Stepping forward for FinTech
As our lives become increasingly digitised, FinTech is rapidly evolving too, changing the way authorities, businesses, and individuals conduct their day-to-day transactions and investments. It is essential that this FinTech revolution innovates in a direction that is beneficial not only to financial service firms, and their investors; but also throughout wider society, to include SMEs, average citizens, those who have long been financially excluded, and everyone in between.
A recent report – ‘Stepping Forward for FinTech’ published by the All Party Parliamentary Group highlights key areas where FinTech is changing the UK’s financial landscape.
The UK Landscape
An EY report recently confirmed London as the world’s leading FinTech hub. The UK FinTech market is estimated to generate a revenue of around £6.6 billion. Last year, FinTech companies attracted more than $900 million in venture capital investment, an increase of 35% from 2014.
FinTech is not just a London phenomenon, the cities of Leeds, Birmingham, Cambridge, Manchester, Cardiff, Belfast, and Edinburgh are all financial and / or tech hubs offering their own specialisms and expertise. This makes the UK a “tech nation” with each hotspot contributing significantly to recent growth in the UK. For example, Manchester alone has 56,000 individuals employed in the digital sector and around £3.5 billion of investment underpinning digital and technology infrastructures.
In terms of investment, the largest FinTech sectors are peer-to-peer (£196 million in 2015), money transfer and FX (£175 million), and challenger banks (£126 million). Primarily, this growth can be attributed to policy drivers in these areas. Data, analytics, cyber security, and blockchain are also enjoying significant investment right now.
The UK has certainly established itself a world leader for FinTech, but growing global competition makes the future of this position volatile. It’s absolutely vital that the UK pulls out all the stops to maintain the momentum that it has been building.
Fairness and Choice
For a financial services sector to thrive, it is vital that a fair balance of interest between both providers and users exists, offering suitable freedom of choice to both individual and business customers. Despite this importance, just 21%of customers actively check that they are receiving the best deal on their bank account each year, highlighting that the majority do not exercise their rights.
This presents the opportunity to ensure appropriate competition and transparency. Competition boosts the diversity of offerings in the marketplace, while transparency means that customers are more able to understand these offerings. FinTech provides solutions to both of these challenges.
Innovation allows traditional financial services to successfully disrupt concentrated markets with alternative offerings, giving businesses and consumers a greater variety of options when moving money or making cross border payments. Greater choice is therefore welcomed to make it easier for new entrants to gain access to the payments infrastructure and develop solutions better suited to the ways people use these services.
Access and Inclusion
While the UK is leading the way as a financial hotspot, not everyone has been fortunate enough reap the rewards. Many businesses and individuals are financially excluded, finding it difficult, or impossible to access much needed financial services.
Around 2 million people take out a high-cost loan each year because they cannot obtain any other forms of credit. A further 2 million adults do not have access to a bank account, and around 13 million people do not have any savings to support them should their income drop by 25%.
On the contrary, there is a growing demand for digital transactions. 76% of people currently own a smartphone, and 80% have a broadband connection at home. With the increasing use of digital technology, FinTech is positioned to bridge the gap between society and the financial services to which it needs access.
Security and Integrity
The financial crisis of 2007 highlights the extent of chaos that can occur if the financial services industry underestimates associated risks. The crisis has confirmed the importance of implementing adequate risk models and compliance, and so firms are progressively turning to technology to fulfil these requirements.
The rise in demand for digital services within the industry makes FinTech particularly vulnerable to cybersecurity issues. Data security is a primary concern for individuals, and breaches can have a lasting impact on the success of trading.
Digital solutions can also streamline the extensive record-keeping and reporting requirements that must be met by regulated firms. A third of SMEs suffer a cyber attack from external sources each year, costing between £65,000 and £115,000, on average.
FinTech companies are working tirelessly to solve these issues and help firms to identify personal fraud and money laundering with a minimal impact on customer experience.
The future of FinTech
The momentum of FinTech should not be downplayed or dismissed. Instead, it should be embraced as one of the most significant shifts within the financial services landscape for more than a generation.
While some markets have fast-tracked advances in technological adoption, the traditional nature of the financial services industry suggests this is just the start of the FinTech revolution.
In a saturated and competitive market, the UK FinTech industry must push for innovation to maintain its place as a world-leader. By working together, we can protect and continue to better this status, as well as shape future developments to benefit all members of society.