Fintech’s next chapter: innovation through collaboration

As the relationship between fintechs and incumbent banks becomes increasingly collaborative, four experts from the financial services industry meet around a virtual roundtable to discuss the evolution of the sector


Panel

Erin Platts, Head of EMEA and president of the UK branch, Silicon Valley Bank

Bradley Riss, Chief commercial officer, Checkout.com

Nicole Sandler, Head of digital policy, Barclays

Bryony Widdup, Partner, DLA Piper

What trajectory have fintechs been on and what impact has the coronavirus pandemic had on them?

BW: Fintechs have evolved over a long period, but the global 2008 financial crisis really kicked off the transformation of the financial services sector by allowing outsiders in. More recently we have seen fintechs shift from being outsiders to more mature companies engaged with all aspects of financial services. There’s been huge growth and a lot of learning along the way.

EP: The diversity of fintech companies being produced and scaled in the UK has evolved substantially. The support in terms of both domestic and international capital funding has created huge momentum. Even with the COVID-19 headwinds, there has been phenomenal performance, though it has driven some bifurcation, with capital and liquidity harder to come by for certain businesses.

NS: COVID-19 has definitely shown how important digital is, but it is really important not to have a knee-jerk reaction. Financial uncertainty has the potential to change habits across all society in looking for technological “safe havens”.  While this may hasten some of the debate and support for certain technological use-cases, there still needs to be a measured and strategic response.

NS: COVID-19 has definitely shown how important digital is, but it is really important not to have a knee-jerk reaction. Financial uncertainty has the potential to change habits across all society in looking for technological “safe havens”.  While this may hasten some of the debate and support for certain technological use-cases, there still needs to be a measured and strategic response.

BR: Customer centricity is really important. More broadly, there’s a generational change. Big banks were viewed as incredibly trusted going back 30 years, but the global financial crisis opened the door to new entrants into what were traditionally very protected spaces based on the perception of consumer trust. There’s also been a convergence with technology enabling these new business models to flourish. 

BR: Customer centricity is really important. More broadly, there’s a generational change. Big banks were viewed as incredibly trusted going back 30 years, but the global financial crisis opened the door to new entrants into what were traditionally very protected spaces based on the perception of consumer trust. There’s also been a convergence with technology enabling these new business models to flourish. 

How has the relationship between fintechs and more traditional players in the financial services ecosystem evolved?

BR: In payments, companies like Visa and Mastercard have approached innovation as an ecosystem. They don’t necessarily have to own innovation themselves, so long as they can help foster it, and some banks are starting to emulate that approach. It’s best to look at it as how to facilitate the journey you want to create for the end-customer. Sometimes it might be by flying solo, but more often than not it’s through collaboration.

EP: When thinking about the integration between fintech and financial services, we often defer to the consumer angle, but there is also a huge infrastructure and efficiency play. I think sometimes we underestimate the impact fintech can have on infrastructure transformation for large institutions, keeping them compliant and reducing costs.

BW: It’s really important for value creation, throughout the whole of the financial services sector, that the architecture and structural piece can be improved, replaced in parts and brought forward, both for cost and time efficiencies, but also in terms of the risk angle. There can be real improvements made through collaboration.

NS: People often ask, why is it so difficult for some firms, including incumbents, to collaborate? Legacy systems would have been a key reason in the past, but often, nowadays, startups will find solutions for that. For me, it’s been more about legacy thinking, though that is changing too. People have, in their mind, ways they should do things and who they should partner with. We have to collaborate because many of our challenges impact the industry as a whole.

The regulatory landscape in many ways has helped fuel the rise of fintechs, but how are we now seeing this change?

NS: You always have to ask, is your regulation fit for purpose? If certain players are not regulated, we know what could happen down the line. Regulation should follow a very simple principle: if you do the same activity and you have the same risk, you should follow the same regulation. If everyone had the same regulation proportionately, it would help the ecosystem, financial stability, competition and, ultimately, the consumers and investors.

EP: One of the big drivers of fintech in the UK has been the regulatory sandbox. Now other jurisdictions are increasingly innovative, how can we ensure we stay at the leading-edge so we’re not just attractive locally, but also supporting companies that start here to compete globally? I do buy into this concept of proportionality. If we can get it right, we will create better consumer outcomes and more of a level playing field.

BR: There is great value in a balanced approach. The Monetary Authority of Singapore and the UK’s Financial Conduct Authority alike have been very encouraging to fintechs and they’re being rewarded by attracting some of the best companies in the world. But equally there are some jurisdictions where the standards are too low. This creates distrust and a lack of willingness from other actors in the ecosystem to work with organisations that don’t have a hygiene factor.

BW: The fintech industry has generally sought standards, including in a self-certified manner when external standards are not available or regulation has not adapted sufficiently. There is a need for industry bodies to develop standards in those scenarios. We’re getting to a point now where we’re beginning to see better support by more centralised regulation, which should move the industry forward.

As we look to a post-COVID world and a Brexit Britain, what is the future of fintech?

EP: We have all the ingredients in the UK around access to talent and we need to make sure that’s front of mind with respect to Brexit. We have increasing levels of domestic capital and huge amounts of interest internationally in terms of scale. Success between fintechs and the larger established financial institutions is about creating the bridge of talent both ways and removing friction from the process of partnering. 

BR: COVID is a stress test and markets are cyclical. The UK is very well positioned. I don’t think Brexit necessarily is going to impact that at all. From a cultural perspective, people like the UK. It has that existing talent base and it now has an existing hub of fintechs. There’s so much innovation already in place. There’s a reason why we chose the UK and why a lot of other leading fintechs do too.

NS: Access to talent is super important. We may have a lot of talent now, but we have to make sure we hold on to it and foster it, and that our market can work with other markets. We don’t want the UK to be a great place to do business, but solely in the UK and not other jurisdictions. If we want to grow talent within the UK, we have to start at the grassroots level.

BW: There are a number of initiatives now around STEM [science, technology, engineering and maths] and pushing people towards more employment in technology, but there is a lot of catch-up work to do. I’d also like to see much more done around ensuring that home-grown pool of talent at the very early stages is truly diverse. Then, when they come through the education system in the next five to ten years, we have ever-increasing diversity in the financial services sector. 

For more information please visit www.dlapiper.com/sectors/financial-services


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