David Lee learns how the fintech sector’s first-class constituent parts are well positioned to become even stronger together globally
With new data protection regulations handing more power to the consumer, David Goodbrand, a partner with Burness Paull, sees massive opportunities for high-quality fintech businesses in Scotland.
“New fintechs who have a compelling product – and a clear understanding of trust and security issues – can gain a real competitive advantage,” says Goodbrand, who has been involved closely in Scotland’s fintech journey.
He says the creation of FinTech Scotland last October has given the sector momentum, against a backdrop of positive regulatory change.
He explains: “Open banking is an example of where regulation has led the way, by opening up an opportunity for fintech businesses to tap into rich data streams and files that banks have held for years.
“For the first time, we are understanding the power of that data.
“Open banking was basically the Competition and Markets Authority saying that the banking industry was not open enough and customers needed more choice; how could the market be more fluid and better for the consumer? It mandated banks to open up their historic data files.
“Open banking is also about transparency and how consumers can compare offerings from different banks, whether they are traditional or challenger banks. It’s about making it easier to compare interest rates or overdraft limits and charges.
“This openness and transparency is coming through as part of the regulatory changes. The General Data Protection Regulation (GDPR), which comes on stream this week, signals a further shift towards consumers, says Goodbrand.
“It’s about empowering consumers and helping them understand who is processing their personal data, where it is being processed and for what purpose.
“It’s giving them an opportunity to make informed choices about how they want their data to be used.”
But with the recent criticism of Facebook and Cambridge Analytica, is there a danger of a loss of public trust and confidence in data and technology generally, which could have a negative impact on fintech?
“Accountability is crucial and that really plays into that trust issue,” says Goodbrand.
“People are waking up to the fact that their data is of value, that more organisations are processing that data than perhaps they originally thought – and when they are using apps they are sometimes sharing information with third parties and other service providers inadvertently.
“There has been a sense of loss of control over personal identity and data. GDPR is looking to rebalance that back in favour of the consumer.”
Goodbrand urges fintech firms to grasp the nettle on trust: “For fintechs that can fully embrace the new GDPR regime of accountability, transparency and openness, and sell that effectively, there is a definite competitive advantage to be gained.
“The real winners will be those who can provide really compelling products and services which offer a better user experience, while recognising that trust issue and engaging with it seriously.”
Goodbrand has been involved in Scotland’s fintech journey, in terms of both strategic thinking and practical support. He was a member of the Fintech Steering Group set up by Scottish Financial Enterprise and did some of the legal work to establish FinTech Scotland as a corporate entity.
He is excited by the sector’s dynamism: “There has been fantastic progress over the last year. The launch of FinTech Scotland last October was really significant.
“It wasn’t just the local responses, there was real positive interest nationally and internationally. That really set Scotland on a path of where it wants to go in this area – and others are copying that blueprint.”
Goodbrand says Stephen Ingledew coming on board as chief executive of FinTech Scotland in January was crucial in maintaining momentum: “We were a brand without a leader. Last year was about putting in place the building blocks, this year is about driving forward the business plan, keeping up the momentum and making a success of what FinTech Scotland can and should be.”
What should that be? “Scotland is already on the global map as a fintech hub but we really want to make it a place where national and international fintechs should think about setting up rather than London, Luxembourg or Berlin. Why? We have all the constituent parts – world-leading heritage in financial services, world-class universities, fantastic tech businesses and excellent professional support services – which are strong individually but even stronger together.
“FinTech Scotland’s role is to gel all these components together effectively and to ensure they are collaborating to grow fintech generally in Scotland, then re-investing that knowledge and expertise to create a virtuous circle.”
Goodbrand highlights the sale of FreeAgent to RBS for £53 million as a good example of this, where RBS has a range of new, agile accountancy products for small businesses while the FreeAgent founders could be in a position to re-invest in other fintechs – following on from other successful tech pioneers such as Gareth Williams at SkyScanner.
“We need to take advantage of these successes and ensure fintech entrepreneurs can help us drive us to the next stage,” he says.
“Big financial institutions are responding positively – such as Clydesdale creating the B account, specifically targeted at a mobile banking audience, and RBS acquiring FreeAgent. It creates another high-quality customer touch-point.
