Three-quarters of UK fintechs criticize lack of government support during the pandemic

Three-quarters of UK fintechs criticize lack of government support during the pandemic
UK fintechs are critical of the government's support schemes during the pandemic.Business Insider Intelligence
  • A new survey reveals that most UK fintechs are critical of the government's support schemes during the pandemic.
  • And the lack of government aid is creating an uneven playing field, where only larger fintechs can capitalize on rising fintech adoption.

Only 25% of respondents surveyed by fintech network and lobbying group Digital Finance Forum believe the UK government has done enough to support the fintech sector during the coronavirus pandemic. Over 100 fintech founders responded, and 65% were small businesses with 50 employees or less.

The lack of government aid is all the more harmful to smaller UK fintechs amid the drop in private funding.

  • Many fintechs are ineligible for government assistance. Thirty-seven percent of respondents said they could not qualify for a government loan. The Coronavirus Business Interruption Loan Scheme (CBILS), for example, isn't available to fintechs with a banking license, full-stack insurtechs, or those with unviable borrowing proposals, such as running a loss-making model. In addition, the UK Treasury recently blocked alt lenders' access to cheap finance from the Bank of England Term Funding Scheme, making it harder for them to meet small businesses' financing needs.
  • And what remains of dwindling private funding is going toward established fintechs. Forty-six percent of respondents cited limited access to capital as their most pressing challenge. UK funding dropped by 39% in H1 2020, and while this affects all fintechs, the lion's share went to a select few established players, including Starling Bank and Revolut. As a result, small UK fintechs in particular are faced with limited cash runway, exacerbating the need for government support.
Such government inadequacies are creating an uneven playing field, where only larger fintechs can capitalize on rising fintech adoption. UK fintech adoption is surging in the pandemic's wake, as consumers turn to digital financial management tools. Yet established players could be the sole beneficiaries as they have the necessary cash to outlast the challenging upcoming months and expand their offerings to capitalize on this trend: For example, Thought Machine is expanding to the US and Asia following its megaround, while TransferWise successfully sold $200 million worth of its shares and is developing an investment product.
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To better nurture a competitive fintech ecosystem, the UK government should amend its schemes to offer smaller fintechs better access to funding. It could also look to other proactive financial regulators for inspiration: The Monetary Authority of Singapore, for example, has rolled out specific fintech funding packages, as well as expanded its Proof-of-Concept Grants and innovation labs.

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