The UK has a new Prime Minister, Keir Starmer, whose Labour Party seized victory last night with over 400 seats in the House of Commons. With this new administration will come a new Chancellor of the Exchequer, most likely to be Rachel Reeves, overseeing Britain’s economy.
Starmer and Reeves’ government inherits an economy which has undergone significant upheaval over the past two decades, including two recessions and the impact of a nearly two-year pandemic. Specific sectors within the economy, like fintech and payments, continue to face their own challenges.
As voters went to the polls yesterday, The Payments Association (TPA), the UK trade body for the payments industry, drafted a letter to the incoming Chancellor – now confirmed as Reeves – outlining what policies it hopes the government will pursue regarding the financial sector. Meanwhile, reactions to the landslide victory have been coming in from other industry stakeholders.
“We see the Chancellor’s appointment as an opportunity to maximise the potential of the payments sector while refocusing on its greatest threats”, says Tony Craddock, Director General of The Payments Association.
“It is essential that the new government and the payments industry work collaboratively to protect the UK’s global leadership position. A clear vision and strategy from the new government will generate significant investment and promote the UK’s position as the global payments leader solidified and see sustained growth in every UK region.”
A new approach to fighting fraud
Fraud is a huge talking point in British payments. Authorised push payments (APP) fraud in particular has risen significantly in recent years, and the Payments Systems Regulator (PSR) has taken note of this with new regulations due to come into force on 7 October.
These regulations haven’t been entirely well received by payments, however. Whilst the industry notes the need to fight fraud, it has taken umbridge with the onus of fraud reimbursement being placed on payments providers, and not other stakeholders.
TPA has called for ‘big tech’ companies to share the responsibility of reimbursing fraud victims. This steps largely from the fact that social media platforms operated by the likes of Meta and X are often used by fraudsters to commit their crimes – this is something that has been noted by various financial firms as well, like Revolut, Barckays and TSB.
On this issue, UK payments may be in luck with Labour’s crushing victory over its Conservative rivals. Earlier this week, the Financial Times reported that it had viewed a Labour policy document which would require big tech firms to play a role in reimbursing fraud victims.
This is not the only aspect of the fraud regulations TPA is focused on, however. The association is making its case for the reimbursement threshold to be reduced from the current maximum of £415,000 to £30,000, which it believes fits more in line with the average fraud loss for businesses and the public standing at £11,000 and £2,000 respectively.
Craddock explains: “We especially hope the Chancellor sees the benefits of lowering the threshold for mandatory reimbursement of an APP fraud claim and potentially introduce a dedicated Anti-Fraud Minister.
“The current landscape is all too easy for fraudsters to navigate and the PSR’s proposed changes will only serve to exacerbate the situation. Swift action as proposed in our letter is necessary to mitigate the potential threats once the changes are introduced on 7 October.”
Labour’s take on technology
Payments is a sector driven heavily by technological innovation, and sub-sectors which are perhaps most symbolic of this are Open Banking and cryptocurrency. The latter is an area which the Conservative government, particularly under outgoing PM Rishi Sunak, has been keen to foster.
Sunak’s goal of creating a ‘Digital Britain’, as Conservative MP Lisa Cameron put it at the Pay360 conference earlier this year, includes support for the growth of and regulation of the cryptocurrency sector.
TPA hopes that this ambition will continue under Labour. The association has called on the new Chancellor to ensure world leadership for the UK in digital finance, gained through globally interoperability, attracting investment and delivering high-skilled jobs.
In its letter, the association has used the term ‘crypto hub’ – similar terminology has previously been used by Sunak in his description of ambitions for British fintech, during his time as Chancellor of the Exchequer under Boris Johnson.
Lastly, the association added that some of its members support the creation of a digital pound, a Bank of England-issued Central Bank Digital Currency (CBDC). On stablecoins, it would like to see work between HM Treasury, the Financial Conduct Authority (FCA) and Bank of England to create a regulatory framework for stablecoins.
Whilst the Conservative government was clearly in the crypto camp, Labour’s policies in this area are less clear. The party has commented publicly on several financial and banking issues, but crypto has rarely been one of them.
Instead, Open Banking is an area TPA and its members may have more confidence in. The association states that it would like to see the new Chancellor drive the growth of Open Banking and Open Finance, pointing to the sector’s existing value of £4.1bn, its use by 10% of British consumers and businesses, and creation of 4,800 jobs.
“Fintech is the future of financial services and, by delivering the next phase of open banking and open finance, we can unlock the potential for increased competition in retail payments,” TPA emphasised.
