Julien Eichinger - stock.adobe.c
Financial technology (fintech) is providing a market where IT professionals in the finance sector and beyond can find answers to their business challenges through specialist tech startups.
UK-based CIOs have the benefit of having these fintech startups on their doorstep.
UK government-backed startup network Tech Nation has selected 20 such fintech startups to take part in a five-month programme that aims to scale up early-stage companies.
The programme’s business-to-business (B2B) focus demonstrates that beyond the high-profile digital challenger banks and payments companies targeting consumers with funky apps, there is a deep source of niche financial services IT innovation in the UK.
Fintech solutions begin life as an idea about how to use technology to solve a particular financial services problem. The speed of software development today means products can quickly follow.
But the challenges really begin when it comes to turning a great idea into a commercial success. This is where the likes of Tech Nation come in.
Growing appetite for fintech
In its first guise, Tech Nation was launched in Shoreditch in 2011, by then prime minister David Cameron, to support the East London tech cluster known as London Tech City. It initially offered broad support across the UK tech startup sector, but such is fintech’s rise, Tech Nation has introduced a dedicated fintech support programme.
This not surprising, as the appetite for fintech products among financial firms, their customers and investors is insatiable – and the UK finds itself on the top table.
Fuelled by the $12.9bn deal that saw Vantiv acquire WorldPay, investment in UK fintech in the first half of 2018 reached $16bn, compared with $14bn in the US and just more than $15bn in China.
Meanwhile, the take-up of financial technology, and its impact on the global finance sector, is overt. Recent figures from the European Banking Federation revealed that European retail banks shut down 5,900 branches in 2017. This was brought about by the arrival and widespread acceptance of online banking and mobile banking apps. Banks simply do not need as many branches because people prefer the convenience of managing their money on their smartphones.
Read more about financial technology
- Tech Nation’s choice of fintech companies to back reflects the changes expected to hit financial services IT.
- Fintech creators need to consider what type of companies they should work with to make the most of open banking regulations.
- While UK fintech firms are playing whatever is in front of them amid the uncertainties caused by Brexit, investors are clear that things could take a serious turn for the worse.
- Fintech investments in the UK in 2016 fell by almost £176m, compared with 2015, but still towered above the 2014 figure.
But financial technology isn’t all about banking on a smartphone. While challenger banks such as Starling carry the fintech torch to consumers, there is a huge opportunity in the vast nooks and crannies of the finance sector.
Helping fintech startups level up
Tech Nation is providing a guide rope to early-stage UK fintechs trying to find their footing. These small companies already have some customers and are generating revenues, but need to move to the next level.
With a background in the trading sector, fintech and venture capital, Greg Michel is heading up that support programme at Tech Nation.
He told Computer Weekly the latest programme was focused on fintech firms that supply other businesses, rather than those going direct to consumers like many of the better known fintech operators.
When choosing participants for the programme, it sought fintech startups that had already raised a bit of money, had some customers on board and were generating revenue. “They are viable propositions, not just two men and a dog in a garage or [bigger] with 30 people in their own office,” said Michel.
“They have a product, they have sold it so have some traction, and are making a bit of money. So they have something going for them, but they need to be accelerated.”
Learning the ropes
The 20 fintech startups taking part in the Tech Nation programme will receive coaching in how to scale a business. At the moment, the participating companies each have 15 staff, on average, with average revenues of £250,000.
Coaching in scaling involves teaching entrepreneurs how to build a more established business, which will include the likes of human resources management, incentivising salespeople and finding the right partners. This can be a significant challenge for startups, which often have a background in technology or another specific area of business.
Michel said the programme was “a vector of knowledge transfer” from those who have previously built unicorns and large companies to those who aspire to do the same.
“We hope the entrepreneurs will take lessons from this that would normally take years of experimentation,” he added.
He said the programme would help the participants to increase their business networks by introducing them to corporates, investors and different parts of the government.
Michel said while London currently has everything you need to start a fintech – expertise from entrepreneurs, a good regulatory regime, capital and a diverse workforce – he added that the programme was no longer just focused in and around London, but spanned the whole of the UK.
Seven of the 20 startups selected for the latest programme are located outside the capital. Tech Nation is also trying to increase diversity, with more startups led by women, for example.
Meet some of the Tech Nation programme participants
Climbing the CreditLadder
London-based CreditLadder is one of the startups selected for the first Tech Nation fintech support programme. The company, which helps tenants use their rent payments to improve credit scores, started as an idea in 2016 and became a business in early 2017.
CreditLadder CEO Sheraz Dar said the inspiration behind the business was the realisation that a renter’s biggest expense – their rent – was not recognised in their credit history. “This is grossly unfair, given those paying their mortgage do see this benefit,” said Dar.
The first challenge was to offer letting agents and landlords an affordable system that would help them find responsible tenants who could be relied on to pay their rent on time. “CreditLadder rewards tenants who pay on time, and in return letting agents and landlords should have confidence in tenants who sign up to our platform,” he said. “This not only benefits tenants, but also landlords and letting agents.”
CreditLadder already has more than 2,000 letting agent branches on its platform, along with thousands of tenants.
The company uses open banking rules and application programming interfaces (APIs), combined with its in-house technology, to make payment collection easier, helping its customers save time and money.
Dar is hoping the Tech Nation programme will help CreditLadder develop relationships so it can benefit from the experiences of others. “I often say there is no need to be a hero – working with the right people and businesses will deliver more growth than trying to solve every problem yourself,” he said.
Akoni Hub sets sights on growth
Another of the 20 startups participating in the Tech Nation fintech support programme is Akoni Hub, which was set up in 2016 to make it easy for SMEs to buy financial products. Through open banking, the business uses multiple sources of data to provide personalised products to small businesses.
Akoni Hub CEO Felicia Meyerowitz Singh said her experience as a finance director at an SME inspired her to start the company. “I always asked, Why does an Amazon-type platform not deliver financial products to businesses?”
Akoni Hub, which attempts to provide this type of experience, already has more than 500 SME, corporate and charity customers using its platform.
Meyerowitz Singh is seeking to increase collaboration through participation in the Tech Nation programme. “Collaboration is key to delivering benefits and change to commercial and SME banking clients. We are looking forward to the opportunity of working with other innovators and financial institutions, as well as benefiting our business in terms of scaling up rapidly,” she said.
Taina Technology eases regulatory burden
Maria Scott, CEO at Taina Technology – another participant of the Tech Nation programme – is a former tax lawyer in the finance sector, where she saw first-hand the burden and cost of regulatory compliance.
Taina is part of a fintech sub-group known as regtech (regulation technology), which helps businesses comply with regulations. It was launched in 2016.
“I was able to see the ever-increasing burden and the cost of regulatory compliance, the pressure on costs and the competitive dynamics of customer experience that all of the financial institutions are experiencing,” said Scott. “It was clear that regulatory technology had to be the answer.”
Tania now provides automation for compliance departments through its product. “We have been able to save our customers over 84% in costs and free up over 40% of people to focus on higher-risk, higher-value tasks. We think we can do even better,” she said.
Scott hopes to gain “very valuable mentoring and networking opportunities” from the Tech Nation programme.