Small Talk: Financial technology can rejuvenate Britain – and be a force for good
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Version 0 of 1. Is it pie-eyed to think Britain’s economy could one day recapture its glory days – that our export sector might once again dominate world trade? Absolutely, if we’re talking about the kind of heavy industry where the UK once excelled – but there is another revolution going on today, and Britain is at the forefront of it. We hear a lot about Asian manufacturers’ low labour costs. But David Cameron has just returned from a tour of the region, where he has been introducing more than 30 British financial technology (fintech) companies to potential customers, investors and a broader network of business contacts. The Prime Minister thinks these firms can establish an export base in Asia and throughout the rest of the world. And why shouldn’t he be optimistic? UK Trade & Industry thinks the country’s fintech sector is already worth in excess of £20bn to GDP and that it employs 135,000. It dominates the European technology market – 42 per cent of the $1.48bn (£1bn) of investment attracted by European fintech companies last year came to the UK. In the past few days alone, two fintech lending businesses, Seedrs and Iwoca, have raised close to £20m between them. The sector spans everything from money transfer and payments businesses to alternative finance and from Bitcoin pioneers to innovators in big data and analytics. The UK’s biggest competitor in this industry is the US. To put those investment figures into context, US fintech firms picked up more than $2bn of funding during 2014. That lead is likely to be extended in the years ahead. Nevertheless, the Prime Minister’s ambition to make the UK “the leading fintech centre in the world” is not unrealistic. London’s geographic location, its established financial infrastructure and its burgeoning technology sector are a powerful combination. Moreover, the political will to support fintech is important. Mr Cameron has given his blessing to the manifesto of Innovate Finance, the industry association, which has set targets for 2020 such as raising investment to $8bn and adding 100,000 fintech jobs. That backing is reflected in a helpful regulatory regime for fintech – though regulators often struggle to keep up with the pace of technological change – an increasingly generous environment of tax incentives and reliefs, and broader assistance such as support for apprenticeships and funding networks such as accelerator projects. Not everything in the garden is rosy. Access to funding for growing fintech businesses remains patchy. Concerns about data security and privacy must be addressed by businesses that often depend on such information. Nor does the UK have much of a culture of working with small start-up businesses to develop them into global contenders – in the technology space, British businesses that compete on the world stage are still few and far between. The appointment last month of Eileen Burbidge as the Government’s “special envoy” to the fintech sector does at least mean there is someone who has the ear of government to make the case for the industry, where needed. That’s important because the fintech sector is our best hope of rebalancing the economy so that we once again earn a healthy chunk of our living from products and services we sell internationally. The “Made in Britain” tag already helps businesses ranging from food producers to car manufacturers to sell their wares overseas – it can be just as useful in the fintech space. One other thought. The Industrial Revolution that changed Britain and the world 200 years ago came with an enormous human cost. By contrast, fintech requires no dark satanic mills – indeed many of the sector’s most exciting businesses are operating in areas such as financial inclusion and social impact investment. And that idea of fintech as a potential force for societal good doesn’t even take account of the disruptive threat it poses to the established financial services sector, which many people will enjoy. Family businesses are in optimistic mood, research from the Institute for Family Business reveals, with seven in 10 of them expecting to grow over the next 12 months. The Institute of Family Businesses represents a community of companies that sometimes gets missed by policymakers, despite 12,000 medium-sized and large businesses operating under family ownership. Family-run businesses have a combined turnover of more than £100bn and employ more than 500,000, the group says. “After a difficult few years, growth is back on the agenda,” said Mark Hastings, director general of the Institute. “With their recognised focus on the long term, the recovery has given family businesses renewed confidence to continue expanding.” Treasury support for investment in small and medium-sized enterprises is on target to help investors save more than £565m of inheritance tax, according to analysis by private equity group Radius Equity. It says initiatives such as the enterprise investment scheme (EIS), which offer investors the opportunity to avoid inheritance tax bills when putting money into high-growth companies, have become increasingly popular. Gary Robins, a director of the company, said there was scope for further growth, despite changes in last month’s Budget that will mean fewer people are liable for inheritance tax. The amount of inheritance tax collected in the 2014-15 tax year rose 23 per cent to £3.8bn, he pointed out. “We’re a family-run farming business in Northern Ireland but in 2004 farming was on its knees and the prices we were able to charge were unsustainable. We had to find a new source of value. We even thought about turning our land into a golf course before we hit on the idea for Mash Direct. “The concept grew out of the observation that while most people were buying their chips ready-made – as well as convenience foods such as rice and pasta – you couldn’t do that with mashed potato. We spent two years getting the product right – we engineered our own on-site cookers because we wanted a product that would taste the same as if you’d made it yourself. “The first six months were hard. Four of us hired a van and hit the road to find stockists, concentrating initially on the independent retailers. “We were fortunate in that we got support from some key partners. Spa were brilliant, and we also did an Ireland-wide deal with Dunnes Stores, which gave us some early exposure to the challenges of selling in other markets – we had to work out how to deal with euros. “We now have a range of vegetable and potato dishes, but with all of them, we have always been convinced that high quality would be the selling point. “This year we’re on target for a turnover of £14m, and we’ve just done a £3m annual deal with Asda, which could increase sales by 60 per cent. “We’re trying to increase our exports. We already sell well in Spain and we’re talking to some contacts on the east coast of the US.” |