Similar to fraud prevention, TPA and its members may be able to count on Labour in this regard. Labour seems to share the outgoing Conservatives’ enthusiasm for Open Banking, having pledged to “deliver the next phase of Open Banking to unlock the potential for increased competition in retail payments” in February policy document.
A win for the small businessman?
Although the UK economy has made significant progress lately, Labour still has a difficult job ahead. British businesses and the public received positive news earlier this year when the economy grew by 0.6%, the highest in years, and inflation fell to the Bank of England’s target rate of 2% in June.
However, the cost of living remains a constant concern for the general public due to rising food prices, energy bills and other utilities. The same is true for small and medium sized enterprises (SMEs), of which there are over 5.51 million across the country.
“The Labour Party now has an opportunity to drive economic growth through the UK’s resilient small and medium sized business community.”
Theo Chatha, Chief Financial Officer, Bibby Financial Services
According to government figures, there are 5.6 million businesses in the UK private sector, divided between the aforementioned 5.51 million small businesses, 36,900 medium businesses, and just 8,000 large businesses.
This means 99% of UK businesses are SMEs, and so ensuring this sector continues to thrive will be critical to the country’s economic growth, and recovery from three recessions over two decades.
Sinead McHale, CEO of Satago, a business payments platform backed by Lloyds Bank, tells Payment Expert: “Small and medium-sized enterprises (SMEs) are the heart of the UK economy, contributing significantly to employment, innovation and economic growth. In the current climate, the newly elected Labour government must prioritise and address their needs and concerns.
“Despite recent signs of easing inflation, business costs remain high. SMEs continue to grapple with profitability challenges and longer-term growth plans, with limited access to finance and late payments persisting from larger corporations.
“New policies must be implemented to support SMEs further, such as stricter penalties for late payments from larger businesses and incentivising prompt payment practices.”
On the campaign trail, Rachel Reeves put a lot of effort into endearing Labour to the UK’s business community. This included the usual campaign antics – speeches to business figures at a Rolls Royce factory in Derbyshire, for example.
The party’s policy documents have focused on a number of financial areas, like Open Banking, AI, retail and community banking, and according to the latest FT report, fraud reimbursement. Reeves has also taken time to comment on attracting startup investment however, such as in a speech in May at Labour’s Business Conference. With the party now in power, it must get results to keep the SME community in its favour.
“The Labour Party now has an opportunity to drive economic growth through the UK’s resilient small and medium sized business community, and to support them in boosting output,” Theo Chatha, Chief Financial Officer of Bibby Financial Services, an SME-focused financial service firm, comments to Payment Expert.
“But first, they must address key areas of concerns for SMEs, and access to finance is an area that requires attention. We know that for many SMEs, high street banks remain the first and only port of call, so there’s a strong opportunity for Labour to increase competition in the commercial lending sector and to enable SMEs to access a wider range of options.
“That’s why we were encouraged to see Labour commit to strengthening the British Business Bank’s Bank Referral Scheme in January. But clearly, more still needs to be done to make it work effectively. Despite much effort from the British Business Bank and the designated platforms and lenders, the number of businesses the scheme has supported since its launch in 2016 has been hugely disappointing.
“We would urge this government to develop a new scheme that includes input from a wider array of SME funders and commercial finance brokers, to ensure that the initiative delivers for SMEs. This would ensure Labour gives SMEs more choice and agency over how they finance themselves to grow and thrive.”
The onus for supporting SMEs is not only on the government, however. The private sector must also take its own measures and precautions to ensure its continued growth – this sentiment is true for fintech and payments as much as any.
“The new government can set the standard for fostering an overall prospective and resilient business environment.”
Sinead McHale, CEO, Satago
Startups and SMEs are as significant to the UK fintech space as they are to the rest of the country’s economic segments. With investor interest in payments and fintech, in particular AI, reaching a crescendo, this importance is as evident as ever.
“Meanwhile, increased collaboration between fintechs and banks will help SMEs adopt more sustainable cashflow management practices,” McHale continued. “For example, invoice financing helps SMEs build resilience against future challenges and increases visibility by allowing them to access capital via their balance sheets.
“By prioritising fintech development, the new government can set the standard for fostering an overall prospective and resilient business environment. Ultimately benefiting SMEs and the entire UK.”
The Labour Party has worked hard to present itself as both a party of business and party of the people. This paid off in yesterday’s election, although general public discontent with the Conservative government cannot be discounted.
Now it is in power with its biggest majority since Tony Blair’s 1997 landslide victory, the party needs to prove its credentials to the business community and the general public. Meeting the needs of payments, fintech and SMEs is one of many important factors Keir Starmer and his cabinet will need to consider.
