Who are the disruptors in Scotland's fintech scene?

WHEN it's at a train station, airport or in a classroom, disruption generally isn't a good thing. And in these contexts, disruptors probably aren't going to win any popularity contests. In the world of fintech, however, it's a different story.

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As Alan Nelson, partner and IT and information legal specialist at law firm CMS in Glasgow, explains, even the sector itself is a disruptor. “Fintech can be regarded as disruptive because the technology interferes with or ‘disrupts’ otherwise well-established processes or income streams,” he explains.

“A good example of this is payment services. Historically, a very small number of companies have provided payment services (e.g. debit/credit card-payment) that allow shops to take payment by card for a fee.

“More recently advances in technology along with some regulation changes have opened this market, making payment services much cheaper for shops, generating huge savings.”

Likewise, if you’ve ever clicked on a Facebook or Twitter appeal and donated to help get an idea for a cool new gadget or book off the ground, you’ve also participated in the disruption of the financial industry, explains Nelson. “Crowdfunding is another good example of disruption, this happens where a website is set up to raise funds from the public, allowing people to avoid borrowing from a bank,” he says.

While it’s not strictly in the financial services sector, he cites flight price-check website Skyscanner as being a particularly striking example of highly disruptive Scottish start-up.

The names of other Scottish disruptor start-ups rapidly reel off the tongue of Kent Mackenzie, a director at Deloitte’s risk analytics and fintech practice in Edinburgh, when he talks about Scotland’s fintech ecosystem. “Money Dashboard, The ID Co, Wallet.Services, Aquila, SwarmOnline – there’s loads of them when you look around Scotland. They are smart people and people that have been in the industry before.”

One such smart person is Ed Molyneux, chief executive and co-founder of FreeAgent, which develops cloud accounting apps and software aimed at freelancers and very small businesses. In 2007, and with no background in accounting, the former RAF fighter pilot set up the Edinburgh-based firm with two co-founders. Now it employs more than 100 staff serves 50,000 customers and in November 2016 was floated on the alternative investment market, raising £10.7 million and achieving a market capitalisation in excess of £34m.

So does he see FreeAgent as being a disruptor? “Definitely,” he says. “When we launched FreeAgent, our mission was to disrupt and challenge the status quo in the micro-business accounting space,” explains Molyneux. “Many accounting packages offer a ‘one size fits all’ solution, but we designed FreeAgent to be specifically suited for micro-businesses – i.e. freelancers, solopreneurs and companies with one-to-nine employees – and to have the kind of bookkeeping, tax forecasting and project-management functionality that they would require to run their businesses better. This also means we’ve been able to be a disruptive force for good in the accounting industry too.”  

But while it’s easy to fall into the trap of thinking of disruptors as being plucky upstarts, out to shake up the industry and take on the goliaths of the financial world, it’s not quite like that.

Banks

Disruptors come in all shapes and sizes, Mackenzie is quick to point out. Indeed, many of the big players are taking active steps to disrupt and shake up their own way of working. “Some of the big banks are doing some amazing stuff – if you look at Santander, RBS, HSBC, Lloyds – they’ve all got digital innovation labs that are creating new technologies. People like RBS are involved in the R3 Consortium around blockchain, you’ve got Lloyds doing some quite significant work around open banking, RBS are [also] looking at agile development and artificial intelligence…”

And accountancy giants such as Deloitte are also leading the charge, says Mackenzie. “You’ve got people like us – big four – who are saying ‘hey listen we’ve got knowledge in the firm,’ we’ve got a bunch of specialists in code, why don’t we start creating?”

And creating is exactly what Mackenzie’s team of 15 has been doing at Deloitte. “We’ve just launched our Deloitte Greenhouse which is our own digital space that we run many of our initiatives through,” says Mackenzie. “If I go back two years ago, Deloitte in Scotland was well known for being a very solid accountancy, audit, tax firm – but we’re so much more now in the digital and tech space.”

Some initiatives Mackenzie cites include Deloitte’s involvement in robotics and process automation, looking at how to use a blockchain to create a more secure identity platform, and looking at how to use artificial intelligence in credit decision making.

These ideas being developed and nurtured by the UK’s biggest accountancy firm are all likely to disrupt the way we deal with money and finance in the future, as will many other innovations generated by the smallest of start-ups.

When it comes to disruptors, size doesn’t matter, it seems.