Bank of England Governor Mark Carney has warned that new financial technology could damage the business model of traditional banks as savers turn away from mainstream lenders.
Mr Carney said that competition in the financial technology space could reduce loyalty “and the stability of funding of incumbent banks” which would force the Bank to step in.
“If this happens, the Bank of England would need to ensure prudential standards and resolution regimes for the affected banks are sufficiently robust to these risks,” he said.
Some consumers and small businesses are being drawn to fintech firms as an alternative way to raise cash or seek advice, with crowdfunding, robot advisers and peer-to-peer lenders seen as cheaper and more accessible.
(left to right) City minister Simon Kirby, Bank of England Governor Mark Carney, Chancellor Philip Hammond and Eileen Burbidge, head of Passion Capital and the Government’s FinTech envoy
Despite touching on the risks fintech firms could pose to traditional lenders, Carney said there was no need to toughen up regulation for the sector as it has so far “avoided undertaking traditional banking activities.”
The government is pushing to be seen as a fintech leader, with Carney noting that the UK fintech sector – worth around £7 billion and employing roughly 60,000 people – could boost growth if handled properly.
“The challenge for policymakers is to ensure that fintech develops in a way that maximises the opportunities and minimises the risks for society,” he said.
The central bank, in its own bid to keep pace with the sector, is now accepting its fourth round of applications for its fintech accelerator.
Traditional banks are attempting to react to the threat by pumping their own cash into the industry, with Chancellor Philip Hammond announcing on Wednesday that Barclays is to open a fintech accelerator in London which will house over 500 workspaces for start-ups.
Mr Hammond, speaking alongside Mr Carney at the Treasury’s first international conference on the nascent sector, urged businesses to “go out and get the business” in Asia post-Brexit.
“If the UK is going to make the most of the freedoms it will have after leaving the European Union we have to build trade links with the fast-growing economies of Asia, we have to invest in the skills of the future and our economy must remain at the cutting edge,” he said at the conference, a week after he was promoting British fintech in India alongside Carney.
“Not just of Fintech [but] of AI [artificial intelligence], biotech – of every area in which we have the potential to lead the world into this new industrial revolution.”
The Chancellor added that “the world does not owe us a living. We will have to strive and graft and fight to seize opportunities; and make the most of them.”
Not everyone is convinced, however. TransferWise’s chief executive Taave Hintikus, who was also speaking at the conference in London’s Old Billingsgate Market, said that if he was to set his business up today he would not choose to base it in the City, arguing that the UK’s vote to leave the EU threatens its standing as a fintech hub.
