Fintech: a guide to financial technology

Financial technology – fintech for short – refers to the interaction of financial services with new technology. In some cases, it offers consumers and businesses new ways of doing things that they may already have been doing, such as budgeting. In others, it involves introducing entirely new ideas and approaches, such as cryptocurrencies.

Fintech tends to rely on several main technologies. These include:

• big data and advanced data analytics, including artificial intelligence (AI) and machine learning
• ‘alternative data’, including social media activity and web browsing data
• Open Banking
• distributed ledger technology and the blockchain – the foundation of cryptocurrencies
• peer-to-peer platforms and crowdfunding.

The Government has described and promoted the UK as a “global FinTech leader”. In recent years, the UK has been the third largest recipient of venture capital investment in fintech. The UK may have as many as 75 fintech companies that have achieved or may achieve a valuation of over US$1 billion.

Fintech may offer many benefits, including:

• employment and investment opportunities
• faster and more efficient processing
• more competition, personalised services and financial inclusion

But much of that new potential is matched by new risks, including:

• leaving people behind through general digital exclusion
• ‘algorithmic discrimination’ in which data analysis excludes people on the basis of characteristics or behaviour
• new challenges to effective regulation
• opening consumers to new risks of exploitation and scams.

There has also been wider concern about the risks that fintech may pose to the wider stability and security of financial markets, as well as about the influence of ‘big tech’ firms.

Government policy to date has focused on stimulating the fintech sector, while the Financial Conduct Authority (FCA) has taken some steps to protect consumers. The Kalifa Review of UK Fintech, published in February 2021, set out recommendations to further strengthen the sector – some of which the Government subsequently announced it would be taking forward, including support to help firms scale up and exploring the potential of a central bank digital currency.