Fintech focus: Onwards and upwards as investment remains strong

Innovation is a hallmark of the sector in Scotland, with entrepreneurs creating businesses that are good for people and communities, giving investors solid reasons to get involved, writes Rosemary Gallagher

While this has been a year of some political and economic uncertainty, both globally and domestically, certain industries in Scotland are proving resilient. Against a backdrop of the world emerging from Covid-19, conflict in Ukraine, spiralling inflation and the cost of living crisis, innovative financial technology firms, known as fintechs, continue to launch and expand.

Commentators say that in some respects fintech is well-placed to deal with current and recent events because of the sector’s agility and ability to pivot. And some firms have been set up to help people better manage their money in difficult times, or to address the climate emergency.

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Nicola Anderson, chief executive officer of FinTech Scotland, a cluster organisation which acts as the umbrella body for the sector and its ecosystem, points to growth over the last year.

Image: Adobe StockImage: Adobe Stock
Image: Adobe Stock

At the end of 2021, there were just under 190 fintech businesses in the Scottish community and that now stands at more than 200 – about a 12 per cent growth in numbers. She says: “These business numbers are a really positive indicator of how vibrant the sector is.”

Investment figures are also strong, with more than £300 million going into the sector in Scotland over the year. In fact, according to Anderson, more than £1.3 billion was invested in total, although that included £1bn going into one significant “unicorn” firm.

Putting this growth in the context of the current economic environment, Anderson says: “We’re really lucky in Scotland with the quality of our entrepreneurs. These are business people who are driven and focused on innovation, revenue and commercial opportunities, while recognising the role of investment as they build their businesses.

“Their leadership and experience are building real quality in the fintech businesses that we have here.”

She continues: “During Covid we saw an increase in demand for digital engagement. We also saw an increase in demand for purposeful, focused fintech innovation that could help people experiencing difficulties.

“The cost of living crisis is certainly something that we know we need to do more on. We’re building on really good foundations in Scotland. We have a number of innovators who were already focused on the topic of vulnerability and services with purpose for broader society.”

She gives the example of Scottish fintech Inbest, which recently announced a partnership with NatWest Group to launch a benefits calculator. It lets customers see what benefits they could be entitled to and signposts them to local support organisations. She also points to Snugg, which helps people make their home more energy efficient, and therefore benefits the environment as well as personal finances.

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As part of its future planning for the sector, Fintech Scotland unveiled the FinTech Research And Innovation Roadmap 2021-31 in March this year. It is described as a “pioneering document” designed to speed the growth of the sector. It aligns with the recommendations set out in the Review Of UK Fintech in February 2021.

Anderson says: “There are two specific types of activities that we identified that would help as we think about developing the opportunities for fintech innovation. One is around innovation calls or challenges, and the other is around actionable research.”

In terms of the first activity, FinTech Scotland has worked with the likes of Lloyds Banking Group, Phoenix and TSB to build partnerships between small and large organisations and help innovators understand opportunities to create solutions that serve the future of finance. This would include such areas as climate and sustainable finance.

Something else being explored, says Anderson, is a cross-sector approach working with the likes of Space Scotland, the body that promotes the Scottish space sector.

She says: “We’re considering the intersection between space innovation and fintech innovation, and how we can connect those insights to develop solutions and products.”

Looking ahead to 2023, work will continue with Edinburgh’s Smart Data Foundry which focuses on “finance for good”, including open finance for all, and the benefits of the effective use of data. Anderson says that open finance data is one of the FinTech Research And Innovation Roadmap’s key areas and the Smart Data Foundry is building significant capability in this area that will help innovators develop their propositions.

She says FinTech Scotland will continue its cross-sector activity, progress opportunities in Glasgow and across the country, and support firms looking to scale up.

She adds: “The whole topic of financial inclusion is going to be firmly on the table, even more so than it is already. And we’re going to continue to see a demand for innovation in the net-zero area.”

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And she concludes that the organisation will build on its recent Silver accreditation for Cluster Management Excellence.

Graeme Rennison, team leader in digital economy at Scottish Enterprise, agrees that this accreditation is a real quality mark and shows what is being achieved by the fintech sector. “Scotland is increasingly being recognised as a leading global region for fintech,” he says.

“One of the strengths of our ecosystem is its size and its personal nature. It’s very much facilitated by FinTech Scotland, but we have all played our part and we’re able to move at pace and be agile when it comes to market opportunities. That’s not just in financial services, as fintechs are increasingly looking at opportunities in other sectors using the skills and capabilities they have developed.”

He gives climate finance and tech as an example of innovation and an area which Scottish Enterprise is supporting as part of the Scottish Government’s drive to reach net-zero emissions by 2045.

Turning to how companies are being supported to scale up, Rennison says: “There’s recognition that there is work to be done around education, investments and infrastructure. We’ve been doing a lot in trying to turbocharge our tech ecosystem, with the likes of our high growth ventures team around scaling.”

Looking ahead, Rennison says that Scotland needs to continue to work to interest international investors in its tech sector, differentiate itself and play to its strengths.

Oli Henderson, partner in EY’s financial services strategy and transactions practice, agrees that Scotland’s fintech ecosystem is of a favourable size and nature. And he says that FinTech Scotland’s Silver accreditation shows the respect the ecosystem has across Europe.

He says: “From an ecosystem perspective it’s all here and accessible. There is great collaboration between big financial institutions and fintechs and we need to build on that foundation.”

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David Goodbrand, technology and commercial partner at Burness Paull, also believes Scottish fintechs are well-placed to use the data available to them to meet a range of consumer needs.

He says: “As a nation, we’re not saving enough for our pensions, people are struggling to own property and it’s becoming a lot more difficult for the next generation of workers. All of this is causing real pressure. There’s an opportunity for fintechs to really focus on these demands driven by data. Fintech services over the next few years are going to be really important in helping us understand our finances.”

Caroline Stevenson, partner and head of the financial services regulatory team at Burness Paull, expects to see some of the bigger incumbents in financial services partner with more nimble fintechs to meet such consumer needs.

Callum Sinclair, partner and head of technology and commercial at Burness Paull, is optimistic about fintechs which focus on such areas as payment technology simplification and allow consumers and businesses to integrate everything onto one platform.

While economic issues, including the cost of living crisis, are likely to continue in 2023, commentators seem positive about the outlook for Scotland’s growing fintech sector.

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