Why fintech for good is spreading its benefits across Scotland's economy

£2 billion UK financial technology sector is booming north of the border.

Fintech as a sector has seen an enviable amount of investment in recent months, something that is continuing to grow despite the uncertainty caused by Brexit.

In 2018 investment within the sector in the UK more than trebled from the £685.3m raised in 2014 to almost £2.4bn in 2018. That took the total raised by UK-based fintechs to more than £7.6bn in the 2014-18 period. 

In Scotland much is made of the fact that the number of fintech businesses has already grown to more than 100 in a relatively short time but Alan Nelson, a partner with law firm CMS who specialises in tech, believes that understates the strength of the sector in Scotland.

He says: “The way it’s been marketed to a certain extent does create that coherent group of about 100. I believe that’s a bit of a mis-definition and if you actually look at the opportunity it’s probably bigger than that.”

He goes on: “For me you have to look at fintech in Scotland as a bit of an ecosystem. You can talk about fintech as being a pure technology company but what is more important almost and what is creating more jobs is when you’ve got companies like Barclays coming in here. They’re going to have 5,000 people in Scotland, many roles of which will be technology-related.

“Then you’ve got JP Morgan, Morgan Stanley, Virgin Money, all relocating jobs up to Glasgow. So its locating new jobs and new roles in Glasgow as well as Edinburgh, the strength it has there, plus places like Fife and Dundee where you’ve got massive amounts of business coming in and sometimes it’s established financial services business and there’s huge growth in jobs in technology in these businesses as they all become tech-centric. So you’ve got that and you’ve got these 100 fintech businesses which is a pretty impressive number now.

“Within the technology vendor side you’ve maybe got two or three really large players. You’ve probably got 80-90 small players and then there’s the bit in the middle, which is probably missing a bit. The companies might employ a couple of hundred folk or 50 to 100 people, there’s not that many of them yet and I think that’s where we need to work a bit to get a few more success stories.”

 

Those success stories and the spark that leads to the creation of new businesses comes from the way we live today says David Anderson, a partner at Addleshaw Goddard: “We’re living in a convenience economy and today’s customers expect services that are intuitive, easy to use and available 24/7.”

But Anderson says that while the ideas are there fintech businesses need to get the business fundamentals right and make sure that the customer base and the business model is there.

“Fintechs are already pushing the envelope when it comes to personalisation and functionality, attracting a tech-savvy, often younger audience and yet without an established customer base or, frequently, a profit-making model, resources can become stretched, putting pressure on the viability of a business.

“We’ve seen some promising start-ups struggle this year underlining the trade-off between a customer-led and resource-intensive approach and profit.”

That said, Nelson at CMS says that an important factor of the growing fintech business community in Scotland is the ‘fintech for good’ sector. “One of the interesting things about Scotland that’s quite unique and a little bit unusual is that some of the fintech businesses have a bit of a social purpose about them. There are about for our or five of them that could do different things that allow people to access to funds or allow them to manage their money in a better way, in a socially, ethically responsible way. Just to allow people to have a bit more control over their money. I suppose that picks up a it on the Presbyterianism that Scotland had in the past and also a bit of a charitable theme that’s now very popular with business. That’s a very interesting angle about fintech being a force for good in society as well.”

The businesses in this sub-sector include Castlight Financial, a Glasgow-based business that provides an affordability tool; MoneyMatiX, a Livingston-based fintech that aims to boost financial wellbeing; Soar, which provides technology for credit unions and other non-profit organisations and Money Dashboard, which is probably the most successful to date of this sub-sector with a couple of million users.

Loral Quinn is the co-founder and CEO of Sustainably, one of the notable Scottish fintech for good companies. The Edinburgh-based business she set up with her daughter Eshel is developing a range of fintech products aligned to the UN sustainable development goals which include a focus on poverty, hunger, education, peace and justice, climate action, decent work and economic growth.

Quinn explains: “We’re trying to create a really simple way for businesses and individuals to have a positive impact as part of everyday life; so it’s not a separate thing that you’re doing.

“The products we are building are about using good causes to deliver that impact so we’re building a range of products that will enable you to do good when you shop for example.

“We get your retailer and your employer giving to what you actually care about. There are a lot of problems in the world and people don’t have simple ways to address those problems and neither do businesses nor the retailers that are dealing in those spaces. They are very much using their corporate social responsibility programmes to meet certain impacts that they want to have but they’re also using it to engage their employees and their customers. At the moment if you look at the overall landscape we have these enormous challenges, and the way those challenges are being approached is through non-profit organisations and charities.”

Quinn says that in the UK cash still accounts for 50 per cent of donations but she points out that the use of cash is diminishing. Payroll giving only accounts for two per cent so there is, she says, currently a massive discrepancy between what could be achieved as against what is being achieved. But this is not just an issue for the UK - there is also a huge need to be met in the US. She says that that $10m goes in corporate unmatched giving in the US alone each year. “That’s basically money that businesses want to give to their employees but their employees are accessing that with requests for causes to be donated to,” she says.

She also points out that £7bn in loyalty rewards goes unclaimed each year in UK loyalty rewards. “Think about what could be done with that if it was activated in a really simple way. So we’re trying to get all that money and put it towards changing significant things.

One of the products we have uses open banking, uses live transaction data so that people can give to a cause they care about by rounding up their spare change and we do that automatically for them.”

This is not only attractive to individuals who want to see part of their money used for good but for businesses to engage with their customers and to target their corporate social responsibility in a way that is more relevant to their customers.

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Quinn says: “From a business perspective it means that a retailer for example gets visibility because at the moment they are spending money on things people don’t see and secondly if they do see they often don’t care about it. So this flips it around, personalises it and localises it.”

This is another key element in the growth of fintech, As Anderson at Addleshaw Goddard says: “The major retail banks have an established and loyal customer base and are working hard to establish their own digitally-led offerings and invest in fintechs to ensure they are exposed to the cutting-edge customer experience.

“Particularly interesting is the move by major technology companies into the financial services market – not only do they have a loyal and established customer base, but they are also well-equipped for a digitally-led and personal approach to financial services. In the case of Apple for example, the phone already in many of our pockets is a recognisable UI resulting in a very low barrier to entry and a familiar customer experience.”

 

Source: Insider.co.uk