What might a Labour government mean for Fintech and Payments in the UK?

A Labour government in the UK could have significant implications for the Fintech and Payments sectors. Key areas that might be affected include changes to the finance landscape, financial services policy, regulation and oversight, innovation, competition, financial inclusion, international positioning, digital infrastructure and education. Here’s a breakdown of potential impacts:

1. Finance landscape

The Labour Party Manifesto (published June 2024) and Plan for Financial Services (published January 2024) signpost several changes that Labour commit to make should it win on July 4th. These include:

• Reform of the British Business Bank: improved access to finance for SMEs, with greater focus on improving diversity across regions and minorities, and supporting university spinouts
• Changes to Investment Rules for Pension Funds: allow defined contribution funds to invest in the UK including venture capital and small cap growth equity.
• More Support for SMEs: clampdown on late payment and stabilising the rate of Corporation Tax
• Creation of a National Wealth Fund: a £7.3bn commitment over the first parliament, looking to create public private partnerships to invest in infrastructure and green industry.
• Private Equity Carried Interest: closing of a loophole that means performance related pay is treated as a capital gain rather than income.

What Labour hasn't addressed specifically in it's plans is any continuation or potential changes to the Seed / Enterprise Investment Schemes (S/EIS) or Venture Capital Trust (VCT) regimes and allowances - which are key drivers of financial support to start-ups and scale-ups.

2. Financial Services policy

Reeves (as shadow chancellor) and Siddiq (as shadow Economic Secretary to the Treasury) laid out a six point plan for financial services in their January publication “Financing Growth: Labour’s plan for financial services”, with this election's manifesto building on some of these. However three key issues currently in-flight will be waiting for whoever occupies Number 11 on 5th July:

• Future of UK Payments Infrastructure: after years of prevarication, debate, design and review, the next government needs to bring this to conclusion. With Joe Garner tasked with first writing a review and now determining a New Payments Vision, industry is desperately seeking clarity on if, when and how FasterPayments will be replaced or evolve. Having been one of the first out of the blocks with real time payments in 2008, the UK now appears to falling behind the global adoption of ISO20022 and the creation of a more robust, resilient and capable infrastructure for the full gamut of account-to-account (A2A) use cases and adoption.
• Implementation of Authorised Push Payment (APP) Scam Reimbursement: the new interim CEO of the Payments System Regulator has reaffirmed its commitment to a 7th October implementation date, but lobbying by industry (eg The Payments Association) continues to seek adjustment and delays to plans that will make sending and receiving institutions liable 50:50 for scams - following a protracted period of a super complaint, rounds of consultation, voluntary codes etc. The banks appear to be making some headway in deflecting the blame upstream, and on digital platforms in particular.
• Evolution of Open Finance: the roadmap for Open Banking - including the development and design of commercial Variable Recurring Payments - and the push into new areas of broader Open Finance (eg insurance and pensions) was a design task handed to CFIT as secretariat for the Open Finance Taskforce which is currently underway. Labour has committed its support in the manifesto, but what form and influence this will take remains to be seen. 

3. Regulation and Oversight

Labour has historically advocated for a more hands-on approach to regulation in various sectors, including finance. Under a Labour government, the fintech and payments industry might experience:

• Greater Regulatory Coordination: the manifesto calls for the creation of a Regulatory Innovation Office - “bringing together existing functions across government. This office will help regulators update regulation, speed up approval timelines, and co-ordinate issues that span existing boundaries.”
• Increased Regulatory Scrutiny: More rigorous oversight to ensure consumer protection, data security, and ethical business practices - particularly in the fast-moving arena of Artificial Intelligence (AI).
• Stronger Anti-Money Laundering (AML) and Know Your Customer (KYC) Measures: Enhancing compliance to prevent financial crimes and tackle corruption across UK and overseas jurisdictions.

4. Innovation and Investment

Labour’s stance on fostering innovation and supporting new technologies could influence the fintech sector:

• Government Support for Innovation: Potential increase in funding and support for research and development in fintech, possibly through Spinout Seed Funds that could attract match funding from the British Business Bank.
• Public-Private Partnerships: Encouragement of collaborations between the government and companies to drive technological advancements - particularly those that match the criteria for the proposed National Wealth Fund.

5. Competition and Market Dynamics

Labour policies could impact market competition and the overall dynamics within the fintech and payments sector: 

• Promotion of Competition: Policies aimed at breaking up monopolies and fostering a competitive market environment.
• Support for SMEs: Initiatives to support small and medium-sized enterprises, which could benefit smaller fintech startups.

6. Financial Inclusion

Labour often emphasises social justice and equality, which could translate into policies promoting financial inclusion:

• Accessible Financial Services: Initiatives to ensure that underserved populations have access to banking and financial services, potentially through digital solutions.
• Affordable Services: Measures to make financial services more affordable and accessible to all segments of society.

7. International Positioning and Trade

Labour’s approach to international trade and relations might affect the global positioning of UK fintech:

• Post-Brexit Trade Policies: Labour’s stance on post-Brexit trade agreements could shape the regulatory environment for cross-border fintech and payment operations.
• Global Collaboration: Potential emphasis on international cooperation in fintech, possibly seeking to continue to align closely with European standards.

8. Digital Infrastructure and Education

Investment in digital infrastructure and education can significantly impact fintech:

• Digital Infrastructure: Increased investment in digital infrastructure to support fintech growth, including broadband and cybersecurity measures.
• Education and Skills Training: Programs to enhance digital literacy and fintech-related skills among the workforce.

Potential Challenges

While there are potential benefits, there could also be challenges: 

• Increased Compliance Costs: Stricter regulations might lead to higher compliance costs for fintech companies.
• Uncertainty During Transition: Any significant policy shifts could create uncertainty in the short term, impacting investor confidence and market stability.

Conclusion

A Labour government in the UK could bring a mix of opportunities and challenges for the fintech and payments sector. While increased regulation and oversight might raise compliance costs, enhanced support for innovation, competition, and financial inclusion could foster a more dynamic and inclusive fintech environment. The specific outcomes would depend on the detailed policies implemented and the broader economic context.