Nik's Naps breaks down Kalifa Review of UK Fintech
Feb 26, 2021 / Blog
Nik's Naps on Kalifa Review of UK Fintech
Nik Lysiuk, Research Analyst (Financials), rounds up the markets perspective
The UK government is clearly focussed on ensuring it builds an environment conducive to fintech start-ups and consequent scale-up opportunities
The long awaited Kalifa Review breaks down its recommendations into 5 areas. Among the focus on Policy and regulation, an International outlook and the desire to promote a number of national fintech clusters, there are two sections specifically that to me look very positive for investors and markets:
Investment
- Expand R&D tax credits (we note K3 Capital’s recent acquisition of randd), create a £1.0bn Fintech Growth fund (noting the £6.0 trillion in private pension pots), and improve the listing environment (the UK accounted for 4.5% of global IPOs across the major exchanges between 2015 and 2020).
- A tax credit relating to the costs of financial datasets important to a business model would provide a valuable source of cash / capital for critical investment to accelerate their R&D and successfully scale and grow
- Lack of institutional capital for fintech in the UK is a problem and results in returns flowing overseas, so the government intends to make regulatory concessions to unlock this capital (e.g. DC schemes not being able to invest in funds with performance fees that take them over the fee cap)
- Funding difficulties mean founder sales are often forced to complete too early and before true scale has been achieved, holding back potential market leadership for companies based in the UK
- The £1bn Fintech Growth Fund deployed over five years would fill approximately 10% of the growth funding gap, suggesting the £1.0bn may be to just initially test appetite
- The government expects £500m to be provided through large institutions and the remaining £500m sourced though smaller institutions
- Float requirements from 25% may also be reduced (potentially not relevant to the small and midcap space, given liquidity)
Skills
- Retrain and upskill UK adults and create a new global visa stream. (My wife is a recruiter for a large tech company and finding the right talent is a constant battle)
- It is estimated that 90% of the UK workforce will need to be reskilled by 2030. Astonishing
- They key challenges will be cost and quality (cue the boom in training providers – Learning Technologies Group springs to mind as a first mover)
- Job creation should be across all regions
- Those with a job offer at the required skills level (RQF6) from a recognised UK fintech scaleup would automatically qualify for the Fintech ScaleUp Stream
- The report is likely to make waves, promoting greater interest in fintech and increased levels of economic activity as the various knock-on effects take hold in adjacent sectors