Fintech campaign 2018 by Mediaplanet UK&IE

AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET JUNE 2018 UKFINTECH.COM HM TREASURY INFOGRAPHIC The UK’s fintech sector strategy P2

LUIS CARRANZA The growth of cryptocurrency and blockchain P4

CHARLOTTE CROSSWELL The fintech revolution in 2018 P6

Fintech

Who wins the FINTECH World Cup? Challenged to explain the big picture in a 15-minute interval of a World Cup match, I started: What’s the fintech game? Fintech refers to financial technologies applied to the financial sector. Technology in finance has been around a long time but what’s new, is that lots of new players enter the pitch who are changing the rules of the game. In the past, financial services were provided by financial services firms. The game was clear, all teams played along just fine, but the audience got a bit bored as nothing exciting happened. During the financial crisis, we learned that not everything within the financial sector was as rosy as it seemed. Scandals emerged, bribery, and corruption came to the fore. The conceit shocked the world. As a result, people lost trust and wondered if the finance game would ever be fairly played again. The established financial players faced regulatory pressure, improved their internal processes and controls and started to comply with new and tougher rules. Focused on internal issues and cost-cutting, incumbents lost sight

Susanne Chishti CEO, FinTech Circle

of what happened around them. In their blind spot, thousands of new players qualified: fintech start-ups joined the ‘fintech World Cup’.

What’s the strategy of the fintech startups? Broadly speaking there are two camps – the disruptive ones and the collaborative ones. The disruptive players consist mainly of “Business to Consumer” (B2C) fintech start-ups who market new financial products and services to individual clients or SMEs. They don’t mind fighting with existing players. They aim to convince people to move away from incumbents by promising a better customer experience, at lower cost and more fun. This fintech camp scored a big win early in 2018, when open banking and the Payment Services Directive 2

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was implemented. PSD2 crushes banks’ monopoly on their user data. PSD2 and open banking are game changers for fintech. On the other hand, the collaborative camp consists of fintech, wealthtech, insurtech and regtech firms, focused on selling to banks, insurance companies and asset managers. They are the genuine support squad for the existing financial players. These “Business to Business” (B2B) fintech firms can save costs, increase revenues and protect against compliance risks and fraud. So, these make up a very powerful support team. In the future, the leading banks will have platformbased business models surrounded by ecosystems of the best fintech players. They will pay millions to buy new players to be in the top league. Financial services firms are starting to choose their support squads now.

giants who are the leading players globally. The fintech World Cup currently would most likely go to China’s Tencent or Ant Financial.

Any other newcomers?

Sure; many left Canary Wharf and the City to join start-ups either as co-founders, as angel investors or as advisors/nonexecutive directors. Equally, you can play the fintech game within those banks, insurers and asset managers who have realised that fintech is the future and who are taking serious steps and investing in the best internal squad to move up the league tables. Will it be existing players, fintech startups or tech giants who win the World Cup in 2022?

The biggest threat for incumbents are another group of new players – the tech giants. They come with millions of loyal fans. On top of that, they are more experienced in advanced technologies and user experience design. It will be just a matter of time until Google, Amazon, Facebook, Apple offer a suite of financial services to their millions of customers over Google Home, Amazon Alexa, Facebook messenger and Apple’s Siri following in the footsteps of Chinese tech

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How does the fintech game work? How do you score? This depends on who you are: start-ups score initially by convincing investors to fund them. This capital is the “oxygen” that startups need to build their product and get market traction. Incumbents score by having a bold fintech strategy and partnering with fintech firms. The biggest challenge for existing players is that they are slow to assess opportunities, make decisions and roll out new products. Incumbents will only win if they can improve their culture, speed up decision making, empower “intrapreneurs” and explore new business models.

Can I join the fintech game?

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What the government is doing to meet the needs of the UK fintech sector Meeting the needs of the fintech sector Regtech: The UK regulators are exploring the possibilities for reducing the cost of regulatory compliance through the development of machine-readable rules. Two pilots will be in live production by the end of 2018.

Skills: To support fintech firms in accessing a diverse pool of talent, the Fintech Delivery Panel is partnering with Barclays to deliver a Connect with Work programme to find and recruit individuals that have the right attitude and skills to work in fintech companies.

Competition: Shared platforms can reduce barriers to small firms entering markets to deliver complex financial services. Later this year, a report, comissioned by the Financial Services Trade and Investment Board, will identify two areas where the development of shared platforms will be further explored through a collaboration between industry and government.

