Fintech Focus podcast: The trends powering investment in young fintechs

Small businesses need fast access to cash in today’s increasingly digital world – and Scotland’s rapidly-growing financial technology (fintech) sector is well-placed to help, says David Lee.

In the latest of The Scotsman’s FinTech in Focus podcasts, EY explains that there is a strong appetite to invest in young fintech companies because they provide the quick, efficient financial processes that both customers and businesses want.

EY’s Senior Fintech Manager Alex McLaren says: “There is a growing use of digital channels which is driving the use of digital fintechs. A recent survey we conducted suggested $11.7 billion was invested into UK FinTech firms in 2021, and this funding is really helping to drive growth.”

Oli Henderson, an Associate Partner in Financial Services, Strategy and Transactions at EY, adds: “There is a huge amount of capital available, which is creating investment transaction activity - and fintech is very much a growth area that could benefit.

“The sort of digital change and progress we have seen accelerate through the pandemic - in the way people are buying things, paying for things, and interacting with their bank or wealth provider, has driven an increase in focus onto fintechs.”

Investment capital was coming from across the world, with significant interest from the United States, Henderson says.

In addition, McLaren explains that large financial organisations are increasingly keen to partner with young fintechs to offer their customers better service. As we look to the half year mark in 2022, he explains that: “We’re now seeing a lot more collaboration activity between financial institutions and fintechs - especially in areas like financial crime, fraud and Know-Your-Customer (KYC).

“There's a lot of data to be had there, and that's where fintechs can really come in and help access that data.

“The young fintechs generally bring a laser focus on a specific product or tech capability. Large financial institutions bring the funding and the customer base to really make use of that software and capability.”

McLaren says there can sometimes be culture clashes between large, long-standing financial organisations with thousands of employees and complex risk processes and fintechs, which are able to move very quickly.

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“It works well when the large institution wants to buy a core piece of technology to accelerate a project. It can sometimes be as simple as buying it, plugging it in and using it,” he adds.

Anita Kimber, EY’s Lead Partner for Transformation in Financial Services in Europe, the Middle East and Africa, says an EY survey of 6,000 Small and Medium-sized enterprises (SMEs) across 16 countries, carried out during the pandemic, very clearly showed an increasing need for financial speed.

“SMEs told us that if they're going to get access to cash, they need it within a week. A lot of banks still struggle with that sort of timeframe, but fintechs don’t, and this is where they can really step up to the mark and provide service at speed.”

Kimber says the survey found that 60 per cent of digitally savvy SMEs were more likely than they ever had been before to consider working with a fintech company. She adds: “However, whether you're digitally savvy or not, SMEs in particular still want the human touch when it comes to their financial services, so the fintech must be able to provide this as required.

“SMEs told us globally that if they're considering switching financial providers, a provider who has access to a branch network is important to them. Many fintechs don’t have branches, so there is a question around how they ensure they can provide access to that human support, and I think that is where the concept of trust comes into play in a big way.

“The survey showed fintechs were high up on the ‘trusted’ list, which is impressive for a new industry.”

Kimber says data was also recognised as a vital issue in the survey: “Over half of SMEs told us that they understand their data is valuable and they are willing to share that data, but in return they want better products and services than the incumbents are offering. Fintechs are in a fantastic position to take advantage of this balance and there is huge opportunity and growth in the outlook for the UK and global fintech sector.”

- The views reflected in this podcast are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

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