The FinTech Revolution

John Smith and Dr Felix Irresberger

About the Author Asset 28

John is a Principal Teaching Fellow and Director of Student Education in the Accounting and Finance Division. John is a Chartered Accountant practising professionally before a career change into accounting education. John’s article is written with Felix Irresberger, Associate Professor in Financial Technology Accounting.

From Leeds to London, Lahore to Lisbon, everyone is talking about fintech, or financial technologies. The financial sector is one of the last to be affected by technological disruption, behind industries such as manufacturing, the media, travel and recruitment, to name but a few. But it’s fast catching up. 

Rarely does a week go by without media hype about the next financial technology startup, or an analysis of the latest trends in this fast-moving sector. But if you asked someone to explain fintech, what would they say? Maybe they would speak about crowdfunding or Blockchain? Or perhaps that they like using PayPal or banking with Monzo?

Fintech is the global trend of combining new technologies with financial markets and mediation which is reshaping the global financial services industry. In essence, it has the potential to change the way we conduct transactions in all aspects of business.

On one side it can be about the reinvention of retail banking to provide customers with cheaper, easier and more efficient services via their smartphone. At another, it’s about statisticians collaborating with artificial intelligence (AI) experts and software engineers to design and build the back office systems which support these services. At yet another, it’s about peer-to-peer lending sites opening up competition for loans, thereby cultivating a culture of innovation.

Fintech is already part of the mainstream. Funding Circle, a UK-based platform that links investors to borrowers, floated on the London Stock Exchange in October 2018 with a valuation of £1.5bn – not bad for a business set up in 2010.

 

 

Opportunity or risk?

We can see the ways in which fintech advancements are benefitting both consumers and businesses. But the challenge will be how best to maximise the benefits and minimise the potential risks. Fintech critics have raised questions over data security and privacy, regulations and compliance, and untested datasets and forecasting. Financial regulators will undoubtedly have a key role to play as the fintech movement becomes increasingly integrated into our everyday lives, at breakneck speed.

 

Why roads point north

As a leading financial centre, it’s unsurprising that the UK – particularly London – is a global hub for fintech. According to government figures, the UK’s fintech sector was worth £7bn and employed around 60,000 people in 2017. There’s also a wealth of activity in the North of England. Research by Leeds University Business School shows that in the last five years more than 70 new fintech firms were set up in the so-called ‘Northern Powerhouse’ – which comprises the North East and North West of England, and Yorkshire and Humberside – and that they collectively raised around £700m in funding.

The City of Leeds is rapidly establishing itself as a fintech centre, with a critical mass of talent and expertise. This reflects Leeds’ position as the second-largest financial centre in the UK, with more than 37,000 people working in services including banking, insurance and building societies. Direct Line, First Direct, Leeds Building Society, Lloyds, RBS and Yorkshire Bank are major employers. There’s also expertise in important tertiary sectors crucial for fintech, such as law and accounting.

Location of Leeds on a map of the UK

These assets are combined with the city’s other strengths in data, digital and technology. There’s a sound digital infrastructure to support innovation and a steady supply of talented computing and engineering graduates through universities in Leeds and elsewhere in the North. The numbers speak for themselves: the 2018 Leeds Digital Festival was attended by more than 20,000 people.

Leeds’ fintech scene isn’t just about exciting startups: the city also serves as the regional base for a number of larger firms and there is immense talent working in or alongside the city’s existing financial services firms to see how technology could reinvent how they do business. A 2016 Leeds City Council report identified Blockchain technology, data analytics, InsurTech and future payment systems as areas of strength to build on in the city.

 

Transforming the financial landscape

Ultimately fintech innovations are helping companies and consumers to streamline their financial operations and expand their financial choices. Technological innovation in – and automation of, the financial sector is benefitting business by widening accessibility to financial services, reaching underserved consumers, reducing transaction costs, offering greater convenience and efficiency, and enabling better controls over spending and budgeting. Collectively these advancements can improve the customer experience, increase consumer confidence with increased regulation and allow better alignment of products and services.

The flourish of fintech startups can be characterised by one thing – disruption. The challenge is set for traditional banks and financial services to keep apace. But rather than simply investing in technology there needs to be a shift in culture. The landscape is changing, and the time for legacy systems and processes is over.

 

FinTech Adoption Rates Across 10 Markets

Average 33%

Fintech adoption rates across the market graph

*EY Fintech Adoption Index 2017

Find out more

  • Asset 25 Centre for Financial Technology and Innovation
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