Partnering with incumbents: The Fintech Delivery Panel, in collaboration with the British Standards Institute, is developing a set of industry standards that will be published by the end of 2019, and Barclays, Lloyds Banking Group, HSBC, RBS and Santander have committed to implementing them.

Supporting international expansion: Australia fintech bridge was signed on 22 March, the Chancellor of the Exchequer helped to open up a new import market for UK fintechs. The government will invest additional resources in helping fintech firms expand into markets linked to the UK via a Fintech Bridge.

New opportunities offered by UK fintech Delivering the benifits of Fintech across the UK: Government has appointed three new fintech envoys to ensure that the whole of the UK is covered. Tech City UK is building a nationwide fintech programme in line with its new national remit as Tech Nation.

Harnessing the potential benefits of new technology: The government has established a cryptoassets task force consisting of HM Treasury, the Bank of England and the Financial Conduct Authority to further explore risks associated with cryptoassets and the benefits of the underlying technology.

SOURCE: HM TREASURY

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Teaching the next generation in fintech SPONSORED

The financial sector is an area of constant change and evolution. Innovative ideas, disruptive technologies and a shifting landscape mean that it’s a bold and interesting field to operate in. But in order for these new concepts and ideas to be of value, they have to be grounded in the real world. That’s what Nir Vulkan, Associate Professor of Business Economics at Saïd Business School, University of Oxford, believes. Passionate about supporting the next generation to enter this evolving and exciting world, he takes an approach that is rooted in both academic research and practical experience to offer a holistic learning opportunity for students. And the capital is at the heart of it.

London at the centre of fintech “London is a fintech hub,” he explains. “It’s important to actually be there. A big part of fintech is London. City meets technology. It’s not a coincidence - the two physically meet.” For this reason, participants studying on the programme within industry visit companies and meet with entrepreneurs, the Financial Services Authority, regulators, Innovate Finance (the government think tank started by David Cameron) and investors, to get an overview

Nir Vulkan Associate Professor of Business Economics, Saïd Business School

of the sector and where the opportunities lie. This approach is important as many MBA students go on to work in the sector, and the number of students in this area is a number that is only growing. Equal numbers are entering fintech as are

“London is a fintech hub, It’s important to actually be there. A big part of fintech is London. City meets technology. It’s not a coincidence - the two physically meet.”

entering investment banking, and this new area of the industry continues to develop. As a relatively new area of business, fintech has its challenges. As a cross section of two industries, and a mixture of technology and banking, it requires knowledge and enthusiasm for both areas. “Good fintech-ers understand both banking and technology,” says Vulkan. “I’ve seen examples of bad fintech and good fintech. Bad fintech is when there’s brilliant technologists with great ideas, but they don’t really have an appreciation of banking and the real issues, or you have banks who don’t understand technology, and they miss it. You really have to have an appreciation of both.”

Learning the practical implications of fintech Aside from working as a tutor on the MBA course and the school’s online programmes, Vulkan is a researcher and a leading authority on e-commerce, market design and hedge funds. As a researcher he explores ideas and asks questions that he describes as ‘academic,’ but they also have real world application - is it working; is it good; is it efficient? Practicality is important. The knowledge that is being taught has to be delivered within a standard finance framework. Vulkan gives an example: “The fundamental issue in insurance is that the insurers don’t know the quality or the riskiness of the person they are insuring. This leads to issues such as the raising of premiums or the wrong people taking out insurance. Technology can be used – wearable technology or the box that young drivers have in the car, for example – to communicate that someone has good health, is a good driver etc. These

things will come into the credit market in general and have the potential to address fundamental issues. If you can do that, you can create new value.”

De-mystifying jargon to understand the value of trends Vulkan isn’t fazed by buzzwords and fashionable concepts. “Blockchain is a technology that has huge potential,” he says, “but it needs to mature to be able to handle things at a fast-enough rate.” For example, contactless payments could be better using blockchain, but it’s not fast enough to be currently viable. “Where it can improve things, we will see new companies emerge to use it. On the online programmes, we try to explain what the advantages are but are also realistic about speed of progress.” Artificial intelligence is another case. “One of the things we try to do on the Oxford Algorithmic Trading Programme is make it less of a buzzword and talk more about the reality.” Algorithmic trading has been happening since the 80s in the hedge fund world. Now we see the rise of roboadvisors, who are bringing a little bit of ‘algo’ trading to the masses. The difference is not in the approach, but the application. “It’s just a tool available to start-ups. If what you’re doing requires algorithmic learning, then you can use it. What we try to do a lot on the programme is demystify it and understand where the value is.”

