Financial Technology (FinTech) research briefing

1. Background
2. Study scope and methods
3. Key Findings
4. Points to Consider

Background

Financial technology (FinTech) is the application of digital technology to financial services. Enabled by smartphone and Internet technology and the attendant reduction in costs of provision, and facilitated by a reduction in consumer confidence in traditional banks following the financial crisis, it is changing the landscape of the types of financial services available and to whom. With approximately £524m invested in the UK sector in 2015, employing around 61,000 jobs, the UK government has committed to the UK becoming the world’s leading centre for FinTech.

Study scope and methods

This study is a review of how FinTech is already being used in the UK, its benefits and the challenges such as access to services, regulation and establishing online identity it presents to the UK. It does so in relation to four emerging areas of FinTech:

• Alternative finance;
• Data analytics;
• Payments; and
• Distributed ledgers.

The report is characterised by a literature and evidence review, including of market and administrative statistics. It is focused mainly on the UK but draws examples from other countries.

Key Findings

• Alternative finance: A range of online investing and donating services, including peer-to-peer lending and crowdfunding; driven by demand from consumers and businesses for funding, limited alternative funding sources, and more competitive rates.
• Data analytics: Facilitating the development new business models which generate revenue from data, including from personalised risk assessments and automation in financial advice; driven by the increasing availability of data and analysis tools, it offers capacity to extend financial products to a wider demographic and lower cost of provision.
• Payments: The largest FinTech subsector, which includes mobile payment, cross-border payments and tokenisation through a trusted intermediary; a new Payments System Regulator (PSR) was launched in 2015 to regulate and develop a strategy for the subsector.
• Distributed Ledger Technology: Digital records which can be shared without need for an intermediary; developed initially for digital currencies (Bitcoin) it provides a secure way for records to be shared in relation to any asset or transaction; still at an early stage it is receiving support from public funding bodies.

Points to Consider

• Methodological strengths/limitations: This is a review and state-of-the-nation article, so does not, by definition, present new evidence.
• Relevance: It is highly, if only tacitly, relevant to financial capability because it provides new means for individuals to engage with their financial information, but only if technologies also allow for digital and, hence, financial inclusion.

Full report

FinTech research briefing - full report