Defining FinTech: Lifting the lid on financial tech

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By Toby Young, CTO at Ebury


If you asked the question, “What is Fintech?” many would answer the same way.

FinTech is still often described as a new phenomenon; a disruptive innovation challenging traditional financial services, if not professional services more broadly.

The image FinTech conjures is likely a skinny-jean wearing, round glasses, bearded coffee drinker tapping away on a laptop in a Silicon Roundabout garage or coffee shop.

For some this is true. For me, for Ebury more generally, and for many within the FinTech sector this is far from our reality.

Beyond the fact skinny jeans are not necessarily my style and I can’t pull off a beard, FinTech has – at a rather rapid pace – evolved into something much more established and complex.

FinTech has morphed from the plucky upstart into an important player in the world of finance, though still retains the innovative character that has defined its success so far.


Banks and FinTech – rivals to allies

The changing attitude of traditional banks to the sector exemplifies this shift.

Although originally dismissed, the success of FinTech ruffled the banking sector’s feathers, causing them to channel their efforts to try to compete with the growing popularity of FinTechs in the UK.

Realising that the agility and pace of innovation of FinTech could not be challenged by the organisational structure and slower processes in place at banks, they instead adapted to become powerful exponents of FinTech.

This trend is borne out by the figures. Banks are now thoroughly involved in this change, through investment, seed funding, acquisition and partnership in the FinTech space.

According to EY, one in seven consumers already use FinTech products and the same fraction of consumers intend to start.


The rise of the specialists

For the most part, the approach of FinTech firms has also changed.

Many of the most well-known, and some of the earliest, were in the peer-to-peer space.

The UK Government got behind some of the best-known peer-to-peer lenders to help ensure their success, while their mass market audience drove awareness.

But FinTech is much broader than just peer-to-peer. What has characterised success for FinTech is a focus on a specific aspect of the sector rather than aiming to be broad with their offering.

For example, firms specialising in payroll services alone have tended to enjoy greater success than those which have taken a ‘jack of all trades’ approach.

We’ve adopted this specialised approach. We identified a specific audience – small and medium sized business. We identified a need – these businesses were not able to access the services afforded to large companies by the traditional banking system.

We work with our clients to build our financial services to solve their specific needs, and do this by being obsessed with obtaining a deep understanding of the characteristics and sectors in which our customers operate.

Technology is central to our success and it is not just the engine behind our core intellectual property, we also use technology across the whole business stack from fuelling sales acceleration to predictive analytics for retention management.


Putting the tech talent in FinTech

However, companies who specialise still face challenges.

Finding the right talent to help a company grow and flourish can be difficult.

FinTechs often grow quickly. Scaling up without losing your agile structure and efficient management systems, while finding the right people in increasing numbers, can prove difficult.

Not all tech talent is in London, and where there is talent, it can be very expensive.

There is, however, a great deal of skill dispersed across Europe, and often where you’d least it expect it. While most UK readers will think of Malaga as an idyll of palm trees, beaches and cocktails, there’s actually a thriving tech scene from which we’ve successfully recruited. Accordingly, we’ve made Malaga the home of our development centre. And we can assure you, the only time ‘cosmopolitan’ comes up is when we’re describing our workforce!


Future challenges

The million bitcoin question is whether the new normal between FinTech and banks will be an atmosphere of collaboration rather than one of disruption.

In my opinion, the atmosphere of collaboration is already here. Successful FinTechs will only enhance the offering of London’s financial system and the experience of its customers.

There is no end date on new innovation. New services will continue to spring up and banks will look to learn from them. Ideally, this will lead to improvements in their provision of bank accounts, which will continue to be the core offering of banks for the foreseeable future. There will always be room for FinTech firms.

One of the most important things to get right is compliance and, in this sense, the challenges faced by FinTech are similar to those of banks.

Across both these interlocking and interrelated industries, compliance is now king. The sector needs to collaborate to bring about a high standard of compliance for example in KYC and AML and acknowledge the risks.

As ever, technology is part of the solution to this – the advancements in comply-tech and reg-tech will highlight risks and smooth out processes, lowing the barrier of entry to the market of new FinTech products.

Regulatory advancements are also important here, PSD2 is a framework that will allow FinTechs to deliver services on top of Bank accounts in a highly secure and controlled environment.

What is clear, is that FinTech still has a huge amount to contribute; both to the wider business economy, and the individual consumer.

It remains a dynamic and flexible sector. Even as firms continue to embrace existing technology, more innovation will occur.

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