biggest disruption. Technology was always there but it was prohibitively expensive to do things such as set up a website to lend money to each other. That changed in 2007 when the regulator changed its mandate. This was the ‘big bang.’ Suddenly the gateway is open. Other governments have mirrored this, as they saw how it worked in London.” It doesn’t matter how good the technology is if the landscape it operates in isn’t understood. “What I teach needs to correspond to real issues that people have. If you can address that, if you can use technology to create something better, faster, cheaper, then you have a good business model.” Fintech might be trendy, but it’s not just a trend. “It’s an important economic phenomenon,” he says. In the same way that commerce was transformed by ecommerce – there was a big boom, but the dust settled, and a few companies emerged that transformed our lives. We will see a similar thing happen around finance. Of course, our studies are rigorous and good quality, but also open and exciting. We want as many people as possible to know about fintech – it’s an exciting thing to be part of. Francesca Baker

Technology must be accessible

For more information about the Saïd Business School, University of Oxford and their MBA visit sbs.ox.ac.uk

Vulkan says he doesn’t think that technology is the answer to everything. “The biggest change in regulation has caused the

For Online Oxford Programmes visit oxfordexeconline.com

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Blockchain is becoming more conservative Blockchain-based solutions provide means of transferring currency that are irresistible to investors. More and more sectors are adopting this approach. Blockchain is a rapidly evolving term. A decade ago, people threw the word ‘digital’ around in a similar way. Blockchain describes the way that bitcoin uses a distributed ledger (or, database) to create immutability and transparency, which removes the trust required from a third party in traditional data models. Using bitcoin – with blockchain as the backbone – the currency and the payment rail are intertwined without a central authority. This initial system inspired anarchists, libertarians and tech enthusiasts. Around 2015, enterprise began to take blockchain seriously and Ethereum emerged as a system that allowed for the creation of smart contracts. A smart contracts platform for a variety of uses and workflows was a novel ideal that further inspired large players to take notice. Blockchain labs and trials were everywhere; industry consortiums began to form and new “coins” began to appear. Then ERC-20, the futuristic-sounding code for a standard that allowed anyone to create a token, started to take off. Developers were able create new tokens overnight. Many did. Companies were able to launch new businesses by launching and crowd funding tokens. June 2017 to January 2018 was the Wild West of crypto-financing. Anyone and everyone got involved in the craze. Celebrities, crypto-big shots corporates and scammers were all fighting for attention. The regulators soon began to scrutinize the industry

Luis Carranza Founder, London FinTech Week

and the bar has continued to rise. Upwards of $40 billion has been raised by token offering since then. Today, fast-money ICOs (initial coin offerings) and ridiculous spikes in crypto-currencies have given way to a more mature industry that is more conservative. Institutional investors have outpaced casual crypto investors as drivers of growth. New token companies need to be more grown-up and spend a larger percentage on legal, marketing and actually building their products before they push their token wares. Security tokens are rising, and enterprise companies are starting to move beyond limited trials. The number of new crypto-companies continues to grow, and the public is starting to see the potential for blockchainbased solutions. The next wave of growth will evolve sector by sector. Energy, government,

marketing, real estate, consumer services and many other industries are pushing blockchain forward. We are a year or two away from early mass adoption. Overnight unicorns have enough funding to become tech giants. Many will fizzle, but some will rise. The winners of the token wars have the potential to define blockchain for the next generation. So, what is blockchain? Create the next big token and you could be part of the definition. Read more at ukfintech.com

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Why small companies provide big innovation for the finance sector

Fintech start-ups are hot property as financial services providers target fresh talent through venturing funds. SPONSORED

he financial services sector has seen a surge in innovation over the last 10 years. Take mobile banking, which has revolutionised personal finance; or contactless payments, which now account for the majority of debit card payments. “There has been an immense service shift towards digital technology and, crucially, mobile technology in financial services,” agrees Emma Huntington, who leads Innovation and Venturing at Nationwide building society. “We in the industry have to use new technology to respond to the changing behaviours of our members, to meet, and hopefully surpass their expectations and

Emma Huntington Innovation and Venturing Lead, Nationwide Building Society

needs.” Britain’s biggest building society has just launched a new £50m venturing fund that will see the mutual invest and partner with early stage start ups.

Start-ups are wells of innovation Every day, bank and building society employees in branches, contact centres and back offices are constantly discovering innovative ways to improve their systems and processes. But in the new world the pace of change has increased. The standards

are no longer set just within the financial services industry – so to ensure that established organisations continue to deliver against the pace of change they must look for new partners. This is why increasing numbers of financial services players are partnering with fintech start-ups: small companies who have ideas for transformative solutions, but need resources to either get them off the ground or develop them in any significant way.

