Innovation and competition in financial technology - Fintech: promoting innovation

Posted on the 29th March 2016 by Hamish Anderson in Founders' blog

Innovation and competition in financial technology - Fintech: promoting innovation

As part of a conference on “The Impact of Competition Powers on Financial Services” I took part in a panel discussion. While the conference’s theme was predominantly legal (it was hosted by Norton Rose Fulbright and attended mostly by lawyers) the theme of my panel was  ‘Fintech: promoting innovation’. The connection here is that fintech represents a serious competitive threat to established financial services companies, and most fintechs will have experienced anti-competitive behaviour from the incumbents

The panel consisted of Giles Andrews, the co-founder and chairman of Zopa, the world’s first peer-to-peer (P2P) lending business, Peter Behrens, a co-founder of Ratesetter, one of the UK’s largest marketplace lending platforms, and Mike Laven, the CEO of Currency Cloud, a cross-border payments provider which services a number of fintech companies. Giles, Pete and Mike are old hands (in the nicest possible way) at panel discussions like this, so it was interesting for me to compare their views with my impressions as the founder of a comparatively new B2B fintech company.

The panel chairman, Guy Lougher, who runs the EU Competition Team at Pinsent Masons, led the panel through a debate which ranged from the nature of innovation in fintech, to the way in which the banks and established financial institutions are responding to the new wave of digital competitors.

I drew the following conclusions from our discussion and the questions raised by the audience:

Innovation in fintech is about putting the customer at the centre of the process, and harnessing technology to deliver financial services in an elegant, appealing and engaging way.

There are three key drivers of fintech innovation – (i) a desire from entrepreneurs to do things better, (ii) a desire from customers for information and control and (iii) a desire from enlightened regulators to promote competition in a way which protects the customer.

People still trust the banks, but are open to alternatives. There is a willingness to move away from obtaining a range of financial services from a single provider to choosing ‘best of breed’ providers for specific services. There was a debate on the panel as to whether or not this situation could persist in the long term, or whether we will start to see services being drawn together again (through corporate relationships and technology linkages).

Fintech needs more control of its own destiny. Fintech companies are absolutely dependent on the banks for the tools which they require to operate (such as corporate and client accounts). The banks and incumbent financial institutions are also the custodians of the technology backbone and payment infrastructure.  Most fintech firms exist to cut the costs and raise transparency for the customers, so the financial incentive for the banks to work with them is small. Without access to accounts and to this technology, fintech’s ability to innovate is limited and may well be stifled completely.

The overall conclusion I took away from the panel discussion was Fintech’s impact on financial services is still insignificant, and we won’t get the true measure of the nature of banks’ response to the challenge from new competitors until our market share has increased.

 

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