Unlocking the Next Phase of Financial Innovation

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By Ezechi Britton MBE, CEO, Centre for Finance, Innovation and Technology (CFIT)

The financial-technology (fintech) industry is at a critical juncture. In the United Kingdom, major pledges made by the new government during its first month in post have already demonstrated the scale of national commitment to driving economic growth through new technologies. This includes pledging new legislation promoting innovative data sharing and digital identity-verification practices, which have particularly compelling applications in financial services.

We know that fintech innovation has been a fundamental component of fuelling economic growth. Our first coalition on open finance at the Centre for Finance, Innovation and Technology (CFIT) made that clear—showing how technology and data can be used in novel ways to empower consumers and significantly enhance small businesses’ access to commercial finance.

But in addition to these big opportunities, the industry faces some significant challenges. Under the post-Brexit restructuring, we’ve seen just how important it is for regulators to be agile and react quickly, with 45 percent of all businesses identifying red tape as burdening their success.

Yet, the UK has long been punching above its weight—both in London, where a global financial hub and burgeoning technology sector have made the city a global fintech leader, and beyond, where thriving fintech ecosystems are fed by talent from high-quality universities based all over the country. In Leeds, enormous fintech growth spurred its number of fintech firms to more than double in three years, while 18 of the UK’s 52 tech unicorns in 2024 are now fintechs—far and away the most represented sector.

Our organisation, CFIT, was born out of “The Kalifa Review of UK FinTech” with a mandate to unblock the barriers that are impeding growth in financial technology and lead the drive to expand and scale the UK’s position as a global leader in financial innovation.

Exploring open finance

CFIT’s coalition model is turning the tables on some of the greatest obstacles to financial innovation in the ecosystem: fragmentation and a lack of consistent coordination.

A CFIT coalition is a dynamic and purpose-driven collaboration of industry experts who move rapidly to unlock innovative solutions that have real-world impacts. Our inaugural coalition on open finance convened some of the brightest minds from finance, technology, academia and policymaking to foster data sharing that can build the crucial datasets needed to unlock scalability across the financial-technology sector; in February, it published its milestone “Blueprint Report”.

This blueprint represents the culmination of hundreds of hours of collaboration and research and is the first step on the roadmap to open finance’s adoption. The coalition successfully demonstrated that increasing access to data has helped deliver better outcomes to consumers and businesses. In fact, it could bring a £30.5-billion boost to the UK economy with personal-data mobility. Crucially, it also prescribed the practical next steps we need to take to ensure that these benefits are not lost.

Working alongside Citizens Advice, we developed a personal-financial-data dashboard that would enable its teams to service up to an additional 150,000 of the most financially vulnerable and, on average, help people access an extra £1,000 in support per year. A separate proof-of-concept study with HSBC and other CFIT partners, including IBM and CRIF, demonstrated that accessing new datasets and auto-populating business-loan applications can lead to significant boosts in positive lending decisions for small and medium-sized enterprises (SMEs).

Within months of this initiative, we announced that we would continue working with some of our key partners to scale these proofs of concept into working prototypes and launch a CFIT-chaired Open Finance Taskforce in partnership with HM Treasury to advance the next steps in developing open finance in the UK.

Here, we’ve demonstrated the importance of collaboration; innovation should be industry-led, but it shouldn’t sideline regulators. An ongoing dialogue is essential and capable of actively creating the conditions for new ideas and models to come to life. We’ve seen this with HM Treasury’s regular calls for evidence and the Financial Conduct Authority’s (FCA’s) series of “sandbox” environments, in which industries work with regulators to test new products and services in controlled environments.

The UK’s financial technology is a success story in and of itself, raising nearly $40 billion over the last five years alone and producing countless international heavyweights—with Revolut, Zopa and Monzo amongst them. Only through industry-regulator collaboration were we able to adopt a concept as complex as open banking as early as we did and transform it into the foundation of online payments for more than 10 million active consumer and SME users. Open finance’s future success rests even more on the industry’s ability to keep pushing the boundaries of innovation with the right resources, trust and regulatory support behind it.

Our work at CFIT has been geared towards establishing an ongoing dialogue for stakeholders and policymakers, striking a balance between consumer safeguards and technological innovations. It requires constant input from the industry to avoid new ideas and products being stymied by regulation, but we believe it is the most conducive vehicle to addressing the various problems inhibiting innovation in the ecosystem.

Combatting economic crime

As data fragmentation across different financial-services providers drags on economic growth and consumer choice, another major issue affecting businesses and consumers alike is economic crime.

In 2023, almost £1.2 billion was stolen from consumers alone; almost half of this was through authorised push payment (APP) fraud (£459.7 million in 2023), through which victims are tricked into sending money to scammers for products and services they never receive. Seventy-six percent of APP frauds have originated online, with an estimated 232,429 cases last year. On a macro-level, these statistics place the UK firmly in the centre of what Foreign Secretary David Lammy described as the “global laundromat”. Looking closer, they reveal the harsh reality lived by the country’s most vulnerable, who are disproportionately the victims of economic crimes.

The National Fraud Strategy, published in May 2023, was a milestone for setting out concrete steps to tackle those predatory criminals taking money out of the pockets of hard-working people, businesses and organisations. As their tactics exploited the digital space, the promised 10-percent cut in fraud to 2019 levels by December 2024 would be achieved with proportionate foci on new prosecution processes, bans on SIM (Subscriber Identity Module) farms and protections in the tech sector.

It was reassuring that the Labour Party’s plan for financial services, published in January, placed a “cross-sectorial approach to fraud prevention” amongst its key priorities. This is set to comprise a renewed, integrated effort across government, law enforcement, regulators, financial-services firms and tech companies. This approach to regulation and supervision—more interconnected and innovation-centred by design—is key to bridging the gaps between policy outcomes and tangible benefits for consumers and businesses alike.

The Digital Information and Smart Data Bill, unveiled in the recent King’s Speech, is intended to promote the creation of open-banking-style smart-data schemes and drive open finance forward; it also leans heavily on digital identity-verification services. Fortifying the National Fraud Strategy’s original ambition with future-proof anti-fraud strategies, the bill promises to help “people and businesses make the most of identity-checking technologies” as it opens the floodgates for the industry to innovate solutions that will help erode the economic-crime threat.

The establishment of digital identity-verification services is perhaps the single most important step in bringing the UK closer to becoming a fraud-resilient society. The most common types of fraud could be prevented if digital verification were in place to validate fraudsters’ identities.

Digital identities are, as described by techUK, “the missing link in a UK digital economy”, and it is for this reason that we chose to form our second coalition around economic crime and the benefits that enhanced verification can unlock for businesses. The Federation of Small Businesses (FSB), the City of London Corporation, Nationwide and the Payments Association count amongst our first partners in this coalition, each bringing unparalleled insights. Our mission? To support the new government and industry in putting in place measures that will make financial services safer and our economy even more resilient in the years to come.

Our final cohort of partners will be announced soon, immediately kicking off a programme of research and testing to find new ways to make the economy more resilient to fraud. The idea is to provide standardised and verified information about a business that is interoperable with other financial systems for data cross-referencing, enhanced authenticity checks and additional fraud-detection tools. The coalition’s final “Blueprint Report”, to be released in early 2025, will set the roadmap for how UK institutions can implement digital identity-verification services to drive forward better outcomes for businesses and consumers alike.

The UK has an opportunity to pioneer enhanced verification as a defence against economic crime and as a catalyst for innovation in financial technology, just as it did with open banking. Industry is a mission-critical component of this national drive.