I started 2020 with a module on FinTech taught by Oxford University professor Nir Vulkan in London. Going into the module there was confusion in my mind about what FinTech entails. It appears the accurate description for FinTech is: “any company that provides financial services through software or other technology, and includes anything from mobile payment apps to cryptocurrency” (TheStreet). Our module was held in Shoreditch in East London which is famous for its artistic and trendy vibe. It reminded me of the Williamsburg neighborhood of New York which is far enough from the craziness of the city but close enough for a commute. To my surprise, Shoreditch has become quite the tech ecosystem in the London community and it was nice to be at the center of it all.
FinTech has gone through immense growth in the past five years despite challenges such as Brexit and trade tariffs. Nearly $100 billion has flowed into FinTech ventures since 2010 (CB Insights data). Retail banking catapulted FinTech to its current state since retail clients offer scale and enjoy interacting on their apps – very different to what the institutional clients want and care about as it relates to banking. During the module, my classmates and I had the opportunity to meet with creators and influencers from the London FinTech world which included TransferWise, Barclays Innovation, Seedrs, RegTec, and a Morgan Stanley board member who shared their thoughts on the future of digital banking. We also visited Level 39 which is home to many successful start-ups and is where Revolut started. If you don’t know already, Revolut is a highly successful FinTech start-up whose services include fee free currency exchange and commission free stock trading – the company is Revolut-ionizing the way we bank.
Here is a bullet-form summary of the insights I learned:
- FinTech disrupted the traditional banking market through simplicity, zero fees, and technology-enabled platforms via mobile apps.
- Goldman Sachs is calling itself a “tech company and a platform”. There’s a secretive tech fund inside the firm that is transforming the bank and yielding 25% return per year (CNBC by Hugh Son)
- Digital-only banks are moving from transactional services to full scale retail banking with a solution-based offering.
- Estonia, the birthplace of telecommunications app Skype, teaches school kids how to code as early as age 7.
- Here’s a random and entertaining capture by TransferWise of one of its highly satisfied customers at the London Pride: (More on YouTube).
- New sources of data are being utilized through use of big computers which has enabled analysis such as live satellite image subscription of WalMart parking lots to gauge consumer activity and health of its retail stores (Oxford-Man Institute).
- Find a real problem to solve and make sure the problem is worthwhile to solve (Lars Trunin, TransferWise).
- Post Brexit impact on Fintech was not as pronounced as expected given London’s culture of innovation and regulatory framework.
- One school of the thought is that FinTech start-ups are not the big threat for banks but rather its the BigTech companies (Google, Amazon, Facebook, and Apple who are making headway in several industries including shopping, cloud services and payments).
- Rise by Barclays is a global community of FinTech innovators with over 7,500 members and more than 150 start-ups.
- Algorithmic based trading and Machine learning has changed the landscape of the traditional noisy trading floor you might have experienced on Wall Street or seen on Wolf of Wall Street (the movie).
Though I believe digital banking is having a moment and challenging the big five banks in the United Kingdom, I don’t believe the likes of Revolut have the same wherewithal in the near future as HSBC or Barclays. If things go awry, the FinTech digital banks may not qualify for bailouts we experienced in the 2008 financial crisis which sheds some doubt about the stability of these futuristic banks. If you didn’t know already, when a bank in the USA goes bust, the Federal Deposit Insurance Corporation (FDIC) which is a government agency, insures depositors up to $250,000 in most cases. If your deposit is more than $250,000 then you may lose the excess funds. In the UK, that amount is £85,000 per individual, insured by the Financial Services Compensation Scheme (FSCS). So be careful where you put your money! Having said that, on a recent trip in Asia I experienced, for the first time, traveling cashless. I only carried £100 worth of tips that I distributed to hotel staff. Everything from ordering taxis, paying for food, and drinks was either through my phone or credit card – it was seamless, secure, and liberating.
