Fintech possesses ‘almost infinite’ potential for governments to improve the delivery of citizen services, according to a member of the UK House of Lords.
Lord Holmes, a long-standing advocate for the take-up of new technologies particularly to support financial inclusion, was speaking at a virtual panel discussion on the HM Treasury-commissioned Fintech Strategic Review. The six-month independent assessment, led by Ron Kalifa OBE, delivered a string of recommendations last week on how the government can best help the UK’s widely admired fintech sector.
“I think there is almost infinite potential in each ‘vertical’ in Whitehall, and crucially, as a horizontal, connected, cross-Whitehall endeavour,” said Holmes in answer to a question from Global Government Fintech on the extent to which government departments could and should themselves invest in fintech solutions.
Holmes highlighted HM Revenue & Customs (HMRC) – which has made various forays into using open banking technology in particular, most recently issuing a tender notice for ‘Confirmation of Payee’ services – as well as the Department for Work and Pensions (DWP) as most likely to benefit from investing in fintech.
Opportunities ‘across Whitehall’
“Just imagine how much taxpayers’ money is wasted in terms of the friction around the payments that DWP have to get out on a daily basis,” said Lord Holmes, who is vice-chair of the all-party parliamentary group (APPG) on fintech, as well as holding similar roles with APPGs on artificial intelligence, blockchain and the ‘Fourth Industrial Revolution’.
“Just imagine if we could have a real-time customer-centric relationship with HMRC, and [if it were to] feel much more like that, much for connective than how it feels at the moment. Right across Whitehall are these opportunities,” he continued.
Holmes recalled a DWP project that he was involved in 2016 that trialled the use of blockchain technology in the delivery of benefit payments. “Years ago I was involved in a proof-of-concept with DWP about tokenised benefits on a distributed ledger platform [DLT] delivered through smart-phone technology in the North West [of England],” he said, reflecting on the ‘Govcoin’ project. “It was a tiny proof-of-concept with 20 benefit recipients. The technology worked beautifully, it showed how costs can be taken out. But here’s the magic: within days, those people – who had previously been treated by the state as passive benefit recipients – became effectively consultants on that project. That’s potential.”
DWP opted against further pursuing the project, citing ‘limited take-up potential and the expenses it would incur’. But, in Holmes’s view, the trial exemplified fintech’s potential to empower citizens. “That’s where technology comes to the fore – not for itself, though that is of interest when you look under the bonnet, but in how it empowers and unleashes potential,” he said.
Fintech: ‘not a niche’
The panel discussion, held on 2 March, was co-organised by law firm Hogan Lovells and professional services firm KPMG to reflect on the Fintech Strategic Review’s recommendations. The event’s other speakers were Ron Kalifa himself; Kay Swinburne, who is vice-chair for financial services at KPMG; and Rachel Kent, a partner at Hogan Lovells.
“Fintech is the future of financial services,” said Kalifa. “I don’t think it should be considered as a niche activity nor as a sub-sector. It’s permanent and changing the shape and the way that finance works. It’s not about start-ups, it’s also about investment and the use of technology by our large, incumbent institutions. And it’s also the way we regulate new technology and set new standards. But most importantly it’s about delivering better, cheaper and more inclusive financial services.”
Kalifa’s review operated under five headings – policy and regulation (where the work was led by Swinburne and Kent), investment, international, national connectivity and skills – and the findings were presented in the same fashion. Recommendations in the 108-page publication included the establishment of a £1bn (about $1.39bn) ‘Fintech Growth Fund’; creation of a private sector-led Centre for Finance, Innovation and Technology; and the launch of a ‘scale-box’ to provide regulatory assistance for firms that have moved beyond start-up status.
Holmes is currently focused on the Financial Services Bill, which reached committee stage in the House of Lords last month. He has tabled several amendments that chime with the Kalifa Review’s recommendations; he is pushing for greater piloting of new technology including DLT and artificial intelligence; and also proposes the addition of a financial inclusion remit to the objectives of the UK’s Financial Conduct Authority (FCA). Holmes would also like to see the FCA require all regulated financial services companies to report on their use of fintech to increase financial inclusion.