Charlotte Crosswell, CEO, Innovate Finance explains how fintechs are reshaping the financial services landscape.
What are the challenges facing the financial services firms and how can fintechs help provide solutions? Where are the biggest problems that need to be addressed today?
The challenges depend on the vertical you are talking about, but we are seeing constant advances in fintech adoption. For example, we have seen significant advances in regtech as banks want to have more compliance solutions that use technology such as AI. I think this will continue as we see support from government and regulators such as the Financial Conduct Authority who are looking at machine readable handbooks.
Not surprisingly, data and connectivity are also huge challenges. It is not easy to connect the pipes across countries because of the different regulations across regions. For example, the UK has adopted Open Banking in addition to the European Union’s Payment Services Directive (PSD2). As for data, the industry is constantly looking at data, but the challenge is how can they retrieve and fully maximise the impact it can have. There should be more focus on analysis of behaviour and how the ecosystem is changing. Take the insurance industry. In the past, people would look to purchase cars, but now they may lease them with insurance included, so insurance companies may be disrupted with these changing trends and will need to better compete with each other and develop products that customers want.
What are some of the major trends in the fintech space – such as the move to B to B from B to C, partnerships between banks and fintechs, etc?
Fintech is not a magic bullet. Although this is often talked about as a decade of change, it is still a nascent industry and I think we are just at the beginning. That said, we have already adopted many changes. In the beginning, banks saw fintechs as disrupters and wanted to keep them at bay, but subsequently realised that they needed to become more innovative or they would risk losing out. They started out buying fintechs, or supporting innovative start-ups, in order to keep a competitive edge. However, today there is a real focus on collaboration and partnerships to solve some of the problems. They may be off a bank’s balance sheet but their solutions are being embedded within the organisations, which is a more efficient way than the banks building it themselves.
London just overtook New York for investment – what are the reasons and are there concerns that this could change if there is Brexit?
Our research showed that London overtook New York in a ranking of cities that attracted the most funding for financial technology firms. The city’s fintech sector attracted 114 deals worth a combined £1.6bn so far this year, which was ahead of New York’s 101 deals, which were worth £1.5bn. The attraction of the city is that it is a major financial centre, has a deep technology talent pool and supportive regulation.
In terms of Brexit readiness, fintech firms in the UK are getting on with business as usual and have spent time and money preparing. fintech companies are nimble and can respond quickly, although the longer it drags on it creates uncertainty, which is never good for any business. We did some analysis this summer and found that 43% of respondents believed passporting, cross-border transactions and servicing EU clients will be the most affected areas by Brexit, while 17% were considering moving to a different jurisdiction. 23% wanted additional information from government about trade. They would also like more information on how data sharing across borders would work.
What role can Innovate Finance play?
We have been in regular communication with the government and regulators over the past weeks and months, so that we can help our members navigate through this situation and provide information and education. Our role is also about promoting the UK sector internationally. I do not see any reason why fintech business should not stay in the UK. The country has embraced financial services innovation and fintech and I think it is in a unique position. Not only does it have the talent and a major financial services centre, but also importantly, government and regulatory support. We do not just have fintechs sitting around our table but also investors, regulators and government ministers.
This is not the case in other countries which only have the fintechs. There is also a greater understanding in the UK about the industry as a whole. In the US, for example, the West Coast knows about tech and investment but not necessarily about fintech, while the East Coast and Wall Street will understand the benefits of fintech.
How is your Innovate Finance Women in FinTech Powerlist helping things move forward?
One of the problems is that fintech is a male dominated industry, often born from financial services and technology. The latest statistics show women account for 29% of total employees in the UK fintech sector, but only 17% are senior executives. Our own research has shown that female founders continue to struggle to raise capital. Only 3% of venture capital investment in the UK in 2018 went to fintech firms with a woman founder or co-founder. And this is despite the fact that female backed businesses are typically more successful than male backed ones, both in terms of revenue and return on investment. One of the problems is that many women struggle to get in front of venture capitalists, which are largely led by men. We are trying to create networks that create more warm introductions for women, and the ability to tap into a person’s personal networks.
Things are changing, but not fast enough. When the Women in FinTech Powerlist was first launched in 2015, there were only 100 applicants. Last year we were given 1,200 names. The Powerlist showcases 150 women in the industry, with 35 standout females selected by a judging panel. It aims to raise the profile of women in the industry, but making it onto the list is not just about launching a company, it’s also giving back to the community and making a real impact over and above their day-to-day role in fintech.
There is also a war for digital talent. How can the UK better develop the skillsets needed? Can you tell me more about your FinTech for Schools initiative project?
We definitely need a better skillset in the industry, whether it be coders, data engineers or scientists. Again, it is about collaboration and getting industry to work together with schools and universities in terms of how the curriculum should change. It also means talking to careers officers and teachers and explaining the careers and skills needed for jobs in these areas.
We launched the FinTech for Schools initiative earlier this year to help young people better understand how they may interact and use fintech, as well as the increasing importance of digital skills in the workplace, with a focus on making the sector more attractive to girls. We bring in founders to talk to the students about the types of jobs available in the sector, about innovation and the need for more of them to learn STEM skills. But we also focus on how digital solutions can be applied to every day financial issues and how they can use them. For example, around 16 million people in this country have less than a hundred pounds in savings and many rely on payday lenders as their only source of funds when they don’t think banking can help them. We show them how fintech companies can help solve these problems and give more businesses and consumers access to a wider set of financial products.
Charlotte Crosswell is the CEO of Innovate Finance, the UK membership body representing the fintech industry. She has spent most of her financial services career in market infrastructure roles. Prior to joining Innovate Finance, Charlotte was Founder and CEO at two Nasdaq owned London start up exchanges in equities and fixed income, and sat on the board of LCH Ltd. She has held a number of management positions at Nasdaq and London Stock Exchange across international capital markets, equities, fixed income, OTC derivatives trading and clearing.
Crosswell also sits on the boards of government fintech advisory groups, technology companies and fintech start-ups. and has been working with technology companies throughout her career. Charlotte holds a BA (Hons) in French from Southampton University. She has been included in the list of top 100 Women in Finance over many years.
©Best Execution 2019