Fintech in Scotland is a growing, maturing industry – but how does it find its strategic place in that global fintech community?
As FinTech Scotland’s strategic professional services provider, Deloitte is clear on which ecosystems Scotland should collaborate with on the international stage – and more importantly, why.
From a global perspective, Scotland has strength in both data and talent; qualities it shares with other hubs. An example is Boston with its Data Sandbox, academic excellence and an environment where fintechs can access large datasets to trial new concepts and ideas.Chris Brown
Chris Brown, a senior consultant at Deloitte, sees a strong basis for global collaboration: “The first step is to be clear on all components of Scotland’s fintech ecosystem, before determining what we can do together as a community to showcase Scotland’s fintech strengths.
“Understanding key global fintech trends and similarities is also important in deciding which cities, countries or regions are the right ones to work with.”
Kent Mackenzie, an advisory partner at Deloitte, agrees: “Any collaboration between ecosystems must be beneficial for both parties, and ensuring this is the case is more important than just aiming for connection to the world’s best-known fintech hubs.”
Brown continues: “From a global perspective, Scotland has strength in both data and talent; qualities it shares with other hubs. An example is Boston with its Data Sandbox, academic excellence and an environment where fintechs can access large datasets to trial new concepts and ideas.
“You can start to see similarities between Boston and Scotland, with opportunities and learning emerging for both sides.”
In addition to Boston, one of the world’s largest fintech hubs, in Singapore, is another candidate for Scotland. “Singapore is doing a lot by way of collaboration,” says Brown. “It has worked very closely with India on fintech APIs [application programming interfaces]; something Scotland wants to be associated with through open banking – identified as a growing area of strength.”
Brown and Mackenzie also highlight increasing similarities, and collaboration opportunities, between Scotland and central European fintech hubs, such as Berlin, Switzerland and Copenhagen.
Deloitte’s strategic role with FinTech Scotland is underpinned by a comprehensive understanding of the opportunities and challenges for fintech, in both a domestic and global context.
The company’s aim is to “determine a strategy that can see Scotland emerge as a leading player in the global fintech market and become an influential voice.”
When appointed, Stephen Ingledew, chief executive of Fintech Scotland, stated that Deloitte’s “respected global leadership role with the established and emerging fintech hubs around the world will play a crucial role in developing our international collaboration opportunities going forward.”
Andrew Littlejohn, a senior consultant at Deloitte, believes it is important to work together to help develop connections with global hubs. “As part of UK FinTech Week, we recently hosted visiting fintechs from Hong Kong and Singapore alongside FinTech Scotland and Scottish Development International (SDI). This provided the opportunity to build a link between the hubs and share insights with Scotland’s vibrant and growing ecosystem.”
This global leadership role is underpinned by regular trips by Deloitte’s Mackenzie to understand, support and develop fintech hubs all over the world – and links closely to the work of SDI.
“Deloitte produced a paper for FinTech Scotland about the global hubs we think are sensible to link in with,” Mackenzie says. “We need to ensure we are aligning with the broader SDI agenda; they have a pretty clear idea where we need to be building bridges and connecting all these parts and agendas is important.”
The Scotland-Hong Kong Bridge, for example, is already creating jobs in Edinburgh, while a new link is under development with South Korea.
After a meeting in late April with a delegation from Seoul, Graeme Jones of Scottish Financial Enterprise was quoted as saying: “It’s one of the fastest-growing financial centres in the world and understands Scotland’s strength in fintech and its heritage in financial services.
“South Korea is looking to build a bridge with Scotland and we have agreed to do that. We want to build these global bridges, but also increase the traffic coming across those bridges.”
A challenge that remains for fintech firms is bridging the funding gap, especially for those companies trying to scale up quickly.
Deloitte believes this challenge could – in part – be addressed on a global level.
“There is funding available, but we have heard that it can still be tricky when it comes to later series funding rounds – a crucial step towards becoming profit-making businesses,” says Deloitte’s Brown.
“Scotland should be looking around the world, to places such as Abu Dhabi or Singapore, to bridge this gap. It comes back to choosing the right partners and locations to collaborate with.”
And what of collaboration within Scotland? How does Deloitte see that crucial interface between large financial institutions and emerging fintech companies?
“There is definitely stronger and closer collaboration and a sense that any degree of separation between large banks and young fintechs has been reduced,” says Mackenzie. “There is a clearer path for fintechs to grow and, conversely, for big organisations to collaborate with these companies.”
“Banks are increasingly more comfortable trialling proof of concepts. Fintechs are maturing and refining solutions to directly tackle the problems organisations face – but there is still a bit of disconnect at times between them.
Mackenzie goes on to explain: “Scalability and integration into organisations can be tricky. Many fintechs use newer technology, infrastructure and methods of working that do not always gel instantly with the big institutions’ systems. Smoothing this process is an ongoing challenge, and the question remains how big financial institutions integrate fintechs to safely scale them across the business.
“Culture is also changing and, whilst there is progress, some big organisations are still getting used to working with these young fintechs and disruptive technology more broadly.”
Brown adds: “There is an ambition to work together, but sometimes the problem is a disconnect between the solutions created by fintechs and the specific challenges facing larger institutions. This misalignment can make collaboration more difficult.
“There is a lot to consider for fintech start-ups; it’s not just going to a big bank and providing them with the technology.”
Mackenzie believes that it will take some time to overcome these cultural differences: “It’s about embedding, and often depends on the type of collaboration. Financial services organisations should look at the risk implications, and ask what it means for their existing business.
“For example, what are the new opportunities and new risks to be aware of? What risks can be mitigated? When you connect to APIs and third parties, your risks expand alongside the benefits they bring.
“In terms of resilience and integrity, it’s not just about your own systems but those of third parties, too.”
Despite the challenges, Deloitte is certain that large organisation and fintech collaborations will strengthen over time.
To help build knowledge and understanding, Deloitte has developed a Disruptive Technology Immersion Programme with four modules that takes financial services organisations through the experiences, pitfalls, stories, processes and good practice of working with disruptive technology.
“For our clients, it’s about seeing things in action, hearing the stories, but also being given a depth of knowledge they can draw from to move forward confidently with their own transformation,” says Mackenzie.
“It’s about demystifying how this world is changing, managing risk, embedding the right culture, building the workforce of the future, then scaling and integrating.
“Get it right and the opportunities are huge.”