UK Election Results: What Do They Mean for Fintech & Payments?

July 2024

Fintech & Payments

Nick Maynard

VP of Fintech Market Research

The recent election of Labour in the UK is likely to result in major changes to fintech and payments markets. As industry watchers, we wanted to examine the new government's pledges and provide recommendations on what they should prioritise over the coming months and years.

This change comes at an uncertain time for the industry. Across the technology sector, including fintech, funding has been significantly depressed, with uncertain economic conditions creating difficulties for all types of businesses. There have been reductions in start-up valuations and insolvencies, further creating uncertainty.

There has also been uncertainty within payment systems in the UK, and how they are regulated. The UK has a complex regulatory framework composed of multiple regulators, such as the PSR (Payment Systems Regulator), the Bank of England, and others. Much of the future trajectory in payments in the UK is dependent on government direction, with the Future of Payments Review, released in November 2023, calling for a National Payments Vision, which will provide a clear path for the development of payments within the UK.

The Labour Party identified several key pledges for fintechs within its manifesto. These included the following:

• Streamlining the regulatory rulebook and strengthening international engagement in financial services
• Adopting a coordinated cross-sectoral approach to fraud prevention, including creating a national financial inclusion strategy, and regulating the Buy Now Pay Later sector. In fraud, specifically, Labour advocates making social media companies share the burden of fraud reimbursement
• Making the UK a global hub for green finance activity, delivering a world-leading green finance regulatory framework, and partnering with the financial services sector to support the decarbonisation of our homes
• Becoming a global standard-setter for the use of AI in financial services, delivering the next phase of Open Banking, defining a roadmap for Open Finance, embracing security tokenisation and a CBDC (Central Bank Digital Currency), and establishing a regulatory sandbox for financial products to reach underserved communities

These pledges contain a lot of potential improvements for the UK financial services and payments sector. However, some pledges, such as evolving Open Banking and pursuing a CBDC are broad ambitions, rather than specific actions - requiring a more robust plan in the coming months that provides much-needed detail and certainty.

To this end, we've identified several recommendations that the new government could integrate into its new strategy.

Cancelling Proposed 'Slowdown' of Suspected Fraudulent Faster Payments

This measure, which would see Faster Payments being delayed by up to four days where fraud is suspected, is set to regress payments at a time where the priority should be to increase payments’ speed. While fraud is a major challenge, this is an extreme measure. Instead, we recommend boosting secure data sharing between financial institutions to identify fraudsters, mule accounts, and synthetic identity use to a better degree.

We would also recommend targeting fraud and scams at the source – fraudulent activities through social media are a major risk, and social media companies should be enforced to do more to curb fraudulent adverts and activities on social media. The combination of these measures would work to reduce fraud in an efficient way. 

Creating a Clear National Payments Vision That Prioritises A2A Payments

The UK is experiencing good innovation within Open Banking in terms of both access to data and payments. However, the regulator needs to set out the future for Open Banking, and Open Finance. This needs to include setting specific expected outcomes, such as expanding the scope of data access to all financial products. Within payments, Open Banking can be used to enable easier access to A2A (Account-to-Account) payments. This can unlock innovation, and reduce reliance on the card networks.

Commercial VRPs (Variable Recurring Payments) should be prioritised, as these can bring significant benefits across different use cases. While CDBCs should be explored to ensure the UK retains its credentials as a financial services powerhouse, it should not be an urgent priority to deploy a system, rather taking the time to correctly assess a CBDC’s future role, likely in a wholesale capacity. By creating a cohesive strategy, the government can chart a course towards innovation.

Simplifying Regulation to Foster Innovation

The UK represents a complex regulatory framework, with different regulators covering different aspects of the payments, fintech and banking ecosystem. As such, regulatory compliance is quite an onerous task, and the rate of innovation can be slow. It also limits the ability for regulators to quickly crack down on changes in the market that may be unfavourable, given the amount of stakeholders that need to contribute. Labour should focus on reducing the regulatory burden, whilst ensuring that regulators are correctly addressing regulatory risks. Regulators should also take a market-led approach, allowing the market to innovate without being too restrictive. By creating this approach, the government can foster growth.

Critically, the new UK government must prioritise stability and certainty, protecting the safe functioning of the critical payments infrastructure, whilst promoting innovation. This will require balancing the different requirements from the various stakeholders in the payments market, taking a growth-focused approach to the market. Creating a consistent vision for the industry is vital, and can unlock significant innovation. However, time will tell as to how effective the new government’s approach will be in practice.

Nick Maynard is Juniper Research's VP of Fintech Market Research, and enjoys helping clients to size new market opportunities, set priorities for future growth, and understand their customers through survey projects. He has been interviewed by major news outlets such as CNBC, Coindesk, and the BBC, and has spoken at key industry events including Money 20/20 Europe.