As Scotland’s fintech sector continues to move out of the sidelines into the mainstream, efforts are under way to ensure it capitalises on its strengths to sit among top global leaders in its field.
And if anyone should be billed “Mr Fintech”, David Ferguson is a highly qualified contender after becoming an increasingly prominent figurehead in the industry.
His appointment as chairman of FinTech Scotland was rubber-stamped at a meeting in May chaired by First Minister Nicola Sturgeon and Jim Pettigrew, chair of Scottish Financial Enterprise (SFE) and Clydesdale Bank owner CYBG. The meeting also saw FinTech Scotland chief executive Stephen Ingledew lay out the organisation’s strategy to make Scotland a top-five global fintech centre by 2020.
Ingledew said when Ferguson’s appointment was announced that it was crucial to have a “highly respected fintech leader chairing our board and David, who has built one of the most successful businesses in the country managing over £14 billion on their wrap platform, ticked all the boxes and more”.
Ferguson says the role gives him a fascinating insight into what is going on beyond the remit of his day job as founder and chief executive of fintech Nucleus Financial.
The Edinburgh-based business allows financial advisers to combine clients’ investments into a single, manageable online account. It was launched by a group of seven financial adviser firms, and having just celebrated its 12th anniversary, now boasts more than 200 staff and 90,000 customers across the UK. Last week it was reported that the firm is set to unveil an initial public offering on the Alternative Investment Market tomorrow in a move raising £25 million and potentially valuing it at £150m.
Nucleus is a keen supporter of the SFE FinTech strategy, and Ferguson was in December 2016 appointed one of two Scottish FinTech envoys by HM Treasury to champion the sector locally and globally. He sees the envoy and FinTech Scotland roles as being “strongly aligned”, with the latter organisation saying its purpose is to create “a better world for all through financial innovation, collaboration and inclusion”.
In his view fintech is a “fantastic” opportunity for Scotland, and he aims in his chairman role to help businesses at both ends of the scale reap the rewards.
With a view to broad-reaching benefits, he cites the need for “finding a meeting point almost between the past and the future, where you’ve got a bunch of incumbents and a bunch of start-ups who quite often speak a different language, they operate in a pretty different way, with different ambitions and different priorities”.
Scotland’s long-established reputation as a financial centre – seeing the creation in 1875 of the world’s oldest professional body for practising bankers, the Chartered Institute of Bankers in Scotland, for example – is an excellent starting point, in his opinion.
But such strength could prove a weakness in that companies with deep roots can be slow to keep pace with their newer, more agile contemporaries.
Ferguson says: “There’s quite an obvious imperative for our more established institutions to get their head around fintech, and probably crucially to act rather than just talk about it or have it as a trendy subject – because it seems to us that some of these new technologies and new ways of working aren’t going away any time soon.
“They are going to change the way financial services operate – and if you’re in an established position then I think the dumbest thing you can do is ignore it and do nothing. [What’s needed] is a cultural shift probably as much as a functional one.”
The incumbents have got the customers, the revenue, the scale, and understanding of running a large organisation, but face pressure to preserve shareholder value. The start-ups, however, are “very nimble”, with great technology and products that prioritise the customer interest, but very limited reach “and haven’t necessarily worked out how to build a business”, Ferguson says. “If we can find a common language to connect the two extremes, then [FinTech Scotland’s] goal becomes entirely achievable.”
Ferguson has seen both sides of the coin, with spells at the likes of fund manager Ivory & Sime, which dated back to the 1800s.
But he was prompted to set up his own venture after being intrigued by how the internet was starting to change businesses generally, yet had made little impact on financial services.
“The first idea for Nucleus is really 20 years old,” he says. “The real interest was ‘if the technology that’s coming in through other industries starts to shine transparency on how financial services works, which I think has been the great unspoken impact of technology, then things will have to change round here’.
“I was fascinated by how products operated, how they were priced, how a lot of it was about how we paid commission to intermediaries… and it felt to us that would change and it would change because of the impact of technology.”
Nucleus was launched to help financial advisers do more on the customer side than on the product-provider side, changing the fee model, and making the adviser-client relationship more effective.
Ferguson says it has “pretty much moved forward every year, so it’s easier to press through the difficult days”.
While he declines to disclose targets for headcount, for example, he does state that most of its staffing growth is likely to be technology-led.
“We’re very happy with how the business is growing at the moment, we’d like to do much more of that,” he says, noting a target of signing up 30 or 40 advisory firms after reaching 53 in 2017. “The idea is that if we can keep on doing a good job for them then the inflows and assets under administration follow on from that really.” Gross inflows rose to £2.6bn in 2017, a year-on-year jump of 41 per cent. Revenue and profit both increased by about a fifth to £40.4 million and £5.1m respectively.
The ambition is for Nucleus to remain an independent business, Ferguson continues, and he “would love to be part of that for as long as anyone thinks I’m relevant to do so”.
While at school, Ferguson’s aptitude for maths saw him encouraged down the actuarial route. While he didn’t complete his professional exams in that field, it gave him his “pathway” to what he is now doing, he believes.
His real interest as a child was more in computers and programming. “I’ve ended up doing a job which sits across those disciplines.”
Ferguson also outlines the hope for Nucleus to be one of Scotland’s fintech success stories, and returning to FinTech Scotland, the organisation recently confirmed its board members, representing a “cross-section of the fintech economy”, including executives from ShareIn, Scottish Enterprise, Pinsent Masons, and IBM.
Ferguson says: “Stephen’s done a great job in understanding the size of the ecosystem here. A great amount of momentum’s been built in the past six months and now it’s trying to turn that into tangible actions to get us to that top-five place.”
The organisation will also be determining where to concentrate its attention and resources in a vast fintech field, leaning on partner organisations and the existing industry.
“There’s a load of work to be done,” Ferguson says. “We’ve got to find some areas where we can actually make a difference.”
A recent report found Scotland’s tech sector to be worth nearly £4bn to the economy. Gerard Grech, chief executive at Tech Nation which produced the study, described Scotland as one of the “jewels in the crown” in the UK’s tech sector as demonstrated by the likes of Skyscanner.
Ferguson indeed cites the travel giant, which achieved “unicorn” status as a start-up valued at $1bn or more, as he discusses the hurdle of scaling up fledgling firms. “For some of the early-stage companies where a lot of the great ideas are, there’s a challenge in helping guide them, mentor them, fund them,” he says, adding that there is a lack of firms growing from having a great product and a “handful” of customers to hundreds of staff and turnover of, say, £100m.
Who will Scotland’s next Skyscanner be, he wonders. “Can we have five of these in fintech – and how do we cultivate an environment where those companies can really happen? That’s a talent issue, it’s a funding issue, it’s an ambition issue, sometimes it’s a cultural issue.”
He also sees an opportunity for start-ups or more established firms to “reinvent” financial services. “Whether big and little companies are collaborating or whether they’re competing against each other, the winners are going to come from those pools because we don’t have an awful lot of medium-sized companies that look like they’re brilliantly set up for the next 20 years. Financial services will only establish a positive reputation in the eyes of the public if it’s a bit more customer-centric than it has been”.