed in a public stock market listing? Or, is the UK an increasingly bad place to do fintech business?

Most operatically it has been the back and forth over Revolut’s UK banking license, a core pillar of its future growth strategy and a growing source of frustration for its founders and investors, dominating this political-fintech axis.

Revolut, by some measures, is Europe’s most highly valued fintech company and a political poster child for the UK as a tech leader.

It has hit the headlines for multiple positive reasons related to its growth over the past few weeks, ranging from crucial new product updates, such as its launch of ETF trading across Europe and lending in France to its hunt for a ‘buy now, pay later’ acquisition and Latin America launch.

But it has been a flurry of activity out of its London HQ that has raised eyebrows the most with politicians from both sides weighing in.

Angela Eagle, a Labour MP and member of the powerful  Treasury select committee said last month

“I would be gobsmacked if they got a banking licence if they didn't pass a lot of stringent tests. 'Those questions need to be answered before they get a banking licence.” 

“Getting a banking licence isn't easily done and you can't swindle the tests. There is a worrying backdrop to all of this which I think means the regulators will be super careful. I would expect the highest kind of work to be done.”

The Conservative MP and Business Secretary Kemi Badenoch (pictured) meanwhile has been seeking a meeting with the company to soothe its multiple critiques of both UK regulators and the broader business environment.

Much of this came to a head two weeks ago when it emerged Revolut's chief financial officer Mikko Salovaara had exited the fintech citing apparent 'personal reasons' unrelated to either its accounts or banking license application. Its UK banking boss James Radford too had stealthily left the company in April after three years.

Salovaara had been with the company for just over two years, joining as VP of Finance before being promoted to group CFO in April 2021. 

This period saw a massive shift in the Revolut machine, with customers doubling from 15 to 30 million and the company turning its first profit for 2021. However, we only found that out via its much-delayed accounts, published in March 2023 which later were reportedly materially misstated. 

Regulation, Regulation, Regulation

Regulation is a double-edged sword for the fintech industry. 

On the one hand, a supportive regulatory environment fosters innovation and attracts investment from institutions. 

On the other hand, overly burdensome regulations can stifle innovation and impede growth through delays, higher costs and an axiomatic tendency to favour larger companies who can afford to meet these costs. 

An ever-increasing ‘to-do' list for the FCA - from ‘buy now, pay later’ to crypto and smart data and new consumer protections creates more work for all.

London has struck a delicate balance between innovation and consumer protection, with regulators like the Financial Conduct Authority (FCA) providing a regulatory sandbox for fintech companies to test their products and services in a controlled environment. 

The sandbox has been a key factor in London's success as a fintech hub, allowing startups to navigate regulatory hurdles and launch their products with confidence. Support from politicians was also hugely helpful.

Both politics and fintech can drive positive change, address societal concerns, and boost the protection of consumer interests. 

Now, with the fintech industry reaching maturity it is also more tightly woven to the political world. 

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