It might sound like a geeky buzz-word, but whether you’ve heard of it or not, fintech is here and it’s going to change your life. In fact, the chances are that it already has – and it won’t stop at you. It will shape the world your children live in too. And if Scotland plays its cards right, it could play a leading role in this world-changing revolution.
But we also need to make sure the conditions in Scotland are right for us to take on this role.
We need tech-savvy people not only to work in the industry but also to consume – or use – its products and an economy that encourages both collaboration and entrepreneurship to allow the innovators to lead us forward.
But first, what is fintech other than an obvious shortening of “financial technology”?
For one thing, fintech has been around for a long time and we all benefit from it.
Some of it is backroom, highly technical, stuff but some is ingrained in our daily lives.
The familiar cash or credit card is fintech because it involves technology in the use of financial services. So if you’ve ever drawn money out of an ATM, you are a fintech user.
And that is thanks to a Scottish invention: Paisley-born James Goodfellow developed the first ATM in the mid-1960s.
More recent developments in fintech mean many of us now do our banking remotely, over phones, tablets or PCs.
In addition, contactless card payment – Apple Pay and Android Pay, for example – means we no longer have to type in a pin.
And in the immediate future, fintech will become an even more pervasive part of our lives, says Kent Mackenzie, head of Deloitte’s fintech team in Edinburgh.
“I think we’ll see more financial services products and customer interactions embed themselves in other non-financial services applications – things like Apple Pay and Amazon Money – and I wouldn’t be surprised if WhatsApp launch a banking platform,” he says.
Looking further ahead, to when his young son has grown up, Mackenzie predicts: “We’ll be doing financial services in our sleep. It will be so embedded in the different types of interactions that we have.
“So if my son wants to ping some money to his friend, I’m sure he’ll be able to do it while they’re chatting on Facebook or whatever it might be, and he can do it with the click of a button and he won’t have to worry about remembering the third and fifth letter of his password or whatever.”
And beyond banking, Mackenzie predicts that fintech will change the way his son will deal with things like mortgages and insurance policies when he is older.
“I think when he insures his first car he’ll probably be insuring it by the hour based on the time of day that he’s going to drive and the destination he’s going to drive to and the number of people he has in the car – and his insurance company will probably be able to aggregate all of that data, using AI [artificial intelligence] to predict how risky he’s likely to be against all of those factors and then price his insurance seamlessly for that journey and then take payment for it via him hitting one button on his smartphone.”
For Mackenzie, fintech is all about ease for the customer.
What are currently tedious, complicated financial tasks such as arranging a loan or purchasing insurance “will become kind of like it is these days with Amazon, when we can buy anything we want quickly at a click of a mouse”.
So if fintech has been with us since the ATM, and looks set to play a huge role in the future, why does there seem to be a sudden buzz about it now?
There are three reasons for this, says Mackenzie.
The first is the imminent introduction of new regulations which will remove the banks’ monopoly on their customers’ account data and payment services.
The 2018 implementation of the revised European Payment Service Directive (PSD2) means customers will be able to use third parties to manage their money.
Open banking, as it is called, opens the door to us being able to use the likes of Google or Facebook to make payments.
“The second reason is customer and consumer trends,” says Mackenzie.
“More and more we expect our banking and financial service products to be super-convenient and intuitive.
“We don’t want to worry about taking a few months’ worth of statements every time we want to blow our nose in a branch so there’s a real movement in customer sentiment.
“Then the third thing is the rate of change in technology.
“The growth of and development of technology is advancing at a quicker pace than it ever has done before, so it’s no wonder that new disruptive technologies are being considered in financial services.”
While words like “disruptive” might have negative connotations elsewhere, in the world of fintech, it’s a badge of honour.
Fintech is seen as disruptive because the technology interferes with or ‘disrupts’ otherwise well-established processes or income streams.
And although many disrupters are small start-ups, the fintech ecosystem is diverse, says Mackenzie.
Indeed, big institutions such as Deloitte seem to be as keen to disrupt things as the start-ups.
Mackenzie’s team at Deloitte develops fintech products both independently and in conjunction with start-ups.
It’s precisely that kind of co-operation which Mackenzie sees as crucial in helping Scotland to punch above its weight as the global fintech sector develops.
Citing Edinburgh’s highly concentrated financial services centre, tech success stories such as Skyscanner and FanDuel, Glasgow’s creative scene, Aberdeen’s engineering heritage, Dundee’s gaming sector and the likes of DataLab and CodeClan, Mackenzie says of Scottish fintech: “We could be pretty awesome at this.”
However, he believes there’s a final piece of the jigsaw that needs to be put in place before Scotland can really forge ahead in fintech.
“The bit that’s missing – although it’s coming – is the gel that really kind of links everybody together.
“It’s like we’ve got all the ingredients to make a beautiful cake but at the moment they’re sitting in the measuring jugs and not in the oven.”
What’s needed, says Mackenzie, are more fintech hubs around Scotland as well as a some sort of online fintech marketplace for Scotland – a kind of LinkedIn or Facebook for techs “to make sure that a student coming out of university is only ever two or three clicks away from understanding there is a start-up that wants that skill or there’s a business that’s interested in hearing from that graduate”.
But what kind of skills will be needed by these graduates to thrive in Scotland’s burgeoning fintech sector?
“There are, of course, all the core skills of understanding business and understanding accountancy,” says Mackenzie.
“But I think we’ll see data skills, computer science skills, development skills – these types of things – becoming a bit of a bedrock for this new digital age.”
However, a creative spark is also crucial, in Mackenzie’s view, and we only need to look at the fertile hotbed which spawned the likes of Apple, Facebook and Google to recognise that.
“We should never lose that focus on supporting and building confidence around creativity and artistry.
“The reason that Silicon Valley in the United States is so important is that it combines not just technical skill but also encourages people to be creative and innovative and artistic about what they want to create.”
If, as Mackenzie hopes, it can effectively combine, connect and care for its fintech community, Scotland could become a fintech powerhouse every bit as influential and as innovative as Silicon Valley has been. n