Fintech’s next chapter: innovation through collaboration

Pan­el

Erin Platts, Head of EMEA and pres­i­dent of the UK branch, Sil­i­con Val­ley Bank

Bradley Riss, Chief com­mer­cial offi­cer, Checkout.com

Nicole San­dler, Head of dig­i­tal pol­i­cy, Bar­clays

Bry­ony Wid­dup, Part­ner, DLA Piper

What trajectory have fintechs been on and what impact has the coronavirus pandemic had on them?

BW: Fin­techs have evolved over a long peri­od, but the glob­al 2008 finan­cial cri­sis real­ly kicked off the trans­for­ma­tion of the finan­cial ser­vices sec­tor by allow­ing out­siders in. More recent­ly we have seen fin­techs shift from being out­siders to more mature com­pa­nies engaged with all aspects of finan­cial ser­vices. There’s been huge growth and a lot of learn­ing along the way.

EP: The diver­si­ty of fin­tech com­pa­nies being pro­duced and scaled in the UK has evolved sub­stan­tial­ly. The sup­port in terms of both domes­tic and inter­na­tion­al cap­i­tal fund­ing has cre­at­ed huge momen­tum. Even with the COVID-19 head­winds, there has been phe­nom­e­nal per­for­mance, though it has dri­ven some bifur­ca­tion, with cap­i­tal and liq­uid­i­ty hard­er to come by for cer­tain busi­ness­es.

NS: COVID-19 has def­i­nite­ly shown how impor­tant dig­i­tal is, but it is real­ly impor­tant not to have a knee-jerk reac­tion. Finan­cial uncer­tain­ty has the poten­tial to change habits across all soci­ety in look­ing for tech­no­log­i­cal “safe havens”.  While this may has­ten some of the debate and sup­port for cer­tain tech­no­log­i­cal use-cas­es, there still needs to be a mea­sured and strate­gic response.

NS: COVID-19 has def­i­nite­ly shown how impor­tant dig­i­tal is, but it is real­ly impor­tant not to have a knee-jerk reac­tion. Finan­cial uncer­tain­ty has the poten­tial to change habits across all soci­ety in look­ing for tech­no­log­i­cal “safe havens”.  While this may has­ten some of the debate and sup­port for cer­tain tech­no­log­i­cal use-cas­es, there still needs to be a mea­sured and strate­gic response.

BR: Cus­tomer cen­tric­i­ty is real­ly impor­tant. More broad­ly, there’s a gen­er­a­tional change. Big banks were viewed as incred­i­bly trust­ed going back 30 years, but the glob­al finan­cial cri­sis opened the door to new entrants into what were tra­di­tion­al­ly very pro­tect­ed spaces based on the per­cep­tion of con­sumer trust. There’s also been a con­ver­gence with tech­nol­o­gy enabling these new busi­ness mod­els to flour­ish. 

BR: Cus­tomer cen­tric­i­ty is real­ly impor­tant. More broad­ly, there’s a gen­er­a­tional change. Big banks were viewed as incred­i­bly trust­ed going back 30 years, but the glob­al finan­cial cri­sis opened the door to new entrants into what were tra­di­tion­al­ly very pro­tect­ed spaces based on the per­cep­tion of con­sumer trust. There’s also been a con­ver­gence with tech­nol­o­gy enabling these new busi­ness mod­els to flour­ish. 

How has the relationship between fintechs and more traditional players in the financial services ecosystem evolved?

BR: In pay­ments, com­pa­nies like Visa and Mas­ter­card have approached inno­va­tion as an ecosys­tem. They don’t nec­es­sar­i­ly have to own inno­va­tion them­selves, so long as they can help fos­ter it, and some banks are start­ing to emu­late that approach. It’s best to look at it as how to facil­i­tate the jour­ney you want to cre­ate for the end-cus­tomer. Some­times it might be by fly­ing solo, but more often than not it’s through col­lab­o­ra­tion.

EP: When think­ing about the inte­gra­tion between fin­tech and finan­cial ser­vices, we often defer to the con­sumer angle, but there is also a huge infra­struc­ture and effi­cien­cy play. I think some­times we under­es­ti­mate the impact fin­tech can have on infra­struc­ture trans­for­ma­tion for large insti­tu­tions, keep­ing them com­pli­ant and reduc­ing costs.

BW: It’s real­ly impor­tant for val­ue cre­ation, through­out the whole of the finan­cial ser­vices sec­tor, that the archi­tec­ture and struc­tur­al piece can be improved, replaced in parts and brought for­ward, both for cost and time effi­cien­cies, but also in terms of the risk angle. There can be real improve­ments made through col­lab­o­ra­tion.

