Fine time for Scotland to get into Fintech fast lane

A NEW report by IBM claims 2017 will be the year in which the adoption of blockchain by leading banks moves from 'zero to 60'. Financial institutions are adopting blockchain technology 'dramatically faster' than anticipated and 15 per cent of global banks will next year roll out full-scale commercial blockchain products. The report will spark interest at next week's Fintech 2016 conference in Edinburgh among pioneers of Scotland's booming financial technology (fintech) sector.

Luke Scanlon Pinsent Masons LLP

Originally the technology on which crypto currency bitcoin was based, blockchain now has a much wider application in fintech. Start-ups, innovators, blue-chip banks and insurance institutions are all trying to define how best a blockchain, or distributed ledger, can safely store, manage, disseminate and share the massive amount of personal and financial data which, in the past, would be held only by your bank, lender or insurance provider, but in this new era of fintech will be available to approved collaborators. Currently, fintech has the edgy reputation of being a “disruptor”, throwing out old established ways and rewriting how individuals and businesses use money, pay for services, raise finance, invest, save and accumulate wealth. Pinsent Masons believes that in the medium to long term, the transformation point will be reached and there will be no recognisable difference between fintech and financial services.

Other topics which Pinsent Masons partner Yvonne Dunn and I will discuss at Fintech 2016 include engaging with regulators, automated (robo) advice, digital currencies, open data and alternative finance. Fintech professionals lead from the front in crowdfunding and peer-to-peer lending, which can provide access to finance for those who may have had trouble accessing funds in the past, and new ways of assessing credit worthiness and evaluating risk is being done via fintech platforms. As financial institutions with legacy technology systems grapple with how best to move to cloud-based computing, fintech businesses tend to be entirely built from the ground up using the Cloud, making them much more versatile and flexible in scaling up very quickly.

Fintech is exciting for the legal profession because we can’t rely on what has happened in the past and on many issues which arise, there is no clear answer in regulatory guidance, existing legislation or case law. The challenge for the regulators is to respond quickly and the Financial Conduct Authority has a good track record.

For high street banks, there are two ways to get on board – continue to innovate themselves and find ways to merge or adapt legacy systems, or collaborate with fintech entrepreneurs. The second route is proving successful with clever use of accelerator programmes which assist, nurture, encourage and advise start-ups and established businesses looking to scale up.

Last year, Google’s Matt Brittin said “every business is a digital business and there is no better place than the UK.”

Edinburgh, with a strong financial services foundation and outward-looking approach to global business, is a perfect base for fintech and in a prime positon behind only London as an incubator of fast-track fintech innovators.