FinTech – A tale of two cities


London could just become the FinTech capital of the world if all the predictions are to be believed. The proximity of the Shoreditch tech scene to the financial centre in the City of London provides a distinct advantage over Silicon Valley. However, there are still barriers to overcome if the FinTech revolution is take hold. Take a short walk from Liverpool Street to Old Street by the back streets to see how different the two worlds are. Just north west of Finsbury Square the tall glass skyscrapers of the City are replaced by low-rise warehouses and Victorian factory units. These are home to the emerging tech scene.

FinTech startups are not a homogeneous group. There are two distinct types; those who are tackling the legacy functions that are deeply embedded in the corporate structures and those that disrupt by dealing directly with the consumer and bi-pass the banks altogether. Therefore, some startups can’t avoid working with corporate clients. This is not an easy relationship. Although, there is a recognition that innovation has to come from outside the corporate structure, the system works against this happening. There is a big imbalance between a global banking institution and a tiny startup. This so often leads to the source of innovation being strangled at birth. At the very best, the startup can easily become a jobbing shop for the bank.

There is a trend for the banks and systems integrators to set up accelerators and innovation centres. However, they have little understanding of the environment needed for the startups to succeed and the over-bearing influence of corporate sponsors reduces their ability to innovate. In general, startups should be given as much freedom to innovate as possible. This means an extremely light touch from the corporate sponsor. The best solution is to provide money directly to the startup or to third party accelerators and let them get on with it.

The second type of startup is the disruptive one. Although the term disruptive is over-used, this is generally what they set out to do. They have the power to transform the way the consumer and small businesses are accessing financial services and will shake the banking world to its foundations.  Whether, it’s internet-based challenger banks, bitcoin exchanges, new payment platforms or crowd-funding, these businesses will radically open up the sector. The downside to these second types of startup is that, even though they are more innovative, they are even more prone to failure. No matter how much disaster proofing and business planning you do, which for companies at this stage of life is rather little, they have a very high chance of folding.

It is important to nurture both types of FinTech startups. The banks should be sensitive to the way they interact with the startup world. Issues such as IP ownership are important to startups and the banks need to relax their supplier vetting policies to allow smaller companies to provide solutions. The Government needs to protect disruptive startups by giving them a level playing field, cutting red tape and offering tax incentives to investors. FinTech is exciting. Let’s make sure we don’t lose the opportunity to take the lead.