TransferWise valued at $3.5 billion allows its 6 million users to hold money in more than 50 currencies and offers cross-border bank accounts. Lars Trunin, an Oxford alumni and executive of the company, emphasized use of minimum viable product (MVP) to test your offering; even using Google sheets rather than jumping into full blown product development. Trunin also mentioned how in Estonia first-graders are taught to code (Forbes). The small eastern European country wants its young to become creators and innovators. TransferWise received an endorsement from Richard Branson but the Branson charm did not possess the same cachet for the company’s German customers. In fact, German customers revealed that they would only obtain trust if the company obtained TUV certification. TUV is a German certification agency that inspects everything from cars to powerplants and thoroughly tests product excellence. If you are an owner of a German car perhaps you can relate. And TranferWise proceeded with successfully obtaining TUV certification. The experience helped TransferWise gain valuable insight about consumer preferences as it relates to trust across borders. The company also found that nearly 75% of its customers join its platform by word-of-mouth.
Here is the latest from the market on FinTech:
London is regarded as the ‘FinTech Capital of Europe’ and the sector has continued progress despite Brexit. Financial technology became the fastest growing sector in the London economy and recorded a circa 61% increase in job creation in 2019. The UK has always maintained a tradition of innovation which continues to attract local and international investors. In addition, the country remains the most welcoming place for FinTech companies given a friendly regulatory framework which helps the country maintain its position over its European counterparts (The FinTech Times by Peter Wood).
UK FinTech firm Azimo secured financing from the European Investment Bank. Azimo specializes in money transfer and competes with established players Western Union and Money Gram. The company raised $23 million in debt from the European Investment Bank (EIB) with plans to quintuple its current user base of 2 million over the next few years, and focus on expanding its presence in Poland. Company chairman Michael Kent touted the city of Krakow in Poland as “a bit of a fintech hub” where most of the technology for the firm gets built. The EIB has also provided financing for other promising start-ups such as taxi app Bolt which raised 50 million euros from the bank. Azimo’s CEO reaffirmed his commitment to the UK market post-Brexit calling the country “still the best tech ecosystem arguably in the world.” Azimo helps people transfer money in more than 200 countries at a fraction of the cost that banks charge. The company faces competition from players like TransferWise and Remitly (CNBC by Ryan Browne).
Beehive, a FinTech firm that provides a peer-to-peer lending platform to the Middle East and North Africa region is having a moment. The platform directly connects finance seeking businesses with investors who can support their growth. Beehive digitizes and streamlines the lending process for SMEs through use of its proprietary credit assessment tool yielding quicker access to low-cost loans and safer returns for investors. SME’s have used the platform to fund growth and create jobs in the region. The Beehive peer-to-peer platform is also the first Shariah complaint FinTech product in the world. The company reported 12,000 investor registrations who have invested $136 million toward funding needs of more than 500 businesses (Arab News by Noor Nugali).
With at least 1 billion unbanked people in Asia, FinTech has an opportunity to close the gap with affordable financial products. Ayannah, an affordable online remittance service for Filipino overseas workers processes close to 50,000 transactions per day. Acudeen is another Filipino FinTech that has secured several rounds of funding – the business purchases invoices of micro and small enterprises at a discount giving the businesses access to capital faster. Cropital is an investment matching platform that provides a bridge between farmers and investors and has helped provide funding to 700 farmers as at 2019 (Entrepreneur Asia Pacific by Apol Tokwator).
Australian FinTech sector will exceed $4 billion by 2020. In addition, the majority (71%) of FinTech companies in Australia are making money (EY FinTech Australia Census). “Switching costs and loyalty that once kept customers tied to traditional payments providers are weakening. Cultivating the best experience has become a necessity for gaining or maintaining market share,” says Lucy Liu, co-founder of Airwallex, a global payments network. “Earning platforms like Uber, Taxify and Airtasker are changing the way people earn money and this disruption needs fintechs to receive and make payments” added Liu. Funding in the Australian FinTech space has come from angels, VC’s, and family offices. However, large corporates like NAB Ventures have also started investing in the space in Series A opportunities. Mastercard’s ‘Start Path program’ is a global FinTech incubator similar to Barclay’s Rise (Financial Review by Alexandra Cain).
References: Oxford University, theStreet, YouTube, CNBC, TransferWise, Goldman Sachs, The FinTech Times, Arab News, Entrepreneur Asia, MasterCard, and Financial Review. Please note that this briefing contains paraphrased summaries and attributes the original content to the news sources. We encourage readers to visit the links to access the full article in its original form for a thorough and complete view. You may need to subscribe to the news agency and source for access.