Financial services and innovation (most often technological) are not always comfortable bedfellows. Heavy regulation can often inhibit new ideas and act as a barrier to their implementation. In 2015, the FCA consulted on this, putting out a call for input to regulatory barriers to innovation in digital and mobile solutions. Today, many governments are setting up ‘regulatory sandboxes’ that allow innovative start-ups to test out their ideas in a controlled, lightly regulated environment.
Fintech start-ups are benefiting from this approach. In the UK, the FCA’s
Project Innovate seeks to encourage innovation in the interests of consumers through a number of initiatives, including a regulatory sandbox and ‘
Innovate: engagement’, which specifically encourages fintech innovation in firms based in the UK and internationally. Hong Kong’s regulatory sandbox is called the ‘
Fintech Innovation Hub’; Abu Dhabi has the fintech ‘RegLab’; and Dubai has the ‘
FinTech Hive’.
42%
of adults in the UK use fintech applicationsConsumer appetite is increasing for the flexible solutions that fintechs offer. Figures from EY’s
Fintech adoption index 2017 show that 42% of adults in the UK now use fintech applications, compared with just 14% in 2015. Globally, the average adoption rate has risen from 16% to 33%.
A string of businesses have capitalised on this interest, blooming from spare-room start-ups into fintech unicorns – start-ups valued at more than $1bn – in a few short years. Some fintechs, such as crowdfunding platforms Crowdcube and Funding Circle, have become poster children for the sector and have had their stories well documented.
We spoke to a group of fintech entrepreneurs whose stories are less well-known, but who are making their mark by disrupting financial services, providing new opportunities to the companies they partner with and significantly improving customer experiences. They defined fintech for us, as well as discussing the wider state of financial services.
Lex Deak, CEO, OFF3RLex defines fintechs as any venture looking to innovate in finance. “There are very few new entrants that don’t require some element of technology in order to operate or scale,” he says.
“Within fintech there are aspects that are revolutionary. Clearly, blockchain and digital currencies qualify. On the other side, mobile and challenger banks feel evolutionary.”
Steve Polsky, CEO and founder, JuvoSteve is of the opinion that mainstream financial services companies must innovate, but keeping up with consumer demand is costly and time-consuming. By partnering with smaller fintech firms, he says, they can provide relevant solutions in a fast-moving market.
When it comes to defining fintech, Steve says the threshold is about impact. “It’s more than just refining an existing process with technology. A ‘fintech’ company is one that’s driving change for millions of people.”
Carl Reader, co-founder, TaxgoCarl defines fintech as any technical innovation in the financial sector. “I wouldn’t be surprised to see some of the most dated financial institutions adopting ‘fintech departments’.”
"It’s more than just refining an existing process with technology"He believes the changes triggered by fintech have been incremental. “We’ve seen improvements in financial technology over many decades, and I’m sure we’ll continue to do so. The revolutionary part is simply the pace at which the incremental improvements are now happening.”
Paresh Davdra, CEO, Xendpay Paresh says that the shift to open banking will be a gamechanger for the sector: “Payment companies built upon APIs (application programming interfaces), combined with blockchain technologies, will drive an integrated banking framework that will speed up payments across the globe.”
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