“There are a lot of opportunities for small businesses to provide complementary offerings to large financial services institutions in niche areas.
“What we really want to see is established financial services players and emerging fintechs working collaboratively across all levels. We want to see interactions involving data sharing, open banking, APIs [application programming interfaces].”
Burness Paull’s fintech business developed from strong, long-term business relationships with financial services companies – and a strategic decision to make technology a key component of the business.
“This combination means we can provide the kind of support fintech businesses need from the start in terms of authorisations and compliance,” says Goodbrand.
“If we get a call from a business looking to do something with blockchain or a crypto-currency offering, for example, we can pull in regulatory experts, technology experts and draw on our massive commercial knowledge of financial services.”
Burness Paull’s head of technology, Callum Sinclair, has, like Goodbrand, been heavily involved in pushing fintech in Scotland and he is supported by a legal technologist, Sam Moore, who has developed detailed knowledge of subjects such as blockchain.
“Burness Paull is getting involved in all kinds of joint ventures and commercial arrangements in this space and it is really exciting,” says Goodbrand, who has a vision of unlocking managed funds in Scotland to support fintech.
“There are very significant funds managed in Scotland and, if the dials were turned to the right level, that could be unlocked.
“How brilliant would it be if some of the funds currently managed in Scotland were used to help kickstart and scale up local fintech businesses, developing a virtuous circle?
“Lots of early stage fintech businesses are not the kind of businesses that traditional fund managers would necessarily look at to deploy capital, but with their knowledge of the financial sector, combined with fintechs coming through and creating niche products and services, you can see there is a compelling and hopefully sustainable and profitable proposition emerging.
“We are not there yet with the funding model for a number of reasons – lack of risk appetite, insufficient compelling business cases in the fintech space and so on.
“But we will get there – we are heading to a place in fintech in Scotland where two plus two can equal five, whether that is creating something new or unlocking existing opportunities.
“FinTech Scotland can play that enabling role to make it happen – and if we can show that tangible progress, create exciting fintech case studies, that makes it more likely that we can attract inward fintech investment which is vital for us to move forward.”
Goodbrand takes a broad view of the fintech opportunity, saying it doesn’t always have to be disruptive technology. “Services will not necessarily be dissimilar to what have gone before but disruptive technology can fit into the mainstream as well, through different user experiences or interfaces.”
Highlighting Starling Bank, Goodbrand shows that he is not just talking the fintech talk: “You can sign up for Starling Bank by filming a very short selfie video and sending a picture of your driving licence – and use the account immediately. I have a Starling Bank account which I use for small purchases like coffee and sandwiches – it gives you a rich stream of information about what you buy and where and allows you to see trends and make decisions about your lifestyle based on really good data.”
He also highlights Castlight and Nucleus as two Scottish fintechs doing interesting things successfully. “Castlight have taken an area where there is clearly the opportunity to do things faster and better using data – the mortgage application process – and created a really good product.
“Nucleus [a ‘wrap platform’ which enables its clients – thousands of independent financial advisers – to offer their customers access to investments including ISAs and pensions from a single place] has a great culture,” says Goodbrand.
“David Ferguson has developed a cool business, which isn’t easy in financial services, a place where people want to work. They can attract talented developers because they have a great – and trusted – platform that is doing really well, and there is no reason why they shouldn’t be able to scale up.”
BITCOIN IS HERE TO STAY
Crypto-currency is a much discussed but little understood area of fintech.
Despite concerns over its usage, David Goodbrand is convinced bitcoin and its successors are here to stay.
“Over time, I think bitcoin and other crypto-currencies will become the norm,” he says.
“However, this is definitely an area where regulation has definitely not kept pace with change. There have been no regulations which have really grappled with some of the darker sides of crypto-currencies, like criminals using it for money laundering.”
He continues: “There is also a lack of understanding about bitcoin.
“We saw a huge spike in people buying into bitcoin just before Christmas but many of them did not seem to realise that, like any currency, it can fall quickly as well as rise.
“Lots of people who have lost money in speculative currency trades might be looking for some kind of compensation.”
For more information on Burness Paull, visit their website