London is driving a Fintech boom which will impact us all
– what you need to know
By Nick Pendleton, COO & Research Director, IORMA
Fintech is hot and has the potential to enable and drive change across all sectors. But what is froth and what is real? I went as a VIP guest to the Innovative Finance Global summit on 11th April 2016 at the Guildhall in the City of London to try and find out for IORMA associates.
This event brought together over 1,200 global regulators, politicians, start ups, scale ups and incumbents to look at the current, near term and future challenges and opportunities for the sector. In this article I condense the discussions on the day into three themes, share my five main takeaways and highlight some specific areas of interest.
The Conference in three themes
From the 27 separate sessions three themes emerged loud and clear.
1. The importance of working together with regulation at the heart
It was reassuring, if rather dull, that most speakers and attendees were in agreement that all stakeholders need to work together to build a more flexible, modular, safer, more inclusive and customer focused industry. This shared future view of the industry future was also matched by a common appreciation of the critical importance of regulation and legislation in stimulating change. This included, for example, enabling faster experimentation and accepting multiple failures as an inevitable consequence, welcoming new entrants and driving greater API connectivity to legacy financial systems to explode what can be done outside core operating platforms and incumbent organisations. It was widely agreed that the UK was currently leading the way – but others were following fast.
2. An appetite for change, but the agenda is being set by new players
The opportunities being explored and energy unleashed from starts ups looking to realise the imagined benefits from blockchain technology, smartphone adoption and P2P platforms was striking. Perhaps a little more surprising was the willingness displayed by incumbents to partner with and invest in these early stage Fintech companies to serve niche customers better. This was demonstrated by Santander’s investment and partnership with specialist SME lender Cabbage. Done well, this is a model I have always favoured for both small and large companies and looked to implement as a Director of Strategy and Innovation at Royal Mail – since it plays to both parties natural strengths. But it is not an easy ride – as it is hard to sustain or scale this approach.
3. The 2 billion emerging market opportunity
There was a lot of talk about the scale of opportunity in emerging markets, driven by to opportunity to increase financial inclusion, the potential to increase the wealth of the poorest in society and the chance to leapfrog established infrastructure. This customer opportunity was quantified at 2 billion by the Bill & Melinda Gates Foundation.
My Five Main Takeaways
Despite the risks of a Brexit and the uncertain global climate, the Financial Service community was surprisingly buoyant at the Guildhall. In general they are not an over excitable bunch. I can say this having previously worked for a bank, a life insurer and consulted to 22 difference FS companies while with Ernst & Young (although all a long time ago). As I left the event, five things were clear to me.
1. London is more than ever the natural centre for global financial services innovation. A melting point where entrepreneurs, politicians, regulators and incumbents are working together to enable new technologies and business models – and, therefore, the best place to “hang around” to understand what’s possible and what’s next.
2. Despite this, some new applications and technologies will most likely gain early traction in less established markets first – given reduced barriers to adoption. Once again, this underlines the reason to retain a global perspective on changing customer behaviour.
3. Most participants were clear that the keys to future success lie in unlocking a combination of elements. These can be synthesised as the right talent, technology & business model, rooted in solving real customer problems, supported by appropriate capital and policy frameworks. This is equally true for each market and each participant. This explains why it is often so hard “to turn poetry into prose” (to quote Barak Obama).
4. All these 6 elements are probably needed to drive truly disruptive change, combined with those most vital ingredients of the right timing and some luck. This explains why so few of the Fintech disruptive champions have yet reached truly significant global scale.
5. After this summit I’m more confident than ever that these elements are now falling into place. Fintech is one to watch – and the implications will be felt across all sectors. Stand back as payments, cross border trade, loans, wealth management and corporate financing become ever more accessible and affordable – all through the smart phone in your pocket.
Some of the day’s specific highlights are summarised below.
The UK’s commitment to growth and innovation in this sector was underlined by presentations from Harriet Baldwin MP, representing HM Treasury and Chistopher Woolard, representing the FCA. The FCA put a little meat on this bone by outlining a new regulatory sandbox approach to specifically support innovation alongside the existing Project Innovate.
Rhydian Lewis of RateSetter and Nick Hungerford of Nutmeg outlined the benefits of the UK’s innovation friendly approach. This enabled them to set up their businesses in the UK, focussed on peer to peer lending and robo-advice respectively, but challenges remain in exporting their business models outside the UK.
The spectre of cyber and financial crime was put into sharp focus by Eugene Kaspersky, CEO of Kaspersky Labs. He shared data which suggested 60% of his company’s customers were recorded as having had a cyber attack attempted in 2015. Shockingly this was up 10% from the previous year. He also spoke about the rise of CaaS (Crime as a service) by organised cyber criminal networks. This serves as a timely reminder that all sectors have to take this risk very seriously and continue to understand how to better protect our infrastructure, our businesses and our customers.
On a more positive note, the progress and plans shared by current and potential disruptors - meeting customers’ needs better, simplify processes and reducing costs – was most encouraging. I was particularly struck by the focus and sophistication of the founders and leaders of Property Partner, OnDeck, Azimo, Investify, Seedrs, iwoca, landbay, MoneyBox, Scalable Capital, Credits, BitFury, Coinsillium, Stripe, Currency Cloud, Yoyo Wallet and Mangopay. If you haven’t heard of these companies I’d encourage you to google them.
Equally pleasing was the willingness of incumbents to invest and partner with these type of companies. This was emphasised by the Chief Innovation Officers and Venture Managers from Standard Chartered, Santander, Citi, CME Group and Infosys. They were also keen to warn start ups to select their partners carefully and were refreshingly honest about the challenges big organisations face around fast decision making, creating the right culture and aligned incentives to support change. This once again showed the difficulty of innovating on the inside and the challenge that employees and executive in big companies face in keeping up with (and adapting to) technological and societal change. A challenge that we in IORMA understand and aim to help overcome.