London Fintech Concerns Over New Fraud Refund Rules and Stripe's Expansion in the City

Key Takeaway

• UK fintech executives, including those from Revolut and Wise Plc, voiced concerns over new fraud refund rules requiring refunds up to £415,000 starting October.
• Stripe is expanding its London operations with a new office and introducing small business financing services, highlighting the city's importance to the company.
• London leads Europe in financial services FDI with 81 projects in 2023, a 76% increase from last year, despite Brexit challenges.

Fraud Refund Rules Concerns

UK Economic Secretary to the Treasury, Bim Afolami, met with executives from companies including Revolut, Wise Plc, and ClearBank to discuss industry concerns over new fraud refund rules. The Payment Systems Regulator (PSR) is implementing measures to combat authorized push payment fraud, which tricks customers into transferring money to accounts controlled by criminals. Starting in October, payment providers will be required to refund up to £415,000 ($527,340) to scam victims.

Executives expressed concerns that the new refund system could become a political issue, especially with the potential timing of a UK general election. They highlighted the impact of the new cap on fintech companies. A Treasury spokesperson acknowledged the industry's concerns, stating, "The government is aware of the strong concerns raised by industry, and we encourage the PSR to engage with these."

Riccardo Tordera-Ricchi, head of policy and government relations at the Payments Association, commented, "Finally, someone has understood the concerns of the industry that has been long dismissed." The meeting followed a letter from 80 companies to the Treasury, warning that the increased refund limit could lead to moral hazard, with consumers potentially acting recklessly if they know losses will be covered.

Executives suggested that customers should be required to file a police report before being reimbursed, a requirement not currently part of the rules. Afolami acknowledged this issue during the meeting. He and other members of Prime Minister Rishi Sunak’s government have criticized regulators for hindering London’s competitiveness, citing issues like the Financial Conduct Authority’s proposal to name firms under investigation.

Stripe Expands in London

Stripe Inc. is opening a new office in the City of London to expand its UK operations and introduce lending to small businesses. The new location will house 250 staffers from various departments, including engineering, sales, partnerships, financial compliance, and operations. John Collison, Stripe’s president and co-founder, stated, "When you zoom out, it’s just the largest city for us in terms of businesses starting with us. We’re still expanding quite a bit. We may need a new office later."

Stripe's first UK office opened in Shoreditch in 2014, and the UK is now the fintech company’s second-largest market. More Stripe users are based in London than any other city globally. The new office is located at 201 Bishopsgate, an office block linked to the Broadgate Tower.

In addition to the new office, Stripe is introducing new payment tools in the UK, including a small business financing service called Stripe Capital. The company will also enable UK businesses to accept pay-by-bank options, which are cheaper as they bypass traditional card networks. With a $65 billion valuation, Stripe is one of the world’s most valuable fintechs, competing with companies like PayPal Holdings Inc. and Adyen NV.

London Leads in Financial Investment

London continues to lead European cities in attracting foreign direct investment (FDI) in financial services, according to a survey by Ernst & Young (EY). The UK’s share of new projects reached the highest level in a decade, with London securing 81 projects in 2023, a 76% increase from the previous year. This is more than double the number of projects in second-placed Paris, which saw an 11% decline.

Anna Anthony, UK financial services managing partner at EY, stated, "The stability of the UK’s financial services sector has ensured foreign investor confidence remains strong," but warned of "fierce" competition from European peers and further abroad. Despite Brexit and concerns about London’s equity market performance, the UK secured a third of all European projects in the financial services sector, attracting 108 projects in 2023, up from 76 in 2022.

The EY survey also revealed that 57% of investors plan to establish or extend financial services operations in the UK over the next year, down from 67% in the 2022 survey. Financial services FDI continues to outpace overall FDI growth in Europe, with significant declines in technology and business services projects.

Street Views

• Riccardo Tordera-Ricchi, Payments Association (Neutral on the new fraud refund rules):

  "Finally, someone has understood the concerns of the industry that has been long dismissed."