NS: Peo­ple often ask, why is it so dif­fi­cult for some firms, includ­ing incum­bents, to col­lab­o­rate? Lega­cy sys­tems would have been a key rea­son in the past, but often, nowa­days, star­tups will find solu­tions for that. For me, it’s been more about lega­cy think­ing, though that is chang­ing too. Peo­ple have, in their mind, ways they should do things and who they should part­ner with. We have to col­lab­o­rate because many of our chal­lenges impact the indus­try as a whole.

The regulatory landscape in many ways has helped fuel the rise of fintechs, but how are we now seeing this change?

NS: You always have to ask, is your reg­u­la­tion fit for pur­pose? If cer­tain play­ers are not reg­u­lat­ed, we know what could hap­pen down the line. Reg­u­la­tion should fol­low a very sim­ple prin­ci­ple: if you do the same activ­i­ty and you have the same risk, you should fol­low the same reg­u­la­tion. If every­one had the same reg­u­la­tion pro­por­tion­ate­ly, it would help the ecosys­tem, finan­cial sta­bil­i­ty, com­pe­ti­tion and, ulti­mate­ly, the con­sumers and investors.

EP: One of the big dri­vers of fin­tech in the UK has been the reg­u­la­to­ry sand­box. Now oth­er juris­dic­tions are increas­ing­ly inno­v­a­tive, how can we ensure we stay at the lead­ing-edge so we’re not just attrac­tive local­ly, but also sup­port­ing com­pa­nies that start here to com­pete glob­al­ly? I do buy into this con­cept of pro­por­tion­al­i­ty. If we can get it right, we will cre­ate bet­ter con­sumer out­comes and more of a lev­el play­ing field.

BR: There is great val­ue in a bal­anced approach. The Mon­e­tary Author­i­ty of Sin­ga­pore and the UK’s Finan­cial Con­duct Author­i­ty alike have been very encour­ag­ing to fin­techs and they’re being reward­ed by attract­ing some of the best com­pa­nies in the world. But equal­ly there are some juris­dic­tions where the stan­dards are too low. This cre­ates dis­trust and a lack of will­ing­ness from oth­er actors in the ecosys­tem to work with organ­i­sa­tions that don’t have a hygiene fac­tor.

BW: The fin­tech indus­try has gen­er­al­ly sought stan­dards, includ­ing in a self-cer­ti­fied man­ner when exter­nal stan­dards are not avail­able or reg­u­la­tion has not adapt­ed suf­fi­cient­ly. There is a need for indus­try bod­ies to devel­op stan­dards in those sce­nar­ios. We’re get­ting to a point now where we’re begin­ning to see bet­ter sup­port by more cen­tralised reg­u­la­tion, which should move the indus­try for­ward.

As we look to a post-COVID world and a Brexit Britain, what is the future of fintech?

EP: We have all the ingre­di­ents in the UK around access to tal­ent and we need to make sure that’s front of mind with respect to Brex­it. We have increas­ing lev­els of domes­tic cap­i­tal and huge amounts of inter­est inter­na­tion­al­ly in terms of scale. Suc­cess between fin­techs and the larg­er estab­lished finan­cial insti­tu­tions is about cre­at­ing the bridge of tal­ent both ways and remov­ing fric­tion from the process of part­ner­ing. 

BR: COVID is a stress test and mar­kets are cycli­cal. The UK is very well posi­tioned. I don’t think Brex­it nec­es­sar­i­ly is going to impact that at all. From a cul­tur­al per­spec­tive, peo­ple like the UK. It has that exist­ing tal­ent base and it now has an exist­ing hub of fin­techs. There’s so much inno­va­tion already in place. There’s a rea­son why we chose the UK and why a lot of oth­er lead­ing fin­techs do too.

NS: Access to tal­ent is super impor­tant. We may have a lot of tal­ent now, but we have to make sure we hold on to it and fos­ter it, and that our mar­ket can work with oth­er mar­kets. We don’t want the UK to be a great place to do busi­ness, but sole­ly in the UK and not oth­er juris­dic­tions. If we want to grow tal­ent with­in the UK, we have to start at the grass­roots lev­el.

BW: There are a num­ber of ini­tia­tives now around STEM [sci­ence, tech­nol­o­gy, engi­neer­ing and maths] and push­ing peo­ple towards more employ­ment in tech­nol­o­gy, but there is a lot of catch-up work to do. I’d also like to see much more done around ensur­ing that home-grown pool of tal­ent at the very ear­ly stages is tru­ly diverse. Then, when they come through the edu­ca­tion sys­tem in the next five to ten years, we have ever-increas­ing diver­si­ty in the finan­cial ser­vices sec­tor. 

For more infor­ma­tion please vis­it www.dlapiper.com/sectors/financial-services

---