Ten tough questions for Scotland’s fintech industry

Fintech in Scotland is expanding rapidly, but growth always comes with growing pains. David Lee poses ten challenging questions for the sector, with leading members of the country’s fintech community providing the answers...

A delegate asks a question at The Scotsman's 2018 fintech conference in Glasgow. Picture: John Devlin
A delegate asks a question at The Scotsman's 2018 fintech conference in Glasgow. Picture: John Devlin

1. Is Scotland in danger of trying to do everything and failing to find its fintech USP?

Stephen Ingledew, chief executive of FinTech Scotland: “It is a challenge because there is a huge mix of different fintech businesses, with different ideas and at
different stages of their development.

“We obviously have real strength in Scotland in data and data science, we are doing very well in open banking and there is a lot of positive work around trust and transparency.

The Scotsman's 2018 fintech conference in Glasgow. Picture: John Devlin

“We have strengths, but we also have real breadth – to me, it’s about creating that innovative and supportive entrepreneurial community that others want to join.”

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2. Should workers in the financial services sector be worried that technology will take their jobs?

Stephen Ingledew: “There can be no complacency around jobs. That risk is still there.”

Daniel Broby, director of the Centre of Financial Regulation and Innovation at the University of Strathclyde: “Those employed in financial services should definitely consider re-skilling to be more in tune with financial technology.

“The fintech revolution will replace millions of jobs globally. These will be in the back, middle and even front office. The good news is that financial innovation is creating new jobs in contender industries. There are already almost 100 fintech start-ups in Scotland.”

3. Are there enough skilled people in Scotland to fill the number of new digital jobs being created by fintech?

Daniel Broby: “We have around 95,000 people employed in financial services and it’s estimated only 5 per cent have the data and tech skills they need. What the universities are doing will take that to about 7 per cent but there’s still a huge upskilling job to be done.”

Graeme Jones, chief executive of Scottish Financial Enterprise: “There is colossal potential around Barclays bringing its technology, functions and operations teams to Glasgow but there is also a challenge – to ensure we have the talent pipeline in place to cope with those very very large numbers.”

Stephen Ingledew: “Graduate jobs are important but it is absolutely critical that we retrain existing financial services staff to equip them with the skills they need.”

4. Why do fintech firms find it so hard to get scale-up funding?

David Ferguson, chief executive of Nucleus Financial, and Chair of FinTech Scotland

“I’m not sure whether we have a lack of funding – or a lack of good ideas and business plans. Guiding and mentoring new businesses is perhaps a bigger part of the story.

“If you want to raise £5 million or £10m, what are you putting in place? You have to have a credible plan.

“Some people get hung up on the funding coming from Scotland, which is not necessary. There is more venture capital and private equity money available in the world than there has been for a long time – but you need a good idea, a credible plan and management capability. You have to appeal to those funders.”

Georgina Bulkeley, Director of Strategy and Innovation, Personal Banking, RBS: “If an idea is sound, I think the funding is available.”

Chris Brown, senior consultant at Deloitte: “Maybe we cannot solve the funding question on our own; maybe we need to reach out to Abu Dhabi or Singapore and do some kind of value exchange.”

5. Why do new fintechs take longer to make money than ‘normal’ tech firms?

Chris Brown: “Start-ups need to be aware that it is not a quick process; the funding question is key.

“I have had conversations with funding providers who say there is an element to educating start-ups, who are not always aware of the sheer amount of funding they might need to get off the ground.

“Fintechs need to learn to manage their business over the long-term and to understand – as do investors – that they will not get the massive return like the traditional tech firms.

“It takes a long time to make money but the value of successful fintechs – as we have seen with FNZ – can really sky-rocket if they do well.

“There is funding available but we are still building the bridge from that early-stage funding to that later series of funding rounds to push through to be a profit-making business.”

6. Why is it so hard to link up different technology platforms?

Callum Sinclair, partner and Head of Technology at Burness Paull: “Lots of fintechs emerging onto the market with new technology are very small and there are real interoperability challenges with the legacy systems of big banks.”

Stephen Ingledew: “There can be a tendency for small firms to think they can just plug in their innovative technology to the legacy systems of big banks, but it isn’t always as simple as that.

“It’s a real mixture – in some areas of the larger financial institutions, you can plug in, but in others, it’s much more difficult.

“This can lead to small businesses wasting a lot of time – and we are really trying to share lessons and experiences across Scotland about where it has worked and where it hasn’t.”

7. Is fintech doing enough to tackle privacy and security issues?

Daniel Broby: “Transferring and storing money in a distributed way has far more security issues than electronically from bank to bank. As such, security is a priority.

“There is no such thing as a 100 per cent secure digital platform, so we must be ever-vigilant and improve this aspect of financial services continually.”

Callum Sinclair: “Scotland has a real opportunity to trade on its reputation for trust in financial services to address privacy and security issues. Trust and transparency can be a real competitive advantage for fintech in Scotland.”

8. Is fintech doing enough to tackle financial inclusion, and emerging financial distress?

Kent Mackenzie, advisory partner at Deloitte: “Scotland is fantastic at tuning into the social agenda; it’s in our blood, looking after one another.

“We’ve never had better data and better insights, or been
better-placed to understand the needs and requirements of communities. There is some great work going on, but I have yet to see any truly groundbreaking technology that taps right into the social agenda.

“However, we are primed to do it, the scene is set and I am sure it will happen soon. The social agenda is very much on Fintech Scotland’s radar. Stephen Ingledew is very aware of its importance and wants to keep driving it.”

9. Are older financial services institutions holding back fintech progress?

David Ferguson: “My real frustration is that all large financial services CEOs talk about fintech, but boards are largely preoccupied with their own issues. Fintech isn’t a strategic priority in enough of the established businesses.

“Most fintechs are set up to solve customer problems and most long-standing financial services firms have never had that at the heart of their DNA.”

Graeme Jones:“Most of the large financial services institutions are deeply invested in fintech. Big banks are having to raise their games to match the new challenger banks or they will see an enormous drift away of customers. Large banking groups are responding very vigorously with a strong offering.

David Goodbrand, partner at Burness Paull: “Even if you have a mortgage and bank accounts with the same provider, you might still be asked for income verification for a mortgage, for example. We need a more holistic approach.

“There is still some segmentation, but banks are getting better. We are seeing movement in terms of big banks working with young fintechs to create more agile and flexible platforms and moving away from their old infrastructure.”

10. Should we get rid of the word fintech?

David Ferguson: “Yes, we need to get rid of fintech. It just needs to be financial services, enabled by technology – the technology has to become a given.”

Georgina Bulkeley: “Some people now put the technology first and refer to TechFin rather than fintech – but we also need to remember the importance of human support in certain aspects of banking –especially when there is a big event like a bereavement or a fraud.”

Mark Docherty,managing director of Avaloq “I’m so keen to kill off the word fintech. It’s all about providing services.”