Scotland has long been known as a centre for financial services, from life insurance to pensions and banking, but more recently the country has been gaining a reputation for successfully combining such traditional industries with new technologies.
Scotland is the UK’s largest ‘financial powerhouse’ outside London and a growing centre of financial technology, or fintech, as a result of new firms starting up and others deciding to relocate north of the Border to grow.
Analysis shows clear success. For example, ten international fintech firms have relocated to Scotland in the last 18 months, the country’s fintech community grew by 320 per cent in the past 20 months, £100 million was invested in fintech over that time and there are now five Scottish universities delivering fintech programmes.
There has been a lot of funding and investment activity in the sector this year. For example, Edinburgh-based personal finance platform Money Dashboard raised £4.6m for expansion in August, outstripping its target of £1.5m in 45 minutes.
And Lending Crowd entered a partnership with the Scottish Investment Bank and Dutch entrepreneurial bank NIBC earlier this year to create an opportunity for SMEs to fund their growth with a total of £18.75m being lent across the platform.
To help this sector continue to grow, FinTech Scotland was set up at the start of last year by the fintech community, the financial services sector, universities and the Scottish Government. Described as a “strategic enabler”, rather than a trade body, it is intended to encourage financial innovation, collaboration and inclusion as part of Scotland’s digital economy objectives.
Stephen Ingledew was appointed chief executive of FinTech Scotland last year, bringing many years of experience of working in various parts of financial services, both north and south of the Border.
He was previously a senior executive at corporates including Standard Life and Barclays, as well as having various other roles with smaller financial enterprises.
Describing FinTech Scotland’s objectives, Ingledew says: “We’re trying to do three things. One is to build a community of innovative small and medium enterprises focused on fintech and reinventing financial services.
“Number two is to develop their collaboration with larger enterprises, which helps bigger companies innovate and assists smaller companies to grow.
Thirdly, we’re building what we call a cluster. This makes sure we’re inclusive in bringing in all the other parties, such as investors and universities. That attracts global interest and brings firms to Scotland.”
And FinTech Scotland has proved effective in bringing the community together. When it started it had about 26 SMEs on board and now it has 110.
Sector growth has come from a combination of firms starting up and others relocating to Scotland. For example, Renovite Technologies, a payment specialist, moved from California to Dunfermline. And a number of businesses have launched in London before deciding to move to Scotland, such as Modulr, another payment specialist.
In terms of what attracts fintech firms to Scotland, Ingledew believes it is a combination of factors. “The whole is greater than the sum of the parts, as the old saying goes. Obviously Scotland has a financial services heritage in banking and life insurance, for example, and a reputation for innovation. Our universities produce the talent of the future and generate ideas around data and artificial intelligence,” he says.
“Scotland is obviously a wonderful place to live – I’m not a Scot and I moved here. It’s much more of a village. You can get things done in Scotland and then take them globally by working with big organisations such as HSBC, Lloyds Bank or Royal Bank of Scotland.”
While Scotland itself is not a big market, in comparison to major cities such as New York and London, Ingledew maintains that it is a good place to connect and his organisation has a key role to play. “What FinTech Scotland does is act as that connector bringing different players on to the pitch. We see ourselves as a coach bringing the various parts together.”
He says that what is distinctive about Scotland’s fintech firms is that they are looking to grow by working in collaboration with bigger enterprises, rather than bidding to replace them. “It’s about big and small coming together and that then gives them a level of cash flow to grow. It creates a level of momentum.”
But one of the challenges for fintechs in Scotland is to scale-up to the next level. While Ingledew points to some firms that have achieved that growth, such as Nucleus, an investment platform, or FNZ in wealth management, he says there have to be more examples of such success.
“It’s partly about access to capital,” he explains. “But it’s more about getting access to the right skills and leadership. Starting a business is one thing, and getting it up and running and initial clash-flow is important, but growing it significantly brings about other challenges. That’s why we need to help businesses more.”
According to Ingledew, sources of funding for fintech are evolving and include Scotland’s growing community of angel investors, and support from the Scottish Investment Bank and Scottish Enterprise.
And the profile of fintechs is boosted by such initiatives as FinTech Scotland taking groups of firms to London to meet investors Ingledew adds: “Excitingly, looking forward to the future, you have the creation of the Scottish Stock Exchange which is expected to formally launch next year. It’s a powerful statement. And it’s about sustainable, long-term finance for businesses that want to have both a good economic and social impact.
“A lot of fintech businesses in Scotland have a strong purpose behind them. It’s not just about being successful – although that’s very important – but about reinventing financial services for better business and consumer outcomes.”
The annual Scotland Fintech Festival, which ends tomorrow, is another effort to build a strong community. “The festival is very much about community,” explains Ingledew. “We’re a bit like the Edinburgh Fringe in that we’re the umbrella. The events are organised by the fintechs, universities and consumer groups. It’s very diverse, dynamic and inclusive.
It also attracts an enormous amount of international interest. We have a lot of people coming from around the world to engage with Scottish fintech firms and some will hopefully set up business here. We’re working closely with the Scottish Development International team to bring in international visitors.”
This article first appeared in The Scotsman’s Deals 2019 supplement.