Technology disruption and its impact on finance
From online banking to contactless payments, financial technology – or FinTech for short – is rapidly changing how we spend, save, borrow and invest. 69% of the UK population now use online banking, with over 42% of digitally-active adults using the services of at least one FinTech firm. So as technology transforms just about every corner of global finance, what opportunities and challenges lie ahead?
Earlier this month, we welcomed a panel of leading FinTech experts to the University to discuss the technological disruption of the financial sector in an exclusive alumni event. Representing viewpoints across academia and industry, our panellists were:
Professor Meryem Duygun
Aviva Chair in Risk and Insurance at the University of Nottingham and President of IFABS (International Finance and Banking Society).
Katie Mills (Spanish, Portuguese and Latin American Studies, 2012)
Co-founder and Director of StateZero Labs, the world’s first solution-led blockchain lab for start-ups.
Melike Belli (Banking and Finance, 2014)
Market Development Manager at Cybertonica, a FinTech start-up using AI and machine-learning to manage risk and conversion for transaction platforms.
In a lively session, the panel discussed topics from the rise of challenger banks to the need to balance regulation and innovation, with some clear themes around the challenges and opportunities of FinTech emerging.
Melike: The UK has some of the leading FinTech companies in the world. A new digital economy is emerging, which you see through challenger banks like Monzo. They are approaching banking from a different perspective. You can open a bank account very quickly, in an instant using an app. They don’t have branches, but design their app to help customers understand their finances better. Customers are in control. With Monzo, you can categorise your transactions to keep track of what you are spending and you have access to tech support 24 hours a day. Because FinTech emerged after the global financial crisis, challenger banks have to ensure they have customers’ trust.
Katie: That’s the biggest change we’ve seen with challenger banks. Their focus was on customers. Banks have never been great to their customers before. What is our bottom line? What is our revenue? Let’s keep our board and chair happy. But then you have Monzo come along and say what’s more important is our customers, and if they’re happy, our shareholders will be happy. That shift in focus has been the biggest change in front-end technologies.
Meryem: When we look at FinTechs, they have the agility, the innovation, the cost reduction and the focus on customer experience, as well as experience in new products and data handling. Some of the advantages for customers are the access to capital. If you go to a bank, it requires huge credit checks before the bank decides to give you the loan you requested. Whereas in peer-to-peer lending, it’s easier to provide the loan you require.
Katie: FinTech is having a huge effect on ‘antiquated’ industries. So, for example construction, which hasn’t even properly digitised. What we’re seeing is old-school industries leapfrogging over the digital ones because they’ve realised they’ve been left behind and need to catch up pretty quickly. The biggest new spaces for technologies is in those industries that have been pretty antiquated.
Meryem: We’re still at the very early stage of looking at the implications of FinTech. We know that FinTech can bring in a number of advantages but at the same time limits. As consumers, we should be aware of the risks that are inherent with FinTech. For example, there are credit risks and funding risks, all reasons we have seen for the financial crisis back in 2007. So, are we ready to have another crisis that can come from unlimited FinTech? That’s why there should be a balance between innovation and regulation.
Katie: I think actually in the UK, the regulatory sandbox created by the Financial Conduct Authority [which allows businesses scope to test FinTech products in the market] are ground-breaking in what they’re doing. The problem with Government is that they’re usually two steps behind, and they don’t really know how to get in front. We don’t create the environments at the moment to encourage innovation. And I think we need to have the right environment at early stage education to teach people the mindset to go out and really solve problems.
Meryem: China is a pioneer in peer-to-peer lending. In a more relaxed regulatory environment, Chinese peer-to-peer lending has become very successful in a short amount of time. But platforms fail because of a lack of regulation. Around 150 have failed in the last year in China, in some cases people losing all their money in FinTech, requiring the Government to begin regulating platforms. Because of the craze of regulations that everyone is expecting now in China, the number of platforms may drop from around 1,500 to 50. So, we come back to the beginning. There must be regulation, but the amount of regulation, the optimal amount of regulation, is what we are working on and why we are doing research in this area. How much do we regulate so that we can enjoy maximum innovation? We’re very much interested in finding out how regulatory changes will affect business performance over time.
Katie: I think some of the failures that we’re seeing in the FinTech space have been because the solutions they’ve spun out haven’t really been needed. You end up with a lot of nice-to-haves, not need-to-haves. The focus has to be on the problems that need solving, and then understanding the technologies that sit alongside that. A lot of the time, we lose track of the problems and just focus on the hype of tech. And then try to find a problem for that tech to solve. The real innovation around FinTech has been people that have looked at a true problem and worked out which technologies can solve the problem. I think that’s the angle we need to come at.