UK FinTech: Life after Brexit

Eight weeks ago I wrote Part 1 of this post called #Brexit good for UK #FinTech and got an overwhelming response - mostly abuse! I had to double check my post to make sure I hadn't inadvertently insulted somebody's prophet or, worse, suggested again that Bitcoin is just an over-hyped big waste of electricity! Turns out I simply held a controversial and, what I thought at the time to be, minority view.

Then something interesting happened. In my role I have the privilege of speaking at a lot of FinTech events around the world and for the past few months the conversation tended to turn to #Brexit. Publicly folks were quite vocal about their brexit concerns but privately (for Europeans) they were rather envious of the UK being given the opportunity to decide and mostly saw brexit as an opportunity for the UK if handled correctly.

When I pressed for why they weren't blogging/posting that view it was one of self-censorship. Folks working for big corporates and larger startups were understandably concerned about making public remarks for fear of being quoted and contradicting the (usually Remain) party line of their leaders. Secondly the brexit camp has been consistently badged as a bunch of bigoted loons so they didn't want to be tarred with that brush!

Three decades of automated payments – but what next?

In 1986 Barclaycard was the first payment provider to introduce Process Data Quickly (PDQ) technology, which allowed in-store transactions to be processed faster and more securely than ever before. I joined Barclaycard in 1972 and was working in the Business Research team when we embarked on a huge project to transform how retailers take and consumer make payments.

Before PDQ technology was introduced retailers relied on “zip tap” technology, which involved taking an imprint or carbon copy of a customer’s card to create a voucher, which was sent to the appropriate bank to process. This system was not only admin heavy but also susceptible to human error and with ever increasing volumes desperately in need of modernising.

Taking a holistic approach to anti-money laundering

Despite the raft of regulation and legislation that has hit the financial market post 2007, it is one of the most mature regulations – Anti-Money Laundering (AML) – that is arguably now having the most significant impact on a bank’s global operations. The problem is not simply the sheer scale of the fines now being imposed – although at billions of pounds, the most recent fines have actually driven banks into red. Instead the issue is the shift of regulatory focus: regulators no longer feel the need to prove bad practice; a belief that an organisation’s AML procedures are not adequately robust is now enough to incur a penalty.

This shift in regulatory approach combined with each country having a slightly different take on AML has created a tangible lack of confidence within the majority of global institutions. As a result, growing numbers of banks are actively walking away from what could be good business with potential new customers and other banks simply because of the potential risks identified by auditors. Without better AML procedures entire global expansion strategies are being jeopardised.

How FIs can transform to ride the digitalisation wave

Banks and insurance companies that are able to transform themselves will be well placed to benefit from digitalisation. However, most companies remain unprepared.

According to a 2015 pan-European survey by Arthur D. Little, financial institutions are less adapted to digitalisation than the cross-industry average. Although most companies have undergone considerable investments in order to update their IT capabilities and architecture, other key functional aspects are lagging behind, organisation being one of the most critical ones.

Beware of toxic unicorns

In the spirit of “coopetition,” High Street banks are cozying up to FinTech startups, but the prospect of partnering with a “toxic” one looms large. Rather than try to compete directly with disruptive startups, banks are making decisions whether to partner with, or even buy, these ventures that offer a quick way into true innovation, whether in payments, blockchain or lending.

No one doubts that FinTech, together with blockchain, is one of today’s hottest topics in financial services, with dozens of startups in London alone. Of those to make the FinTech50 list this year, 29 were in London. Most have been around for just two to five years. The lucky ones that reach the magic valuation of $1 billion are known as “unicorns.” Their products range from payments to mortgage lending to bond market social networking, and most have solid backing by venture capital. A staggering $13.8 billion in VC was invested in FinTechs last year, up from $6.7 billion in 2014, according to a report by KPMG and CB Insights.

GFRC: Bringing critical functions together

Post-mortems of the financial crisis concluded that certain practices had infected banks with a near-fatal case of myopia. Each segment, or silo, within an organisation – whether a business or product line, geographic jurisdiction or category of risk – was the master of its own limited domain; no one was clearly and unambiguously responsible for assessing the big picture as far as risk and performance were concerned. A holistic approach to Governance, Finance, Risk and Compliance (GFRC), can help banks looking to combat antiquated organisational structures and technology, adapt to the new regulatory landscape.

Foremost among the responses to the financial crisis was Basel III, the governance guidelines proposed in 2010 by the Basel Committee on Banking Supervision, revised and expanded since then and in the process of being implemented worldwide. Beyond Basel III, institutions must contend with European Union initiatives, including the latest iteration of the Capital Requirements Directive (CRD IV); the Markets in Financial Instruments Directive (MiFID), for investment services; the European Market Infrastructure Regulation (EMIR), covering derivative instruments, etc. Firms are also implementing principles revised by the International Accounting Standards.

Keeping the customer front of mind

Banks have focused their efforts on trying to create and launch products that will generate revenue for them but have forgotten the essential element to making a product successful; the customer. FIs must invest in innovation, but only if the intended product seeks to serve the customer. 

In keeping the product customer-focused it creates a need amongst customers and ensures that the offering becomes a necessity when they’re conducting everyday transactions. When a bank brings a product to market that actually solves real problems, it will ultimately become a new revenue channel.

Is Google right to single out the payday lending industry with its adword ban?

Google famously included ‘do no evil’ in its original mission statement published in 2004, a bold claim that has caused continuous debate. In 2015, it decided to drop the motto from its code of conduct in favour of ‘do the right thing.’ While this new wording is a little more open to interpretation, it shows that there’s still a place for sound business ethics in the increasingly powerful, more profitable Google.

Recently, Google has turned its attention to payday loan providers, announcing that, from 13 July 2016, there will be a complete ban on all Google ads promoting loans that have to be repaid within 60 days. In the US, the ban extends to loans with an APR of 36% or higher.