Innovate Finance was set up to be the voice of the fintech sector, tasked with connecting the ecosystem and bringing it together with a single voice. That means drawing the government together with banks and fintechs, with entrepreneurs, and with other interested parties such as venture capitalists, to tackle issues such as funding or the skills and talent gaps.
Following a gap identified by Government, and the need for a voice for the sector, Innovate Finance started life located in Level 39 — the technology hub operating on three-floors of One Canada Square in Docklands, providing support and mentoring for high tech businesses. It was clear that as financial technology grew in importance and impact, it needed its own representative body.
CEO Charlotte Crosswell, whojoined the organisation in 2017, said: “We want the sector to thrive and are doing what we can to facilitate that. We want to make sure that the right messages get across, that the right capital is in place, that policymakers are supportive. If people are talking fintech, that they’re using the same numbers — on jobs data or on growth, for example.”
“We have also been working on our international outreach, including international trade missions. It is more about the macro side rather than setting rules.”
She says there is an increasing recognition among mainstream financial services groups, such as the high street banks, that they need to embrace fintech or risk losing out. They are either trying to build their own solutions, or — more often — backing innovative start-ups. Charlotte says this is an important part of Innovate Finance’s role: building partnerships and helping to match capital with innovation.
“There are still some who say ‘fintech won’t affect me’, but that’s moving,” she says. “Those who try to play catch-up may well find it’s too late. You don’t do it at your peril. In the past five to ten years, huge swathes of jobs have been lost to AI/machine learning. The rate of change is quite incredible.”
The UK’s fintech hub
The UK punches above its weight in terms of fintech adoption. It is currently the third biggest market outside China and the US. Facebook recently announced that it would be trialling its WhatsApp payments service in London, a good example of the attractiveness of the UK fintech sector. Charlotte attributes its success to an enlightened regulator, but also to the problems created by the financial crisis, which forced diversification in the sector. The FCA has been good at encouraging competition through its regulatory ‘sand-boxes’ and engaging with the industry.
There remain many challenges. Financial inclusion remains front of mind for many providers. There is a danger that, in the drive to innovate, those without a digital connection are left behind. In a cashless society, how do they send cash and pay?
Charlotte says: “We are likely to see a lot around financial inclusion and wellness, getting the unbanked banked. We have an increasingly cashless society, and fintech inclusion can be excluding as well. 16 million people in the UK have less than £100 in their bank account.”
This is leading to companies such as Wagestream (featured on page 12), which gives individuals early access to wages they have accrued to help smooth their payments. The fintech sector is keen to disintermediate payday lenders, which can contribute to keeping people in poverty. This is partly about education and inclusion — 60% of those taking payday loans would qualify for a bank loan, but don’t think it’s for them.
The next wave?
Where is the next big area? So many areas have already been disrupted — from payment systems to FX transfer to wealth management. Charlotte says capital markets have been slower to embrace fintech, but could be next: “Capital markets are very difficult to disrupt and depend on the procurement processes of individual investment banks. This can involve many levels of sign-off. Trying to onboard technology is a big challenge and this is why Blockchain has not yet been widely adopted. That remains an area ripe for disruption, but with some barriers.”
Insurance technology has generally been relatively slow to adopt new processes. However, it will need to change to accommodate changes in its end markets — the demands set out by driverless cars, for example. “There is also a question over what happens to insurance when people don’t own things anymore.” Charlotte says. “It will change insurance premiums.”
Health insurance is already seeing some changes — linking to fitness trackers and other measures of well-being. However, while data is increasingly being collected, no-one has monetised it effectively yet.
Changing consumer preferences will also hit the pensions industry. Millennials are a generation of renters and care less about long-term savings (whether by necessity or design). This will have implications for pensions and other savings schemes. There is also a clear mismatch between men and women, says Charlotte, with women saving and investing far less. This needs to be addressed.
Millennials will inherit from the boomers, which could change the wealth management landscape once again. Charlotte adds: “We are already moving away from wealth management as we know it. This group has different aspirations. Nutmeg, Scaleable Capital and similar groups are developing partnerships with big financial institutions. But are people informed enough? Do they understand the downside risks? What happens to the consumer?”
Charlotte also highlights the diversity problem across the industry. Solving these problems will require breadth of thought, as financial services has traditionally been a male preserve. Innovate Finance is striving to raise awareness of fintech among the next generation of women. It has launched an outreach programme in schools: “We want to show them that female role models come from all backgrounds and inspire people to come and work in fintech. Fintech should help everyone, not just an elite. It should promote social mobility.”
It is a bold mission, but fintech has the potential to benefit many layers of society. Innovate Finance will be front and centre of driving the industry forward and ensuring it achieves its goals.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.