Despite the emergence of blockchain, the rise of InsurTech, and more corporate VCs entering the market, the biggest FinTech trend of 2016 is the potential impact of the Brexit vote according to Innovate Finance’s Lawrence Wintermeyer.
2015 saw a record year for VC-backed FinTech investment according to The Pulse of FinTech, the quarterly global report on FinTech VC trends published jointly by KPMG International and CB Insights.
FinTech jumped to the forefront of technology investing in 2015, with global investment in FinTech companies totaling $19.1bn – a 106 per cent jump compared to 2014.
Wintermeyer told FinTech Global: “The big trends which started in late 2015, and have taken more of a centre stage in 2016, are blockchain and distributed ledger technologies, which represent solutions for the broader back-office or identity management.
“Financial inclusion has been very big in making sure that, from a retail perspective, that products and services are being designed and are reaching people that wouldn’t normally be benefiting from financial services.
“That is everything from making sure SMEs have access to lending and funding on platforms, right down to those who are un-banked or outside the eco-system – that was big around the diversity trend which emerged last year.”
Another trend noted by Wintermeyer was the addition of corporate venture capital entering the sector alongside traditional venture capital, resulting in increased overall investment in FinTech.
Over the past few years London has been seen as the ‘FinTech capital’ of Europe, despite the emergence of competitors such as Amsterdam, Stockholm, Berlin, Helsinki, Prague and Copenhagen.
However, on June 24th this year London’s future as a leading global FinTech hub was plunged into doubt as Britain voted to leave the European Union.
Impact on London
Wintermeyer said that Brexit has been the biggest shock in the city since the financial crisis in 2008 and the question lies in how will it affect FinTech.
He admits it is too early to tell really, but following the vote Innovate Finance’s members have had three big asks.
“Our startups’ members say it is important for them to still be a member of a single market, it is important for them to retain financial passporting rights, and important to maintain access to FinTech talent. Those asks, in the context of Europe, are similar to what the banks are asking for and what most trade organisations are looking for.”
“However, most UK FinTechs are domestic and don’t deploy passporting – some of the payments firms do, but broadly Brexit is probably more of an opportunity to many FinTech verticals.”
Those who are affected by passporting rights are pretty agile and would just move or set up their corporate office somewhere else in order to maintain their rights, he added.
“The issue for FinTech is if, as a result of Brexit, you can’t access global talent. FinTech talent is particularity important because 30 per cent of our own founders or funders in the startup space are not British.
“As a capital city, London attracts a lot of professional foreign workers. If that is at threat at any point in the future, it may affect FinTech views on whether it has to move.”
Following the vote, one of the biggest thing people are trying to work out is if, and by how much, investment has slowed down for UK FinTechs, if it has at all. Wintermeyer added, “There is still signs of deals going through, but it comes down to whether or not it is really foreign investors, particularity European and US that have taken a wait and see view.
“The issue is whether or not, from a macro perspective, foreign investors look at the UK as a less attractive place to investor because of the vote.
“I don’t think this is a FinTech-only issue. Smart money generally has a wait-and-see attitude so the signals are still for the UK that some money may be sitting on the side-lines until there is a bit more clarity and that clarity comes on a weekly basis, but there is some way to go.”
FinTech Challenges
Discussing the potential challenges that FinTech start-ups face in today’s climate, Wintermeyer made it clear that if you’re are talking about all startups, the biggest challenge still lies in getting capital and getting the talent you need to do the work.
Wintermeyer added that it is important to consider the challenges in different verticals.
“The biggest challenge for P2P lenders is the ability to get through a full credit cycle and still demonstrate that you can earn money.
“The challenge for P2P lending for SME segments is that you actually engage the SME community, which appears to be underserved by the full universal banks.
“If you are in robo-advice or personal financial management the question is: do you have an adoption model and a product that is attractive enough to get clients on quick enough, to get to scale, and make money?”
Broadly the challenge of FinTech is the same as any tech, can the startups raise enough money to get to critical adoption points.
However, FinTech startups operating in a regulated space need deeper pockets because regulation in highly regulated industries costs money.
“Regulation is a big challenge. In terms of barriers, if you’re a FinTech and you need to be regulated, regulation is generally the costliest area of investment that you need to put money and management time aside for.
Wintermeyer says that is why the UK has been so attractive, and the FCA is so attractive to the rest of the word.
“The UK is seen as the rest of the world as almost world class, both from the regulatory perspective and how the community has come together to help accelerate and get light-touch regulation in place and reduce the cost of getting authorised. The UK is the FinTech Sandbox of the planet, and I think that this remains very important to the UK’s narrative.”
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