How Scotland is positioning itself for fintech growth

Scotland's financial sector has a proud history and despite a tumultuous decade still stands relatively tall in UK and European terms.

Picture: Shutter Stock

However, the power bases for a number of our financial institutions have shifted to London in recent times and this presents a challenge for our economy.

While there has been recognisable movement in collaboration in the sector over the last 12 months, one senior university sector source tells a rather depressing tale of how he and a team from Edinburgh University took an action plan on fintech to Scotland’s main players and industry associations back in 2007 but it never found its way beyond the meeting agenda.

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So there’s a definite feeling that we’re playing catch-up, particularly in the context of how London has boomed in all things fintech over the last ten years.

Stuart Lunn is the chief executive and co-founder of LendingCrowd. Picture: Contributed

The silver lining is that a collective feeling is growing that we can give this fast-growing sector of the economy a fighting chance so we don’t become an also-ran.

Industry research suggests putting in the elbow grease will pay dividends – fintech is one of the 
fastest-growing parts of the 
UK economy contributing billions to the UK economy and employing tens of thousands of people.

Deloitte’s Global Fintech Interim Report published last month, pointed to the solid foundations we have in Scotland when you consider the combination of our financial institutions, university, government and industry initiatives, the experienced talent pool and the strengthening of the ecosystem as a whole.

Kent Mackenzie, director at Deloitte and the main man behind the advisory firm’s push into digital and fintech in Scotland, points out that more customer transactions were processed globally by non-financial services organisations than by standard financial services companies for the first time in 2016.

Kent Mackenzie of Deloitte

Mackenzie sees a data-driven future which is more about inclusion and personalisation, in which understanding the “DNA and heartbeat of the customer” will translate to products and services tailored to an individual’s actual needs delivered by ubiquitous mobile.

“You can imagine being on Amazon,” says Mackenzie, “and being able to choose car insurance for the coming week depending on what the weather is going to be like or who is driving the car.”

In terms of Scotland, Mackenzie thinks that if we can bring the best of our gaming expertise in Dundee together with Glasgow’s reputation for design, Aberdeen’s engineering prowess and Edinburgh’s software development skills then things could get really interesting.  

“In a way, it’s not unlike Silicon Valley in the 1970s when the military, movie and plastics industries collided to produce the first and greatest tech powerhouse on the planet.”

Ben Brabyn. Picture: submitted

Colin Hewitt, chief executive and co-founder of Float which develops cash flow forecasting software for SMEs and counts Skyscanner’s chief executive Gareth Williams as an adviser, believes we often look at the fintech ecosystem in Scotland in the wrong way.

“I maintain that fintech is still just a subset of start-up culture,” he says.

“That’s where the innovation is happening right now and so you have to look at the core aspects of how you build a great start-up environment.”

Hewitt, who admits he has come close to relocating Float to Boulder, Colorado in the United States so the team could plug into an ecosystem he thought could play more to Float’s advantage, says one piece of the jigsaw we are missing is “a seriously professional, high quality, selective accelerator that can take our start-ups to the next level”.

Stuart Lunn is the chief executive and co-founder of LendingCrowd. Picture: Contributed

The industry standard when it comes to fintech accelerators is London-based Level39, Europe’s largest technology accelerator for finance, retail, cybersecurity and future cities tech companies, headed by chief executive Ben Brabyn.

“We want to make sure Scottish companies have access to our campus, our facilities and our mentors”, says Brabyn.

“And we’re very supportive of the work people like Russell Dalgleish at Scottish Business Network and the guys at EIE [Engage Invest Exploit, a technology investor showcase] are doing to build bridges between Scotland and London.”

Brabyn focuses in on Hewitt’s remarks on building an enabling ecosystem: “For the past four years, Level39 has been a home for ambitious entrepreneurs scaling billion-dollar ideas.

“What we’ve learnt is that successful start-ups need access to customers, talent and infrastructure to reach their full potential.

“Cluster theory dictates that a concentrated ecosystem accelerates the growth of similar industries and sectors.

Kent Mackenzie of Deloitte

“While this is true for technology, entrepreneurs experience real value from communities that make active connections to customers, talent and infrastructure.”

“It comes down to the classics of start-up culture really,” Hewitt agrees. “Access to capital, talent, mentoring, education, role models, self-belief and community support.”

Hewitt says if we can get this right, more investors will have the appetite to invest and more companies will choose to come here rather than London.  

His action plan involves bringing more big-name fintech founders from fintech successes like Zopa, TransferWise, Monzo and Tide to Edinburgh to share their stories, connect and mentor.

Brexit continues to loom large as an external influence outside our control.

A survey released last week – the Scottish Start-up Survey by Informatics Ventures in association with the University of Edinburgh Business School and the Freer Consultancy – indicates that a clear majority of start-up founders are concerned by Brexit and the overall political backdrop, most specifically in relation to their ability to attract and retain non-UK nationals.

A shifting regulatory landscape is also on the radar for Scotland’s business, financial and digital sectors. Consistent with what is going on in other regions across the globe, so-called “open banking” and increased sharing of customer data marches on with the European Union’s second Payment Services Directive (PSD2) effective in January.

The directive opens up the payments market while forcing banks to release customer data to third-party organisations.

To date, it has been seen as a threat and opportunity in equal measure by the banks, but what seems certain to industry commentators is that application programming interfaces (APIs) will oil the wheels of open banking in the years to come.

A combination of changes to regulation, market forces and the rise of the “start-up world” is forcing an industry formerly characterised by poor collaboration to begin to change its ways.

What is certain is that Scotland has some really talented people in the space who want to continue to be based in our main cities and build financial technology ventures from here.

Stuart Lunn, chief executive and co-founder of peer-to-peer SME lender LendingCrowd, learned his trade in a City investment firm before setting up LendingCrowd with Scottish entrepreneur Bill Dobbie.

Lunn says: “There is no doubt that a small business today could be a major global fintech player in the next few years and that could have a major bearing on Scotland’s own position.”

He says that while many of Scotland’s large financial services firms have “peripheral projects that make good PR from partnering with fintech players”, they have “limited ability to execute because they are hamstrung behind complex products, legacy IT and regulation”.

Admittedly, we’re still missing a few pieces from the metaphorical jigsaw that is a bona fide fintech hub but there is enough evidence around – from our talented founders like Hewitt and Lunn, leading advisers like Deloitte, network facilitators like Scottish Business Network and supportive external partners like Level39 – to suggest that we can take the high road to international credibility, strong-arm our way into the game playing out on the top table and, in turn, gain the economic benefits that come with winning a piece of the action. n

Ben Brabyn. Picture: submitted