WITH 44,000 people employed in fintech in London, it remains the sector’s biggest global hub.
But there are plenty of questions over its development, with Brexit looming and lingering concerns over new regulations or relations with incumbent banks.
As New York plays host to the Fintech Week conference for the first time today, with a focus on blockchain technology and start-ups relations with corporate banks, we begin a two-part series on the key messages to come out of this summer’s London event:
Facebook could be the bank teller of the future…
From next January, UK banks will have to open up their data, as the EU’s PSD2 directive paves the way for apps that allow customers to see details of multiple accounts in one place. Daniel Doderlein, who heads up Norwegian payment platform provider Auka, said it should let us “choose that one great thing that allows us to manage all our accounts”.
And Didier Baclan, of peer-to-peer loan supplier Zopa, reckoned it might be a social network, rather than a bank, that proved the best aggregator of current accounts, loans, pension details and mortgages from multiple suppliers. “With Facebook… you could have a world where someone just provides the [one] login,” he says. Firms like Netflix, Amazon or Apple, beat banks for user experience, he said, adding: “It’s staggering that you can order a package from Amazon right now and get it shipped within a few hours, but if I spend money on my large incumbent bank card I will not see it [displayed] until tomorrow.”
…but sometimes less is more
Everyone will be scrambling to build the ultimate dashboard, according to Chris Gledhill, from ‘financial social network’ Secco Aura. But he reckons there’s potential for things to get too complex, with “switches, dials, pie charts about how much you spend on coffee, your ‘glide path’ of spendings and earnings” He adds: “It will look like the cockpit of an aircraft. But then you think ‘what does a pilot do when he gets into the cockpit?’ He just switches on autopilot.”
The open-banking era will create niche products
RBS open banking expert Alan Lockheart says the EU directive will allow third parties to create products for markets that banks aren’t focused on, such as products for children, students or elderly people. “All of these segments require a different kind of interface that’s more geared to them than the one-size fits all thing that banks generally do,” he said. “[Banks] just can’t physically afford the costs in maintenance and develop of four or five different channel applications. But the market can.”
But fintechs face a race against time
Dave Tonge, chief technology officer for personal finance app developer Moneyhub, says the UK’s banks are expected to introduce open banking in January. “Technically what has been an unregulated activity is becoming regulated, so if you’re not registered or authorised you’ll be in breach of the law.” However, he said the Financial Conduct Authority is expected to issue new guidance in October, when it opens applications for authorisation, and it could take three months to process applications. “Will any fintechs have the regulatory permission to use [the technology] even if they’re technically ready? It’s a big question,” Tonge added.
Brexit will be an unmitigated disaster…
John Egan, whose job as head of strategy for venture capital firm Anthemis Group involves distilling risk from political events, described the decision to leave the EU as a “cataclysmic event in the evolution of the British economy”. The challenges are monumental and the opportunities miniscule, he argued.
“Twelve large British-based institutions… have already secured leases in Dublin,” he pointed out. “That doesn’t mean they are going to move wholesale from London… but the next point the decision comes to expand a particular team it will likely not happen in London.” He said this would degrade the UK’s most important industry over the next 15 years, causing knock-on effects on productivity, national debt, interest rates and inflation.
…or might not be that bad, after all
London Deputy Mayor Agrawal argues that contingency planning “should not be taken as a mass exodus of businesses from London”. He said Google had invested £1bn in London since the referendum, while Facebook was looking to double its workforce and Apple had taken half a million square feet in the redeveloped Battersea power station.
“These are all votes of confidence in London’s core strength,” he said. “The jobs will continue to stay here; the business will continue to stay in London.” However, he accepted there would be challenges around securing a flexible immigration system to ensure the talent pool continued to grow. The real threat to London, he suggested, came not from Frankfurt but from Hong Kong or Beijing.
And London still leads the way for now
Alexa Fernandez, who heads up BBVA’s fintech partnerships, says the UK government and regulator’s encouragement of innovation, through the Bank of England Accelerator and regulatory ‘sandbox’ – allowing product testing in a live environment – is being copied the world over. “If we can continue with that pro-activeness and fintech-friendliness then it will allow innovation to continue to happen here in London and spread across the world,” she added.
But Jeff Tijssen, head of fintech for the Capco consultancy, said funding options were limited beyond its thriving angel investment scene and good early-stage funding environment. “We need to look at ways of scaling UK fintech,” he said. “Quite a few businesses are looking towards the US and some towards Asia.”
But what about the rest of the UK?
Welshman Ian Gilbert, from ‘onboarding’ automation software provider Agreement Express, said broadening the ecosystem is important. He’s based in Toronto but said, as a Canadian fintech hub, the city took in areas 100 miles away, while Silicon Valley was not restricted to San Francisco. “I wonder whether the opportunity is being fully leveraged her in the UK to connect the dots outside London… I don’t get a sense that places like Cardiff are as invested in this industry that’s so important to the UK economy.”
However, Fernandez said the Financial Conduct Authority was developing fintech hubs in Leeds/Manchester and Edinburgh/Glasgow. “They have definitely recognised that there is a whole other world outside London and are making an active effort by opening up these two centres.”
Outside Britain, regulators can be obstructive
Ismail Ahmed who founded transfer service WorldRemit, said regulators “don’t always get it right”. The company had to lobby hard in Canada to put an end to a situation where customers had to repeat an ID process every time they wanted to send a remittance. Meanwhile Daniel Howard, chief technology officer of African money transfer service SimbaPay, pointed out on a different panel that MPesa failed in South Africa because there was too much regulation.
But they can’t possibly keep pace
In a Future of Money debate, Brendan Blumer, founder of block.one, argued: “You can no longer regulate something the way we used to. Every so often something like Paypal used to pop up and you would think about how to deal with it. But now by the time you think about how to regulate something, there are probably 10 more innovations that have cropped up. A centralised agency will never be able to keep up with the speed at which we’re innovating.”