Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in Europe and around the world, produced by BI Intelligence.
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UK AND AUSTRALIAN REGULATORS PARTNER: The UK’s financial regulator, the FCA, has signed a co-operation agreement with the Australian regulator, ASIC, in order to promote innovation in both countries’ financial sectors. Both regulators actively encourage fintech in their countries by running Innovation Hubs, which are special departments dedicated to helping innovative firms get regulated. The agreement will make it easier for financial firms to scale across both countries by allowing one country’s Innovation Hub to refer a firm to the other, guaranteeing the firm support and advice from the partner regulator.
The competition to be the top global fintech hub is heating up. The UK is one of the leading global fintech locations thanks to availability of tech talent, capital investment, and its supportive regulatory policy. But other countries, including the US and China, compete closely for the top spot. For the UK, a booming fintech industry is desirable for two reasons: it helps the national economy, the UK fintech industry generated £20 billion ($28 billion) in revenue in 2014, and it promotes competition and growth in the financial services industry.
Maintaining a leading position is challenging. While the UK boasts a number of advantages for fintechs, it isn’t a huge market with under 70 million people. In order to continue to compete with other countries, the UK needs to create opportunities for firms to scale beyond its borders. That will help firms continue to attract investment and generate more revenue. That’s likely the impetus behind the partnership with Australia.
Cross border regulation is a step in the right direction, but there are hurdles. Cross border regulation is notoriously complex and can take a long time to implement. The EU’s recent Payment Services Directive 2 (PSD2) took 2 years to write, and will take a further 2 years to implement, for example. So while the UK’s strategy of partnership with other countries make sense, there is still a long way to go for it to pay off.
ANDROID PAY GEARS UP FOR UK LAUNCH: Android Pay will launch in the UK in “the next few months” with a broad range of partners including banks, payment networks, retailers, and apps, according to a blog post from the mobile platform’s website. It will offer users the ability to make contactless payments and in-app purchases — without them having to re-enter payment or address details every time they shop.
The UK offers Android Pay everything it needs to take off:
- Android has the largest share of the smartphone market in the UK at 53%, compared to iOS’ 39%.This means Android Pay has a potential user base of about 26 million in the country.
- Major banks are on board.Launch partners announced this week included HSBC, Lloyds and Nationwide, and Santander has said it intends to offer Android Pay this year. Barclays is less likely to sign up given it has its own NFC payments solution for Android phones. Even without Barclays, Android Pay will be available to 60% of UK banking customers at launch.
- Contactless payment acceptance is widespread in the UK and consumers have embraced contactless payments. There are around 319,000 contactless payment terminals in the UK, and annual spending on contactless cards tripled in 2015, reaching £7.8 billion ($10.8 billion) — double the preceding 7 years combined. That means that Android Pay will have wide acceptance and it won’t be a big change in behaviour for consumers to start using it.
It’s not clear whether Samsung Pay will beat Android Pay to market in UK. It will arrive sometime this year, but no specific date has yet been given. In the US, Samsung Pay’s proprietary MST technology gives it an advantage because it allows smartphone payments to be made at terminals which have the old-fashioned magnetic stripe readers — relevant in the US due to the slow rollout of EMV and contactless terminals. This will have less impact in the UK due to the widespread adoption of contactless terminals. Android Pay may be more competitive as a mobile payments feature in the market as a result. Apple Pay, which launched in July 2015, was the first of the mobile payments features offered by the three tech giants to launch in the UK.
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DIGITAL LENDING FIRM RAISES MONEY FROM WORLD BANK: Kreditech, a German firm which offers credit and loans to people with little or no credit history has just received £8 million ($11 million) from the International Finance Corporation (IFC), a division of the World Bank group. The IFC invests in private firms whose businesses contribute to economic development in emerging countries. Kreditech, which operates in Mexico, Czech Republic, Russia, Spain and Poland, asks consumers to share their browser and social media history with it in order to help determine their creditworthiness. It believes using this data can provide a more accurate credit score than traditional methods, and also opens up new segments of the market which are currently ignored by traditional lenders due to a lack of credit rating. 70% of people across the globe have no credit rating, according to the World Bank. That means there is a large market for Kreditech and companies like it.
Around the world …
CURRENCYFAIR CLOSES FUNDING ROUND: Ireland-based P2P currency exchange firm CurrencyFair announced that it raised £6 million ($8.9 million) in a recent funding round led by Octopus Ventures, according to Finovate. That brings the firm’s total funding to more than £16 million ($22.3 million). CurrencyFair CEO Brett Meyers plans to use the funds to develop its brand in order to give the platform a more “mature voice.” The firm’s new chief marketing officer (CMO), Nils Andén, could help it achieve these goals. Andén, who helped grow the market cap of European online gambling firm Unibet more than six-fold, was hired this week to help CurrencyFair mature and grow its brand.
FIFTH THIRD INVESTS IN TECH: Ohio-based Fifth Third Bank announced plans to hire 120 additional developers, engineers, and other tech-related staffers by the end of the year. These positions come in addition to 80 tech hires that the bank has made in the past five months. The new staffers will work to improve the consumer-facing side of digital and mobile channels, and to bolster in-branch technology — like instant deposit recognition. The bank also hopes to focus on big data in order to better customise and personalise digital services to meet customer preferences and needs. The bank is using funds saved as a result of closing over 100 branches to fund the project.
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