Fintech is much more visible in the business world
Stuart Murdoch (SM): We are starting to see fintech firms permeate all aspects of our business – new private equity deals; established financial services players investing; a great new payroll solution. It all comes back to fintech – and young fintechs are increasingly seen as valuable counterparts for big businesses.
Deals have still happened
SM: More has been going on than people perhaps realise. We were instructed in several fintech deals during lockdown; for example, a Scottish fintech in-sourcing IT functionality that was previously outsourced. Rather than relying on a big IT company, they brought it in-house. Another example was a financial services institution taking a significant stake in a fintech.
The Global Open Finance Centre of Excellence (Gofcoe) is a massive deal
David Goodbrand (DG): We’ve followed this very closely and there are exciting opportunities to build on the success of open banking and move into pensions, investment products and insurance. It should allow consumers to see all their financial information in one place and make considered decisions, with the help of their advisers, about the interaction between different products.
Gofcoe signposts Scotland as a global fintech centre. We could see new entrants to the open finance market setting up in Scotland and doing some transformational things, creating new interactions between large insurance, pensions and investment businesses and fintech firms and bringing big new players into the fintech ecosystem.
With about one in four of UK pensions employees in Scotland, this is a huge opportunity. We have not seen the same transformational technology change in pensions as we have in banking. Gofcoe gives us the chance to do that. The pensions and investments sectors need that transformational impetus, as consumer engagement with both are poor.
Data is at the heart of everything
DG: Covid-19 has been called the first data-led pandemic, as data has informed every decision, from public health through to the re-opening of the economy.
This reinforces the importance of reliable, high-quality data – and nowhere is this more important than fintech, where it is so vital to identifying areas where improvements can be made, whether that is how banks interact with customers or identifying people with specific financial vulnerabilities.
Fintechs are working more with each other
SM: It’s a sign of a maturing market that fintechs are doing deals with each other, not just with established financial services businesses.
Modulr did a deal with Soar on real-time payments to support responsible lenders, and also worked with Zumo on its crypto-currency launch. These are all relatively new businesses collaborating with each other and we’ll see more of that.
Added value is king
SM: It’s not just about better functionality or providing financial technology solutions – that’s a given now. Fintech firms doing well and attracting real attention are those demonstrating a real value proposition, showing they can help a partner save money by doing things more efficiently, or helping them bring in more revenue.
It’s about solutions, but it’s pounds and pence solutions. That’s what makes young fintech firms more successful and gives them real credibility, making it more likely they will grow.
Partnerships can be a huge advantage
Callum Sinclair (CS): Firms which have partnered with big financial services businesses can be at a real advantage. Those seeking regulatory approvals or going into a sandbox might be doing fine, but if you are partnered up with a Lloyds, RBS or Standard Life, you are likely to be in better shape sooner.
Cyber fraud is still growing
DG: There has been an enormous increase in cyber attacks and financial fraud as a result of Covid-19. People are definitely more susceptible when working remotely. The huge increase in use of banking apps is a challenge – even when apps are really secure, large numbers of people unfamiliar with digital banking creates problems, and opportunities for fraudsters.
Big opportunities in fraud solutions
DG: There have been wholesale improvements in security, but it is always a challenge to ensure that technology and processes are keeping pace with the range and scale of cyber attacks and cyber fraud.
Lots of businesses offer targeted solutions in this space, but I don’t see anyone who has nailed the one-stop-shop of on-boarding, security, anti-money-laundering and everything else. Whoever is first, and partners up with a big financial services player, will take the market by storm.
Cyber-security: cultural change is crucial
DG: We’ve seen huge demand from businesses large and small for support from firms providing cyber security solutions, but good practice really needs to start at home.
The big change needs to be in the culture of business – selecting the right technology for your business and embedding good practice alongside that. Firms need to be proactive, not just reactive after cyber breaches. Fintech suppliers who understand that will thrive.
Crypto is on the march – Scotland needs to move fast
CS: The news at the end of June by Zumo was huge progress – the fact that users were allowed to trade directly in crypto-currency and spend via their credit card.
The taskforce in England and Wales has given reassurance to the crypto community in law, and there is a danger that if Scotland does not clarify its position on crypto-currency treatment under Scots law quickly, we risk falling behind.
Financial services could have done better
SM: At the start of the crisis, the Financial Conduct Authority recognised businesses were going through tough times, but afforded little leeway in terms of customer outcomes dropping. Some large financial services firms could arguably have responded better and done more for customers.
Some big banks were still saying they had reduced staff numbers and service far into the crisis – why? I understand that at the start, with people off sick and changes to providing services, but you can’t say that months in. However, large financial services players not meeting the expectations of the regulator creates major opportunities for fintechs.
The Scottish fintech ecosystem has held up well
CS: There have been lots of virtual forums, bringing people together to make connections and facilitate conversations. The ecosystem has held up well and the easing of lockdown should allow people to get together again to leverage the advances that have been made.
We’re heading towards a cashless economy – but not just yet
CS: Covid-19 has accelerated the shift to a cashless economy. The use of cash has almost dried up in some countries, although the Bank of England says it will be at least 2025-30 before there is any prospect of an entirely cashless society. The trend will continue, but we have to be sure people still reliant on cash aren’t left behind.
Loans to vulnerable people is a big area
SM: Players such as Greensill and Hastee are helping employers to advance money at very low interest rates to employees, instead of them having to access payday loans. There has been activity in small loans being given to people on benefits, in advance of them receiving those benefits. This all fits Scotland’s “fintech for good” agenda well and efforts by the Financial Conduct Authority to prioritise efforts to get payday lenders out of the market.
Hold on to kindness
CS: We have seen a lot more kindness throughout the pandemic – and movements like Black Lives Matter – and I hope “fintech for good” benefits. We have some great businesses in that space like Soar and Sustainably, and I hope we can ride the wave of kindness.
Capital is out there
CS: There is a fair amount of pent-up capital out there. It will be deployed carefully but it’s there and will ensure the right opportunities are well funded.
The future will be tough
CS: There is an existential threat from Covid-19 that has been affecting tech businesses – SMEs in particular – and fintech is not immune from that. The aftermath of the pandemic and then Brexit means we will have a tough couple of years ahead. Opportunities are out there, but it will be hard going.
The future can be bright
SM: I’m optimistic. Gofcoe could be transformational and let’s emerge from this crisis by looking at the big picture and being revolutionary. Capital is out there for great ideas and regulation is starting to facilitate innovation in areas like crypto and open finance.
There’s a chance for fintech in Scotland to move into a new era, and deliver transformational outcomes in banking and beyond, and fuel a whole array of economic activity – deals, finance, investment and more – and become a thriving sector in what is likely to be an otherwise recessionary economy.
Barriers to entry are lowering
SM: Everyone has been hampered by Covid-19 and established businesses are challenged by cost pressures and the general economic climate. The fintech sector offers opportunities to nimble businesses with a great service to come into the market with a relatively low-cost base and none of the baggage that existing businesses have. There’s arguably never been a better time to come into – and disrupt – the market.
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