April 22, 2021

LFP177 – Fintech’s Success: Past, Present (esp re Kalifa Report) and Future w/Nigel Verdon Thrice Fintech Founder

43 minutes

The recent report by Ron Kalifa, for the UK Govt to identify priority areas to support the UK’s Fintech sector and maintain the UK’s global reputation in re, gives us an excellent opportunity to zoom out from that to discuss The Past: why Fintech so successfully started in the UK; The Present: how well the Kalifa Report advances UK Fintech and move on to The Future: what will make UK Fintech successful going forwards.

There is perhaps no one better to discuss this long view with that Nigel Verdon who was at the centre of the digitisation of mainstream blue-chip FS in the 1990s and subsequently founded three UK Fintechs (Evolution 1997; Currency Cloud 2007, Railsbank 2016).

In all of this sectoral focus however we should not forget that all sectors are part of an economy as a whole and a Government balance sheet. Huge increases in deficits and expansion of money supply is unlikely unless addressed to promote a strong and stable country as a backdrop to Fintech activity and this remains by far the biggest risk to all UK citizens into the future. In terms of the current Kalifa report however, unsurprisingly he wasn’t asked to come up with a fiscal and monetary approach but more bottom-up measures.

Covering such a wide canvas of UK FS over decades this is more of a conversation than something to be precised. However major topics include:

the vital core role of macroeconomic policies – not just fiscal/monetary but tax, light-touch regulation (disappeared over the decades in favour of what Lord Turner has called micro-supervision in much of FS)

state-centralism vs letting entrepreneurs create – govt as “we know best” vs govt as setting the right climate

the positive aspect of enforced digitisation of business from buying corporate assets (Railsbank acquired quite a chunk of failed Wirecard) over Zoom to fitting in more conferences

the benefit of staring in strict engineering disciplines in creating solid Fintech – the tech vibe build, ~ fail fast, rapid development, fix it in the bug fix in the next rushed release does not work when one is moving billions of dollars around the world

Nigel’s reflection as a participant and multiple-founder on what made the UK so successful in Fintech

centuries long culture of innovation and celebration thereof

historic principle-based regulation rather than rule-book regulation

FS strength of London over a long time

Fintech came out of banking and digitsation had been underway for quite some time

2008 as leading to loss of confidence in incumbents plus many digisiting-FS-ers were fired

capital started to appear (eg Amazon)

Amazon web services

EIS/SEIS tax breaks

FS-savvy lawyers/accountants et al

Current challenge – Brexit leads to dislocation costs of change (build parallel infrastructure in Europe for many eg) – UK has to think of how to leverage the benefits side of the coin

Kalifa has a lot of detail – we focus on some of the key themes

at a governance level the reform of the old House of Lords has removed many businessmen from govt in favour of politicians. The House of Commons has very few business men in it but many lawyers

“The question is how can the UK maintain it’s world leading position in starting Fintechs?”

Minimal bureaucracy to start a company in the UK compared to say France, Germany, Lithuania – also re operating eg digital signatures accepted in UK

how to attract and retain entrepreneurs?

tax changes had been disadvantageous towards entrepreneurs – not clear govt understands that Founders do not pay themselves in dividends eg but mostly via liquidity events

money from successes needs to be reinvested as per the West Coast – hence needing to retain talent post-success

huge number of non-British founders of Fintechs

support for international business – Nigel praises the commercial side of the Foreign Office and local diplomatic/trade missions in the help they quietly give leveraging long-established networks. This could be used more.

Kalifa listing rules changes suggestions “a sticking plaster” – need to attract founders

also cf LSE and NASDAQ – very different types of companies list on each

structural issues for LSE

Kalifa’s 5 key areas – Policy and Regulation, Skills, Investment, International, Connectivity

discussing the Fintech funding ladder as a whole and re Kalifa – Nigel’s comments on each of the rungs

macro-trend towards large US investors increasing their investments in unlisteds

a digression re whether govt has any impact or not on the rates of flotation – for sure a multi-factorial issue with many root causes

Nigel’s big picture conclusion: “UK needs to re-position itself, and this is a first step, as the place to start Fintechs and the place to grow international Fintechs.”

UK has a lot of marketing to do to attract entrepreneurs

high risk of Fintech and entrepreneurs disappearing somewhere else

[re Kalifa Repor] “The key thing is its a step in the right direction but a small babystep. The real work [still] has to be done to move forward and there needs to be more engagement with the CEOs and the Founders of the companies concerned as a lot of the engagement was with lobbyists and PR people etc rather than CEOs”

which brings us full-rcile – this process being archetypal state-corporatism (think Washington) rather than eg 19thC liberalism creating entreprenurialism

And much much more

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By Tony Clark

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