Last week was UK Fintech Week. Thousands of entrepreneurs and investors, regulators, advisers and headhunters gathered across the UK to network, showcase innovation and negotiate. They were joined by 15 international delegations from China, the Middle East, North America and Europe — keen to be part of the conversation. The week was kicked off by Innovate Finance’s fifth annual Global Summit, at which Mark Carney and Philip Hammond celebrated Britain’s fintech sector and committed to actively supporting its future success.
Despite Brexit, the UK’s fintech sector is thriving. Fintech — the harnessing of technology to improve financial services — is a UK success story. Private equity and venture capital investment into the sector in the UK lags only China and the United States, with $3.3 billion investment in 2018 and over $1 billion investment already in the first quarter of 2019. Fintech is the fastest-growing sector in the UK, already employing more than 76,000 people and with 25 per cent (or seven) of the world’s fintech unicorns. It is worth almost £7 billion annually to the economy. The UK has become the preferred choice of many to both innovate and invest because of our pro-growth, innovative regulatory environment, our world-class financial services sector and our historic welcome to global talent.
Fintech has made its way into mainstream financial services in the UK. Consumers may not recognise the term “fintech”, but they experience it through banking apps allowing them to see multiple accounts, easier ways of validating their identity, more accessible ways of saving or investing, better access to credit for small businesses and insurance for gig economy workers that clocks on and off when they do.
There aren’t many UK banks, asset managers and insurers who are not investing heavily in fintech through acquisition, partnering or by incubating their own. They are using the power of new technology and new thinking to transform both customer propositions and back-office processes. Over the next 20 years, fintech approaches will be embedded in every part of financial services, just as dot.com became a necessary component of retailing. Fintech truly is the future of financial services.
What stood out last week was the focus on “fintech for good”. As an economy, we still face some intractable problems — with 1.3 million unbanked but working adults in the UK and with 100,000 people in severe debt considering suicide each year. Last week, the focus on fintech’s power to improve society was not a sideshow, rather the main focus for many who believe that it can offer innovative solutions that bring benefits to a far wider proportion of society.
There is ample evidence that fintech has huge power to include. Fintechs on show last week included Credit Kudos and Credit Ladder, which uses consumers’ financial behaviour to assess credit worthiness, giving many more people access to credit. Salary Finance and Neyber showcased their partnerships with employers to offer financial advice, savings and lower-cost credit to employees, reducing the cost of debt by backing repayment through payroll. And far from feeling the need to keep innovation within start-ups, Starling Bank defined the adoption of great fintech ideas within incumbents as success — Monzo’s gambling blocking app released this year was embraced and copied by high street banks swiftly after its launch.
There remains scepticism about the impact of technology. Consumers know from the antics of Facebook and others that technology can do harm as well as good. Wonga was an early fintech — a tech-driven, high-cost credit lender that ignored the fact that lending money to people on low incomes at rates of over 1,000 per cent APR was hardly responsible lending. Adverts last year on the London Underground urging us to “be More Brenda” and buy bitcoin in under ten minutes were aimed at unsophisticated buyers who shouldn’t be investing in anything as volatile as cryptocurrency. In some other markets, where there hasn’t been effective regulation of fintech, there have been scandals, such as in China last year where uncontrolled peer-to-peer lending saw thousands of companies spring up, many of which were no more than Ponzi schemes. Thousands of Chinese consumers lost their life savings.
In any market, there will be bad people trying to do bad things — and naive people who cause harm through ignorance or greed. One of our biggest learnings since the financial crisis has been the criticality of culture. There will always be an information asymmetry between those providing and those buying financial services, so the culture of the company designing, marketing and selling services is critical. Seek to do good and there is a decent chance that consumers will benefit. But the converse is equally true. Positively, a significant proportion of fintechs have started with a mission to be better for consumers than their predecessors. This can only be reinforced by the high proportion of the talent going into fintech coming from millennials, a population who believe that improving society is more important to business than profit.
But diversity is a crucial area for improvement. There is ample evidence that ethnic and cultural diversity is likely to lead to a wider range of ideas (as well as higher profitability). Yet only 17 per cent of senior executives in UK fintech are female, with female-led start-ups receiving only 3 per cent of total available VC funding in 2018. We need to do better.
Financial services are integral to all of our lives. Fintechs that make managing money easier, quicker and simpler could help millions to stay on track financially and avoid problems. Fintechs that enable more people to avoid high-cost credit and spiralling debt could reduce stress and improve well-being. Passion to create better financial services runs through fintech like lettering through a stick of rock. Fintech really can be different — with a strong focus on purpose, culture and ethics — and the diversity that will enable challenge and avoid group-think. The phenomenal talent in UK fintech combined with the power of new technology means that fintech has the power for immense good. Let’s realise this potential.
Natalie Ceeney chairs Innovate Finance, the UK fintech members’ body