Financial Services Technology

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INDEPENDENT PUBLICATION BY 28 / 02 / 2016 #0360 raconteur.net Shared financial infrastructure is streamlining cross-border payments and international trade The future of financial services may be the stuff of science fiction – or far more futuristic If banks use the financial 'secrets' they know about us, is this an invasion of privacy? BIG BANKS ARE INVESTING IN TECH BUT CAN TAKE LONGER TO CHANGE N E W TECH I S OILING THE WHEELS OF UK TRADE FUTURE GAZING TO WHEN CASH DOESN'T EXIST BANKING ON KEEPING SECRETS AND TRUST Banks may have antiquated IT systems yet they make big investments in technology 03 04 06 08 FINANCIAL SERVICES TECHNOLOGY Can Britain be a world leader? The government is urging the UK financial technology sector to power ahead and create a global centre of wealth-generating innovation and excellence OVERVIEW NIC FILDES I t wasn't so long ago that the term "fintech" would have been meaning- less to most people, perhaps conjur- ing up images of a surf board brand at best. Yet over the past few years, the term has gained increasing traction with Lon- don's business and political elite, and the burgeoning financial technology sector is being seen as a saviour of Britain's soft- ware and banking sectors. There is no arguing with the numbers. According to KPMG, there has been a six- fold increase in investment in fintech com - panies over the past three years. Around $20 billion was poured into the sector last year which was up two thirds on 2014. No wonder then that the government has leapt on the notion that Britain could emerge as a world leader in fin - tech given the City of London's streng th in financial ser vices. Ministers said last year that British fi - nancial technolog y generated £20 billion of revenue in 2014, and the U K and Ire- land is the fastest growing region for fin- tech investment in the world. There are emerging stars in the London market with companies such as Transfer- Wise plastering tube stations and Face- book with adverts aimed at stealing busi- ness from the big banks. Yet banks are also taking a leading role as they look to catch the wave of new technologies, such as blockchain, to avoid being disrupted. The 2016 Barclays Accelerator, the third of its kind in London, reads more like the portfolio of a Silicon Valley tech incubator. In this year's crop, the bank is hosting cog - nitive computing startups, machine-learn- ing recommendation engineers, cyber-se- curity players and blockchain-based invoice businesses. Nikolay Storonsky, founder and chief executive of money app Revolut, says London has plugged into the funding in - dustry while benefiting from the collab- orative culture that has grown up around incubators such as Level 39 in Canary Wharf. He points out that £217 million has been pumped into UK fintech startups in the past seven months, including his company's near-$5 million capital raised this month when the likes of Balderton Capital and Index Ventures backed the young business. "Fintech is hugely valuable to the UK economy," says Mr Storonsky. "The finan - cial services sector alone contributes £150-160 billion in GDP annually so, of course, it is a signifi - cant focus point." This suggests that Britain's fintech scene is indeed f lourishing and could generate genuine econom - ic value over time. Yet some are still to be convinced that presuming the geo - graphical proximity of banks, finance and coders will ultimately lead to a boom- ing industry. George O'Connor, a technology analyst at investment bank Panmure Gordon, argues that Britain still only has a toe in the water of fintech success. "It is barmy to think that London can be the fintech capital of the world just because it is the capital markets capital of the world. Look at Silicon Valley – that became the world's pre-eminent tech capital without having a customer in 500 miles," he says. "It is very welcome that the UK govern - ment wants to help develop this exciting, The UK government wants to help develop this sector, but warm words need to be followed up with blisteringly hot actions by a number of actors yet nascent, sector. But please be aware that warm words need to be followed up with blisteringly hot actions by a number of actors." There is also a danger that the focus be - comes too London-centric and some believe the government needs to look beyond the capital to ensure the UK's fintech scene is sustainable. Chris Maule, chief executive of the UK Bond Network, says London-based companies TransferWise and Nutmeg may be leading the way in alternative finance, but we need to look beyond the M25. "There are arguments to suggest that London has succeeded at the expense of the rest of the UK and it is in this light that London should act as an example to poli - cymakers in driving change in other cities and regions," he says. "We are starting to see similar support networks in other regions that enable tech innovation and business growth, and as long as this con - tinues, and associated public support is deployed, the success of London can be replicated across the nation." Visiting politicians have been drawn to Canary Wharf to marvel at the burgeoning fintech presence and some have hatched plans to adopt similar policies for their own markets. That could prove to be a danger for the dream of London being the global fintech capital as other markets jump on the bandwagon. The KPMG Fintech 100 index of the lead - ing players and most promising startups lists 18 British companies. Yet Australia and New Zealand, with a fraction of the population of the UK, have ten entrants while China, which only contributed one company the year before, had seven listed. Britain may be in the race, but as in all areas of business, nothing can be taken for granted. Ian Pollari, global co-head of KPMG's fin - tech practice, says: "The speed and energy with which fintech innovation is impact- ing financial services is gathering global momentum on many measures. This year's report underscores the international nature of fintech." Whether a tiny startup or a gigantic FTSE 100 bank, the entire industry is looking down the barrel of change. Analysts CCS Insight say this is not being driven by de - velopers, chief executives or government policy-makers, but by consumers. According to CCS Insight: "Banking habits have been changing as users grow comfortable with conducting business on mobile devices and online, and the democ - ratisation of smartphone ownership in recent years has allowed the network effect to kick in. It's created an environment in which person-to-person money transfer services can thrive." Keeping up with that trend is key to Lon - don's continued progress. Although this publication is funded through advertising and sponsorship, all editorial is without bias and spon- sored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be repro- duced without the prior consent of the Publisher. © Raconteur Media STEPHEN ARMSTRONG Contributor to The Sunday Times, Monocle, Wallpa- per* and GQ, he is also an occasional broadcaster on BBC Radio. CLARE GASCOIGNE Formerly on the staff of the Financial Times, she is now a freelance journalist specialising in City and financial features. CHARLES ARTHUR Author of Digital Wars: Apple, Google, Microsoft and the Battle for the Internet, he is a freelance science and technology journalist. JOE McGRATH Managing editor of The Trade and Global Custo- dian, he also writes for The Wall Street Journal, Financial Times and The Times. DAN BARNES Award-winning business journalist, he specialises in financial technolo- gy, trading and capital markets. NIC FILDES Technology and commu- nications editor at The Times, he was formerly with The Independent and Dow Jones Newswires. Share this article online via raconteur.net DISTRIBUTED IN RESEARCH PARTNER DISTRIBUTION PARTNER BUSINESS CULTURE FINANCE HEALTHCARE LIFEST YLE SUSTAINABILIT Y TECHNOLOGY INFOGRAPHICS raconteur.net/financial-services-technology-2016 RACONTEUR PUBLISHING MANAGER Will Brookes DIGITAL CONTENT MANAGER Sarah Allidina HEAD OF PRODUCTION Natalia Rosek DESIGN Samuele Motta Grant Chapman Kellie Jerrard PRODUCTION EDITOR Benjamin Chiou MANAGING EDITOR Peter Archer CONTRIBUTORS GREATEST OPPORTUNITY FOR DISRUPTION IN UK FINTECH UK FINTECH SECTOR Source: Silicon Valley Bank 2015 Source: KPMG 2015 Source: HM Treasur y 2016 £6.5bn of revenue was generated by the UK fintech market in 2015 18% of the world's top 100 fintech innovators are from the UK Survey of fintech founders and investors Infrastructure (blockchain/API) Weath management/ advice 37% Payments 22% Insurance 20% Alternative lending 6% 15%

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