September 27, 2021

How the Fintech Sector in The UK Is Grappling with New Challenges?

The UK is one of the leading global hubs for the fintech sector, reinforced by its access to an international talent pool, solid investment, and growth, thus leading to a thriving ecosystem. UK-based fintech companies raised about US$ 4.1 billion in funding in 2020 and were one of the prominent sub-sectors driving growth in the broader financial sector in the UK.

The traditional financial sector in the UK is currently facing a dual pressure of tackling the Covid-19 pandemic and Brexit. In addition to these headwinds, traditional legacy banks and financial institutions have also been grappling with rising operating costs, changing customer behavior, regulatory challenges, and new technology.

Future of fintech

Despite the challenges faced by the broader economy due to the onset of the pandemic and Brexit, the use of innovation and technology helped startups in the fintech sector weather the storm.

And for the sector to continue to be a key driver of growth for the UK economy, it should focus on innovation in RegTech, which can target the ever-changing and evolving regulatory landscape and identifying new business models such as partnerships for developing the ecosystem further.

RegTech

As new players join the financial sector and provide users with greater access to banking services, there has been a rising need for financial services companies to tackle a very large amount of data and in ensuring compliance in a seamless manner. Building robust backend processes to address regulatory technology is the next big frontier for fintech firms.

Recently, the UK government has also made significant headway in terms of shaping a new regulatory framework for the financial sector due to Brexit. The Financial Services Bill received Royal Assent on 29 April and was converted into the Financial Services Act 2021. This act aims to develop a regulatory environment that allows for the advancement of technology and innovation.

Partnerships

There has been a small but growing number of legacy financial services companies and banks collaborating with nimbler fintech startups to identify ways to better adapt to the constantly changing business environment. According to consultancy firm Mckinsey, fintech companies with B2B offerings and services increased by 16 percent from 2011 to 2016, thus indicating a rise in partnerships.

The collaborative partnership model between fintech companies and traditional financial services organizations is mutually beneficial as the traditional banks and firms can develop useful tools such as financial money management tools and apps for depositing money for customers. On the other hand, startups benefit by being able to provide services to a larger client base and network. Moreover, partnerships have the ability to be more adaptable to customer behavior and can be scaled up or down depending on their response.

What’s next?

As the pandemic continues into the second year and is expected to persist for few more months, senior management and leaders in the financial sector are increasingly seeking flexible and responsive technology that can be deployed and adjusted to an everchanging business climate in the face of uncertainty. Thus, the next generation of fintech firms will have an even more focus on automation and streamlining processes, which can adapt quickly and effectively while primarily focusing on regulatory and compliance challenges and new business models.

Written by Kunal Sawhney, CEO, Kalkine Group