Fintech: the future of financial services

By Charlotte Crosswell, CEO, Innovate Finance

25/05/2019 Published in Business Reporter

Fintech has revolutionised the world of financial services, not only in the UK but across the globe. The pace and nature of innovation has accelerated over the past decade and particularly over the past five years, so much so that it is now one of the fastest-growing sectors in the UK economy.

New players have entered the market thanks to lower technology development costs. One of the key reasons the UK has become the fintech capital of the world is thanks to the strength of our ecosystem, our regulatory environment and government support. Regulators have allowed safe environments to test products, lowered barriers to entry and promoted competition, but all the time within a framework that protects consumers – both retail and corporate.

In the early days of fintechs, many of the more traditional financial services incumbents eyed them with suspicion, looked to buy them to stop product innovation and revenue cannibalisation, or simply ignored them in the hope these upstarts would disappear! But as consumers have embraced the products and services offered by the disruptors in ever-growing numbers, we now see the financial services sector working very much in partnership with fintechs in a more transparent way, open to opportunities and collaboration.

Fintech is becoming embedded into the very core of how financial services work. This is no doubt leading us to a world where financial services will be very different from today: one where fintech will have fundamentally changed how the sector works, in terms of its structure, its business models and its products and services.

So what exactly is the value of fintech and its purpose in society?

One of the characteristics of fintech is a sharp, determined focus on a specific customer need, or issue – whether it’s a back-office issue such as AML checks and trading compliance, or a customer need such as foreign currency exchange. The specific solution developed is often cheaper, and faster – as well as more customer focused – than a bundled offer that’s been developed over many years to serve many needs.

Fintech is creating jobs. It’s one of the fastest growing sectors in the UK economy, with more than 1,600 fintech firms in the UK contributing £7 billion to the economy (excluding the incumbents in financial services, which is already the single biggest sector of the UK economy) and employing over 75,000 people.

Entrepreneurs in the fintech ecosystem are not just following the “get rich quick” mantra that has plagued the more traditional UK financial services sector in recent years. They are using technology to change things for the better forever, in a bid to satisfy a new generation of tech-savvy, socially responsible consumers and businesses.

Fintech is also attracting serious investment. Innovate Finance’s latest VC Investment report, showed that in 2018, the UK had its best year in terms of investment, with more than $3.3 billion, split roughly 50/50 between PE investment and VC investment. That’s 18 per cent higher than 2017’s figure, which was in turn more than double 2016 investment levels. These funding levels put the UK third only to China and the US. Within Europe, the UK continues to dominate, followed by Germany ($716 million and 48 deals) and Switzerland ($328 million and 40 deals).

But with such growth and success comes responsibility. As the fintech sector matures, it is really important that it holds on to and develops the culture and values that are so often at the very core of its business model.

In order to inspire the next generation to consider finance and technology as an attractive and viable career choice, FinTech needs to show them it can scale in a responsible manner, holding on to its values — such as flexible & remote working and social mobility — so that this culture becomes the norm for financial services of the future.