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In an exclusive interview with VIXIO, Lord Holmes Of Richmond, one of Westminster’s most influential fintech and payments advocates, speaks to us about financial inclusion, central bank digital currencies (CBDCs) and how much progress has been made with the UK’s landmark Kalifa Review.
Christopher Holmes, Baron Holmes of Richmond MBE, is a British former swimmer and life peer in the House of Lords, who won a total of nine gold, five silver and one bronze medal at the Paralympic Games.
He is a member of the influential Lords’ science and technology select committees and has previously sat on select committees dealing with issues such as digital skills and financial exclusion.
Q. Do you think that financial inclusion has gone forwards or backwards in the last decade?
A. It’s not, as is so often the case, a simple question of linear direction. It is positive that we have two ministers for financial inclusion — one in the Department for Work and Pensions and one in Her Majesty’s Treasury.
It is also positive that I managed to get my "cashback without the need for purchase" amendment into law in the Financial Services Bill 2021 and that there is an overall increased level of focus on financial inclusion across the piece.
However, the Financial Conduct Authority must do more. Not least, in adopting a "have regard to financial inclusion" duty.
In reality, every organisation, every government department, all of us, need to do more. If we can realise much greater financial inclusion the prize is not just economic, it’s social, and it’s psychologically good for us all — not just those now included.
Q. Do you think that the rise and rise of digital payments has provided more opportunities for financial inclusion, or has it contributed to financial exclusion (for example, a reduction in businesses accepting cash)?
A. It has certainly provided the opportunity and the potential for greater financial inclusion but we are still very much away from the realisation of this potential.
The decline in cash access and cash acceptance is of huge concern. Cash still matters and it matters materially to millions who should rightly be able to rely on it.
The acceptance point is critical as we can do as much as possible for cash access but, without acceptance, what currency is cash?
Also, consider the example of the best payment acceptance point possible. It’s in the hands of someone who, through no fault of their own, does not have the skills, or the confidence, to transact online, no matter how good the acceptance point, so the payment isn’t going to be made.
Imagine that same acceptance point in the hands of someone with high digital skills and confidence. If they are in an area of low or no, patchy or poor broadband and/or mobile coverage, through no fault of their own, the payment, again, isn’t going to be made.
It’s the combination of all elements which can enable and empower financial and digital inclusion.
Q. Does the UK need a CBDC, or should the Treasury and Bank of England be focused on encouraging investment and innovations with private digital currencies?
A. There is a potentially extremely positive role for both.
The Bank of England is doing great work in the CBDC space, I would urge an even greater pace though. It will certainly and sensibly be a wholesale offer in the first instance, but things get interesting when we look at all of the potential retail opportunities. Imagine, for example, what inclusion could be achieved through such programmable "state" money.
How it could enable those on benefits, how it could contain so many features, not least non-monetary elements, in international trade, for example, with atomic settlement at the border. That would be truly transformational.
There is also a potentially very positive role for rightly regulated stablecoins. Regulation is key and it should be very thoughtful of both the competitive and the consumer protection imperatives. It is completely possible to regulate positively for both, and more.
Q. Has the government done enough to ensure access to cash, or are you concerned that bank branch closures and a reduction in free ATMs are too late to solve?
A. There is more to be done, but also good work with the bank hub pilots.
However, if this is to be a success, we need hundreds not handfuls of such facilities. Cash acceptance is also critical, as mentioned above.
We also need to have the UK cash network designated as critical national infrastructure, not just for reasons of access and inclusion but for resilience at least as importantly, just consider the current geopolitical and international risks we currently face.
Q. Do you think that enough progress has been made since the Kalifa report? Out of the proposals, what do you think needs to or should have been prioritised?
A. Ron [Kalifa] produced an excellent report and much has happened, yet much more still must.
Not least, we need to get the Centre for Finance, Innovation and Technology up and running and engaged in projects that can deploy the power of fintech to enable financial inclusion.
More is also needed in terms of the financial services regulatory environment and leading on international standards. We have such an opportunity to lead in new and emerging finance, particularly when tied to the appeal of London and the UK, our time zone, location and massively, the rule of law.
Q. Considering your work on open finance, do you think that the UK is ready to transition to this from open banking and is regulation necessary?
A. There is lots of work needed here, and again, the prize is almost infinite.
Greater understanding is required of what has worked with open banking and what, perhaps, has been less successful.
There are a plethora of fintechs starting and scaling in this space and what’s not to be rationally excited about the opportunity?
Embedded finance, I believe, will be the big thing this year, offering so much if it is done right.
