1% are now using the services of at least one fintech company.
Investment into UK fintech stood at $4.1bn in 2020 – more than the next five European countries combined.
The 2020 / 2022 Covid pandemic has accelerated the adoption of FinTech based service in the UK – for example by the rise in demand for contactless payments.
The Payment Systems Regulator (“PSR”) has oversight of the seven main UK payment systems: Bacs (the interbank payments processing system): CHAPS (the interbank payment system for high value payments), Cheque and Credit (the interbank payment processing system for cheques and other paper instruments); FPS (the interbank faster payment scheme); LINK (which manages the ATM network); Mastercard and Visa Europe.
Social and political climate towards modern Payment Services
Following the 2008/2009 financial crisis, the UK Government recognised that the monolithic dominance of a handful of large retail banks presented systemic risks to the UK economy. There was also a recognition that the banking sector was oligopolistic, and not serving consumer and SME customers well.
The UK Government’s desire to diversify the economy after the economic shocks of 2008/2009 led to a policy to make the UK the global leader in FinTech and Open Banking by “kick-starting” an ecosystem of digital innovation. The implementation of the recast European Payment Services Directive (Directive 2015/2366/EU) (“PSD2”) coincided with an investigation by the UK’s Competition and Markets Authority (“CMA”) into banking sector competition. This led to the CMA Order (Retail Banking Market Investigation Order 2017) requiring the nine-biggest UK banks (the “CMA9”) to allow licensed payment services start-ups direct access to their customers’ data. The CMA Order set up the Open Banking Implementation Entity (“OBIE”) to create software standards and industry guidelines to drive competition and innovation, in particular by standardising APIs (Application Program Interfaces) to make it easier for third party providers to access data and initiate payments from payment accounts (the “Open Banking Remedy”).
The UK’s political climate towards FinTech based payment services is extremely favourable at a governmental, legal and regulatory level. Payment Services innovation has also received positive take up by consumers and businesses (which has accelerated during the Covid pandemic).
New FinTech payment service providers (including the so called “challenger banks” or “Neobanks”) have begun to encroach on the dominance of the traditional big retail banks. Non-cash payments (in all forms) in the UK have overtaken payments in cash. Payments by debit cards (card payment directly debited from the customer’s bank account) still predominate (about 45% of all in person purchases) followed by credit cards, and with cash making up only about 10% of payments. The use of payment devices (such as mobile phones linked to a bank or credit card account) are rapidly becoming the norm.
Brexit has reduced the ease and increased the costs of international payments through the UK mainstream banks, resulting in an increased use of FinTech driven payment service providers for international payments. The reduction of mobility, and reluctance to use (or for businesses to accept) cash during the Covid pandemic has also driven the uptake of FinTech based payment services.
From 15 October 2021 FCA regulations increased permitted contactless payments (in person payments by card without the need to validate the payment by entering a personal identification nu