How Scotland's fintech sector is maintaining momentum in turbulent times

David Lee and The Scotsman hosted an online discussion with major industry players who shared their visions.

The five panellists were asked to lay down a challenge to the fintech community in Scotland to ensure that it maintains its growth and momentum. The fintech sector in Scotland has grown significantly during Covid-19, as young businesses find solutions to the problems of the super-fast shift to an online financial world.

At the start of the pandemic, there were around 130 fintech (financial technology) enterprises in Scotland. This figure has now risen to 150 and the future looks very positive, speakers told an online discussion hosted by The Scotsman, Fintech in Scotland: The response to Covid-19.

Stephen Ingledew, chief executive of trade body FinTech Scotland, said: “During the pandemic, fintechs have faced similar challenges to all smaller enterprises around cashflow, recruitment and retention of people, commercialisation and internationalisation.

“Those challenges are still there, but the positive for fintech is an accelerated desire to adopt digital and data-driven technologies to reinvent all aspects of the financial world.

“The key is turning accelerated demand into commercial opportunities because cashflow is key. Interest is great, but we have to translate that into commercial benefit to allow fintech to grow.

“It’s not just about talking, it’s about action.”

David Goodbrand, a partner at legal firm Burness Paull, said: “The main challenge for business has been the shift to working from home in terms of technology, but also in terms of social connection and creativity.

“How do you keep teams connected, motivated and focused on the task at hand? Fintech has coped remarkably well and is better-placed for working from home because it’s a nimble, dynamic sector which isn’t afraid to embrace change.

“There are strong headwinds, including a sluggish economy, reduced personal spending, falling employment levels and a constant fight for the best global talent. But the fintech sector has shown resilience in many crises, including Covid-19 and it’s well-adapted to respond.”

Loral Quinn, chief executive of ‘fintech-for-good’ business Sustainably, said the tech-based nature of the sector had allowed it to rise to the enormous challenges of the pandemic: “We have easily adapted to working from home. Many businesses we work with are not based locally and we can engage with them and new partners easily via video-conferencing.”

Quinn added that raising funds had been a challenge, but one it was possible to overcome: “We were raising a round of investment at the beginning of lockdown which fell through because some investors were entrepreneurs whose own business were negatively impacted [by the pandemic]. However, we have actually gone on to close investment since then, with investors from the US, London and locally.

“If you have a good, solid business model and a good idea, there is money out there to fund your business. It might take a bit longer, but we have also been able to connect with people and open doors more quickly.”

Oli Henderson, who leads EY’s Scotland financial services strategy and transactions team, said the fintech sector was holding up well when overall investment had inevitably slowed: “Transaction activity has decreased across the board through lockdown. It’s more difficult to do deals and people are not investing as they were in the months before the pandemic, but the fintech sector has held up pretty well.

“Those supporting the shift to a virtual financial world have seen an increase in interest and activity. Open banking has been a big game-changer and fintechs supporting that, and supporting big financial services institutions, are very much in demand. There is also lots of interest in regtech [technology linked to financial regulation] and in capital markets infrastructure too. There are lots of positives for fintech in the massive negative of Covid-19.”

Henderson said there was still funding out there. “There is a lot of ‘dry powder’ in private equity and venture capital funds. EY has had lots of calls from them about the market. There is an appetite to find the right fintech, to understand the shift and how fintechs can support that.”

Stephen Ingledew advised young fintechs to get their business proposition right, rather than seeking investment at the get-go. “The focus should be on having a commercially viable, sustainable and investable business rather than attracting funds per se,” he said.

Ingledew reported that some businesses had seen high growth through the pandemic, with one Glasgow fintech firm which employed a handful of people in the spring now up to 25 staff. He said: “Of course, some firms have had to let people go, but we have only lost two businesses and the overall number of fintech enterprises has increased in the last six months.”

Professor Eleanor Shaw, associate principal at the University of Strathclyde, said the teaching of fintech was also well-suited to an online world: “Areas like fintech [and data] lend themselves well to online and blended learning. They don’t need a face-to-face environment as much. And there is really high demand for fintech courses; we can fill our courses many times over.”