Partnership is a two-way street “Small companies provide a well of innovation,” says Huntington. “They are home to very smart people who develop deep expertise around a particular technology, disruptive business model or customer solution — and we in the industry want to tap into that. “We also want to learn from them. We want to know how their innovations work and how they might benefit our customers and members. In exchange, we’ll

support them and help them to become more successful businesses. The best way to optimise these partnerships is through collaboration, ensuring that the benefit really is mutual.” For example, Nationwide Building Society, which, as a mutual was founded to improve the living conditions of ordinary people, is investing in acasa, a financial platform that supports tenants living in shared accommodation. But the investment is more than money; the building society will provide an experienced member of staff, guidance and expertise to acasa. This is the first investment of the society’s venturing fund, which will explore new partnerships that will deliver innovative products and services that could provide real benefits to the Society’s 15 million members

Collaborations must be chosen strategically The financial sector is always hungry for the next big tech idea,

but it’s important to invest wisely, warns Huntington. Start-up collaborations and partnerships have to be chosen strategically and undergo a strict due diligence process to ensure that both parties will make a good ‘fit’. “Any fintech start-up needs to be assessed against a range of factors. For instance: does their innovation make sound business sense? Is it going to work? Will it be scalable?” However, if this arrangement is approached with care, Huntington is excited about the future of fintech. “If we put our members at the centre of everything we do, I think we’ll see some amazing innovations – large and small – over the next 10 years,” she says. “That’s what I’d like to see the industry do — and what I think will happen.” Tony Greenway Read more on nationwide.co.uk

Unlocking bCommerce with Bitcoin Cash The birth of Sir Tim Berners-Lee’s internet ushered in a new dawn for commerce. Trade no longer had to be conducted in-person, and within 10 years, online buying and selling had become the norm; eCommerce was born. SPONSORED

ow, we face another inflection point. As technology and digitisation continue to drive an increasingly connected, borderless world, Jimmy Nguyen, nChain CEO, explores the rise of bCommerce (bitcoin commerce). Blockchain is driving efficiency in all areas of business, and every day, more people are realising the extraordinary benefits of cryptocurrency and its underlying ledger technology. I envision a new world where merchants from mom-and-pop boutiques to behemoth retailers use and accept Bitcoin Cash for instant, secure, low-fee and global transactions.

Merchant benefits Bitcoin Cash restores the true

Jimmy Nguyen CEO, nChain Group

“Every day, more people are realising the extraordinary benefits of cryptocurrency” vision of Bitcoin as an efficient global payments system for all. The original Bitcoin white paper described a “peer-to-peer electronic cash” system. Its transformative concept was giving people the ability to instantly

and cheaply send money directly to anyone in the world, without intermediary banks, payment processors or other trusted third parties in the middle. Transactions are recorded on the blockchain, with blocks of transactions added every 10 minutes. While the ‘legacy’ Bitcoin Core (BTC) chain remains limited by small blocks of only 1MB; that capacity only processes up to seven transactions per second. For context, the global VISA network averages 2,000, and peaks at 56,000 transactions, per second. The BTC chain limitations led to verification delays, transaction backlogs and cost high fees – often $20 or more – to process. Unsurprisingly, merchants stopped viewing BTC as a viable payment option. In August 2017, proponents of the original vision forked off onto the new Bitcoin Cash (BCH) chain, committed to bigger blocks (initially 8MB, now 32MB, versus BTC’s 1MB) and a massively scaled network. Scaling will continue as demand for BCH continues to

grow. Ultimately, one gigabyte (1000 MBs) blocks will enable 10,000 transactions per second. At nChain, we do not place limits on what is achievable, and believe one terabyte (1 million megabytes) blocks are viable on BCH. A single block of that size can contain four billion transactions and enable seven million transactions per second.

Benefits for merchants Bigger blocks allow the BCH chain to process transactions faster and for lower fees. Fees are paid to ‘miners’, who devote computing power to maintain the network. For comparison, around Christmas last December – a key landmark for trade and commerce – the BTC chain’s median fee was $30.00, versus $0.05 or less on BCH. Once digital wallets are reconfigured for BCH’s greater speed, fees could drop to $0.01 and lower. As a global cryptocurrency, foreign exchange costs are minimised, so for merchants operating cross-border, BCH enables

efficient, fast transfer of funds. The speed factor also enables merchants to receive payments without waiting for card transactions to clear, while suppliers and vendors can be paid quicker and more easily. Once a transaction is confirmed, the blockchain record is immutable, reducing the risk of fraudulent payments.

