There are reasons to be optimistic about FinTech's prospects in a changing worldby Lucy Neville-Rolfe / September 14, 2017 / Leave a comment
Heraclitus was right. The ancient Greek philosopher famously said that everything changes, which was a profound observation then, since constant change was much less obvious when he said it than it is now.
Almost everywhere you look, the major, current politico-economic issue under discussion is Brexit. But in this article I also want to discuss another profound change, which in the long run will affect all of us every bit as much.
I refer to the use of computing power to manipulate data in new ways, thereby transforming traditional methods of doing things, such as we see with mobile payments, artificial intelligence and driverless vehicles. As a former Business, Intellectual Property and Treasury minister, I want to concentrate on one particular part of this new world, FinTech—short for “financial technology”—which is the application of the new techniques to what, traditionally, we would regard as banking.
So far the UK has adapted well to these new possibilities. Indeed, the UK has been independently ranked by EY and Deloitte as the best place in the world to be a FinTech firm. The sector already generates some £7b of revenue annually and employs over 60,000 people. The Financial Conduct Authority, not always popular with business, was praised for their simple and pro-innovation approach to FinTech regulation. It was the first authority to introduce a regulatory sandbox which allows businesses to test innovative products, services and business models.
The UK was at the forefront of previous industrial revolutions, such as steam power, electricity and computing. They were all strong drivers of growth in new industries and left problems in their wake for the industries they replaced: turnpikes, sailing ships, gas lighting companies and so on.
Digital is exactly the same and FinTech is creating its own winners. Take TransferWise which makes international money transfer cheap and easy. Or LendInvest which is concerned with property lending and investment. Both are transforming the experience of traditional things—money transfer and home loans—into something quicker, cheaper and easier. The losers are existing players, established banks and lenders, who have a lot of sunk costs and capital requirements and cannot adapt quickly.
The winners are the firms, their entrepreneurs, their employees and the professional services that support FinTech and, above all, the consumer: he or she saves time and money as innovation and competition do their work.
At the same time the firms concerned will have to cope with new regulation on data, the growing risk of cyber-crime and many new post financial crisis rules filling the corporate intray.
So, we see the need for major, well-managed adaptation in the financial sector—at the same time as we are awaiting news of the way in which Brexit will change the landscape of that same sector.
When we come to Brexit FinTech is UK services in microcosm, but it is a young, entrepreneurial and adaptive sector not weighed down by problem legacy businesses.
The key Brexit issues for Fintech Access to talent. The biggest concern of tech entrepreneurs is to continue to attract top people. On this I am confident. The Brexit negotiators seem to be making good progress in securing reciprocal rights for people who have already moved to the U.K. or EU(27); and any Home Office system of control is likely to allow entry to the highly educated, well paid people on whom FinTech rely. They may need to improve apprenticeships and training for locals too, but this is something they should already be doing. Access to capital. The majority of capital for businesses of this kind is already raised privately in London. We will not have access to ECB funds, but the British Business Bank will be strengthened and the Chancellor’s Buffini review is a further opportunity for improvement. FinTech is highly innovative and is itself a source of new finance like peer lending, with companies such as Funding Circle demonstrating the potential. Access to the Single Market. We do not know what the Brexit deal will look like. But both sides have an interest in stability and the free flow of capital and crucially, data. In any event FinTech operators are likely to put a tent peg in other jurisdictions on a contingent basis. Berlin, Paris, Dublin, Amsterdam are all cities in which the modern financial operator should be doing business. The concentration on world trade is great news for FinTech. We have FinTech agreements with Singapore, South Korea and China and we agreed, during a mission to India in April, to strengthen our FinTech bridge.
Brexit will add momentum and urgency in all of these areas. The combination of digital and Brexit will stoke the FinTech revolution. Although originally a Remainer, I have never subscribed to Project Fear and I am optimistic about the sector’s prospects in a changing world.