Shaw described how the MSc in Fintech at Strathclyde – the first in Scotland when it launched in 2017 – was closely “plugged in” to the wider fintech and financial services community.

She said: “Some students come from the financial services industry, do the Masters, then go back into financial services in a very different role because they have up-skilled. Others come with an idea for a fintech venture and want to use the Masters to explore and validate it and come out with an investment-ready proposal. Some find jobs with entrepreneurial ventures and help them grow, while others go into social enterprise, charities or policy.”

Shaw went on to say that she thought there was real enthusiasm among students for the fintech-for-good agenda. “That’s what gets them excited; they want to contribute to something much bigger than themselves. How can we address financial literacy, which is a massive problem? How can we use fintech to bring people together, to use it for social good? Young people are motivated by a higher ambition.”

One fintech start-up addressing social good is OneBanks, which aims to plug the gap left by mass branch closures. The aim is to offer a single location where customers of all high street banks can carry out transactions, offering a human interaction and an opportunity to learn online financial skills.

Ingledew said:“OneBanks has drawn up a roadmap of communities in Scotland where there is an acute need for banking services. They aim to pilot in Denny in Stirlingshire, and they are offering that interface between the digital world and the human world.”

The interface between traditional financial services businesses and young fintechs is also vital, said Ingledew – and again, it is about translating interest into action. He said: “We have seen a greater pace and greater interest in terms of banks adopting fintech solutions in recent months. But I want to translate it into a real commercial partnership between small enterprises and large institutions. Yes, we have more financial services institutions and fintechs coming into disco, and more getting onto the dance floor – but can we get them dancing together effectively?”

Quickfire questions on the future of fintech

The Global Open finance Centre of Excellence (GOFCoE) is coming to Edinburgh after a £22.5 million investment from the UK Government. The centre aims to be a ‘global financial observatory’ to address social challenges by opening up the financial world beyond banking.

Oli Henderson said the centre was coming to Scotland because of the talent pool, strong fintech ecosystem and high number of financial services businesses.

Loral Quinn described it as fintech’s “most exciting start-up because we can use it to innovate and help more people.” – But, can it deliver genuine benefit?

“With any big research centre, it’s critical to build partnerships from the get-go,” said Eleanor Shaw. “The projects in which it invests time and energy must be co-created with the fintech community, charities and social enterprises. GOFCoE needs to be open, focus on useful research and have impact. That is done by co-creating with users that are going to benefit.

“There’s no place for ivory tower academics; we have to get real and focus on useful research to help entrepreneurs, financial services, the tech sector and most importantly, society.”

Stephen Ingledew agreed: “Fintech has benefited from inclusion and diversity - of mindset, background, age and community. If you get groupthink, you do not deliver innovation.”

How far are we from a cashless economy?

David Goodbrand: “There has been a massive acceleration over the last six months in cashless more online shopping and banking, less use of cash machines.

“Customers have been inevitably pushed towards online and mobile banking and we are moving in a very clear direction.

“I don’t think we will be cashless for a few years – maybe between 2025 and 2030, but we cannot leave people behind, and fintechs can help avoid this financial divide.”

Has the pandemic made the fintech world less global?

Stephen Ingledew: “Fintech is a global movement and Scotland must keep its global mindset, in attracting enterprises and getting our businesses to think about international opportunities.

“A couple of firms are having to wait to move here but the virtual world has connected us more. Within a few days, I’ll have been [virtually] to Hong Kong, France, the US, Barbados and China.”

How do we make online giving simple?

Loral Quinn: “The last statistics said 50 per cent of charity donations were still in cash, but it will be very interesting to see figures from this year.

Sustainably and others are trying to make that transition as seamless as possible. We’re creating something simple and frictionless, to make it easy for everyone to have a positive impact.

“You can connect your card to Sustainably and when you use it, we micro-donate spare change, so you can shop at a supermarket and support causes you care about, at the same time – with privacy, transparency and control.”