Point-of-sale systems need BCH integration nChain is working with others to achieve this true vision of Bitcoin. BCH wallets need to become more user-friendly. Merchant pointof-sale systems need BCH integration to enable mobile device payments. Sensible, clear government regulation can build more trust in cryptocurrency. 2017 saw Japan lead the way by recognising Bitcoin as legal tender, stimulating a surge in merchant adoption. With these keys, Bitcoin Cash is unlocking a new world of bCommerce. Read more at nchain.com

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What does

fintech

mean in

2018?

It may seem a needless question to ask; surely, fintech has infiltrated the mainstream finance conversation sufficiently to warrant universal understanding?

o longer a trending topic or buzzword, but a sector in its own right, fintech is improving financial products and services for everyone, everywhere. It is taking finance away from exclusivity reserved only for banks, insurance companies and elites, and redefining ways of working, servicing and consuming. With co-working spaces unable to keep up with the demand from technology companies, to better work-life balances, greater collaborations and consumer-centric approaches; the spirit of continuous innovation lies at fintech’s heart. Yet, if we are to apply the predictive power of Google to understand the general sentiments around fintech in 2018, just type in the search bar ‘fintech will...’ and see for yourself that it returns both: ‘...change the world’ and ‘...end in tears’. One thing is clear about fintech today and has been since its origins: it is not confined to a single output or outcome.

Power to the customer, powered by technology In 2018, customers are interacting with fintech solutions in ways they may not expect or even realise - be it through smartphones, apps, online platforms or social media. Thanks to fintech, you can jump on the tube using your phone, manage and consolidate your finances across applications,

Charlotte Crosswell CEO, Innovate Finance

“Google: ‘Fintech will...’

It returns both: ‘...change the world’

and ‘...end in tears.’

Fintech is not confined to one single outcome.”

send money overseas for less, receive payments through instant messaging, fund projects or businesses through connections or invest with expertise. We must continuously increase the adoption and awareness of new services. Fintech adoption more than doubled globally in 2017, reaching 33%, with the UK leading the way . Fintech in 2018 also leverages new technologies, such as artificial intelligence, machine learning, the Internet of Things, and the cryptocurrency and blockchain boom. Regulations like PSD2 and open banking have enabled the foundation for a new, more collaborative way of accessing financial services, putting the customer in charge of their own banking experience. Importantly, these advancements are further transformations to the customers’ financial journey and also provide greater operational improvements to the B2B fintechs powering the back-office revolution.

New sectors, outcomes and opportunities The word and world of fintech in 2018 now isn’t enough – insurtech, regtech and wealthtech have also come to the fore. Disruption is infiltrating every aspect of the financial sector and diversifying the products available. Incumbent banks are being forced to keep pace and transform themselves; launching fintech and innovation

labs, partnering with startups, and hiring more technologists and coders. Fintech is driving this revolution, allowing the sector to recover from the shadow of 2008 and showcase a new face of finance – one that puts trust and the customer at the centre of the proposition. For the UK, in the wake of Brexit, there must be support for the materialisation of more sub-sectors and collaborations, ensuring our financial services sector remains world-beating. Noticeably, fintech also means investment opportunity in 2018. Globally, fintech has hit record levels of capital investment, with emerging markets and verticals coming to the fore. However, while the UK remains one of the leading investment markets, our own research revealed $1.8bn was invested in UK fintech alone in 2017. There is a need to address the levels of support for domestic startups through the fundraising process. It is paramount we retain the sector’s attractiveness as a viable and dynamic career choice for talented entrepreneurs in 2018. However, in the UK at least, this talented workforce is at risk. Fintech currently employs 74,000 people across 1,600 firms in the UK. From changes in immigration policy to a lack of focus on STEM skills, we must continue to lobby government to ensure we

maintain access to key international talent while also equipping and developing our domestic UK workforce.

Delivering the important goals in innovation Finally, and most importantly, 2018 may be the year that fintech for good comes into its own. Can fintech and its potential partnerships aid the £1.5m outside the UK banking system and regain true trust for the financial sector? Ultimately, is it helping individuals, omitted from current systems, to take greater control of their finances? If we can, the mission and meaning of fintech to democratise and revolutionise financial services is, in part, fulfilled. Innovate Finance remains committed to supporting start-ups build their businesses around the unbanked and advancing diversity - because these businesses are collectively designing systems based on the real needs of people personifying the true nature of innovation, and the true heart of fintech in 2018. Sources: 1. 2. 3.

EY FinTech Adoption Index 2017 Innovate Finance VC Investment Landscape 2017 Innovate Finance research: Supporting UK FinTech: Accessing a Global Talent Pool.