By Lindsay Whitelaw, Founder and Chairman URICA Limited
FinTech is coming of age. PwC have recently said that the banking sector could lose up to 24% of business to FinTech competitors over the next five years if they don’t wake up to the threat they pose to them. Make no mistake, that threat is significant.
We are seeing a lot of change taking place in the financial services sector, and technology is the main driver. Last year, £600 million was invested into FinTech companies and HMRC calculates that Fintech businesses contribute around £20bn to GDP, employing approximately 61,000 people. Undeniably, FinTech is no longer small threat to the status quo, and it is gaining momentum.
Banks and financial services businesses are now beginning to wake up to the fact that they are going to need to work with FinTech and embrace it, because if they doggedly stick to their old business models, they are in danger of losing a significant portion of their market share in the coming years. Those more forward-thinking established businesses recognise that there are sound commercial advantages to working with FinTech companies and are trying to leverage their nimbleness and innovative approach. There is an understanding amongst many businesses that there needs to be an attitude of collaboration going forward, to allow fresh ideas and impetus to imbue established models. In time, that may well result in banks buying the best FinTech models and bringing them in-house.
London as Fintech capital
London is the FinTech centre of excellence for a number of reasons. First, there is a large pool of highly skilled labour, which businesses can easily access. Second, there are significant and clear commercial opportunities provided by the cost reducing benefits of technology. In addition, businesses have until now found relative easy access to capital in London. The key question is whether or not that access will be maintained throughout the uncertainty that lies ahead in the aftermath of the Brexit decision.
On the question of whether we will see a shift in focus from London as the tech capital of Europe to other cities, it is simply too early to tell. But before we begin to panic that London will lose its coveted status post-Brexit, we should bear in mind that the 2013 efforts of the FSA, OFT and the Independent Commission on Banking to introduce a more liberal environment for competition in the banking and financial services sector still make the UK a good place to do business.
In short, there is a complex decision making process that FinTech businesses would need to go through before making any decision to relocate elsewhere. There have been many uninformed headline-grabbing statements since the referendum that call into question London’s pre-eminence in financial services and FinTech, but it is far too premature to write the obituary.
Behind every challenge lies an opportunity. Periods of uncertainty can often be the best times for new ideas and new businesses to put down roots and become established. When the old order is maintained, it is much harder for new and innovative concepts to get the oxygen they need to grow. For example, banks are now likely to experience pressure around their property portfolios, which we are already starting to see, so there might well be a resurgence in the need for banks to maintain capital and a reluctance to lend. If that happens, a renewed opportunity for FinTech businesses looking fill the gap left by the banks may lead to increased rather than diminished opportunities.