How Scotland's fintech sector has coped through the Covid-19 pandemic

Across the pandemic period, we’ve seen substantial growth in fintech innovation. There are 185 fintech SMEs (small to medium-sized enterprises) in the community now – a 50 per cent increase from March 2020. As the community grows, these businesses learn from each other and support each other.

Copyright (c) 2021 SOMKID THONGDEE/Shutterstock
Copyright (c) 2021 SOMKID THONGDEE/Shutterstock

Greater digital engagement has supported fintech innovation. The financial services industry has thought about its digital journey and how it uses financial technology and digital transformation to support customers. That’s one reason for growth.

But fintech is also starting to develop in its own right. We’ve moved on across the years and businesses are starting to come of age; we’re in a positive place, with a broad church of fintech SMEs in Scotland.

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We’ve seen innovation grow in personal finance and wealthtech, retail lending and debt management. There is growth in payment technology and payment innovation. We’re starting to see developments in crypto and digital currencies, and we have great strength in regtech, helping to boost security and resilience as well as simplify industry compliance obligations.

Nicola Anderson, CEO, FinTech Scotland

There are also innovative businesses originally created for other industries beginning to see a market opportunity in fintech and financial services. Regtech is a brilliant example of that, where innovation, data and technology businesses developed for other regulated industries, such as oil and gas, are finding an application in financial services.

FinTech is moving beyond the “vertical” of financial services and becoming more familiar in developing and supporting the wider digital economy.

With the growth in the SME community, we’ve recently announced our SME Advisory Board to enable wider engagement with fintechs, and help us get close to SMEs’ priorities and where they need support.

The three priorities we will be focusing on are: future skills and talent, access to funding and investment, and commercialisation.

What is also very encouraging is the increasingly global focus. About 25 per cent of our companies have an international HQ which is great for the wider FinTech Scotland community, because we welcome new skills, learn from those businesses and think about our own exporting opportunities.

Within the broader fintech community, about half have an ambition to export beyond the UK, and I think we will see more Scottish fintechs looking at international markets in the future.

International events during the FinTech Scotland Festival earlier this month were well-attended –including events with FinTech Australia, FinTech in the United States and FinTech across Europe. So many businesses want to understand the market opportunities, particularly in countries with similarities in their regulatory frameworks.

Closer to home, we’re seeing more partnerships growing between fintech SMEs and large financial institutions. The majority of fintech SMEs in Scotland have an ambition to collaborate with the larger financial services incumbents; they are developing either a business to business (B2B) proposition, or a business to business to consumer (B2B2C) proposition. That’s been welcomed by the incumbents, many of which already had a strong innovation focus, including NatWest, Lloyds Banking Group, Barclays and Phoenix. And I think we’ll see much more of this.

There are so many great examples of collaboration. Take Amiqus, which helps people get access to products and services by allowing them to prove their identity in a digital way. That has been built on a “know your customer” approach, but has grown to support those who might have difficulty proving their identity. Amiqus is now also supporting the NHS, helping to get staff onboard. So again, we see a fintech business going beyond financial services and supporting a much wider social good agenda.

Direct ID is another brilliant example. It works with 30-plus banks globally, using open banking data to help get real accuracy in income and expenditure. So if an individual or a business needs a loan, or any kind of credit product, they know if they can afford it – and the lender can be confident too. That is significant, because we’re moving to really accurate insights.

InBest is another great business forming partnerships, focused on community lenders and debt advisers to ensure people get access to the benefits they are entitled to.

There are many examples of partnerships like this, which show the capability of young fintech businesses to support the priorities of larger organisations. It demonstrates the fintech community’s capabilities when it comes to problem-solving. Our businesses adapt and develop a capability quickly, and we are seeing that increasingly in the ESG (environmental, social and governance) space.

Fintech businesses intend to solve problems and address real need. In terms of environmental focus, we’re seeing more businesses think about data and how it could be used to help build confidence about some of the claims around green investments and what sustainable finance truly means.

Because of its strength in data-driven innovation, Scotland has a real opportunity to help establish confidence in the standards that will be needed to underpin sustainable investment and guard against the potential for “greenwashing”.

It’s a significant market opportunity as the demand for sustainable investments grows. Scotland is well placed to lead on this important topic with the strength of its universities, long-standing heritage in financial services and growing fintech innovation excellence. We can be a leader when it comes to defining and supporting those data standards.

Finally, as we look to the future at FinTech Scotland, we’re working on a long-term research and innovation roadmap, asking what the future of fintech should look like. We get to see on a frequent basis the work from Scotland’s research and academic community and how their enquiring minds connect possibilities, excite future talent and support entrepreneurial development. It’s interesting, exciting and hugely motivating.

In a year’s time, I’d like to be talking about the developments in that work, how it has helped stimulate and advance fintech innovation in Scotland. I’d also like to be talking about the continued growth in the fintech SME community, the developments in inward investment and export opportunities, and the collaborative partnerships that have developed both locally and internationally.

This article first appeared in the October 2021 edition of The Scotsman’s Fintech Focus supplement. A digital version can be viewed here.