Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in the UK and Ireland, the Continent, and beyond, produced by BI Intelligence.
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UK FINTECH WEEK: Last week was government-sponsored UK Fintech Week — we’ve put together the top news and event highlights. The UK government is keen to promote and grow the fintech industry, which it sees as a major growth driver for the national economy, as well as maintain the UK’s position as the global fintech leader and encourage growth in the industry outside of London. The Economic Secretary, Harriett Baldwin, and Chief Secretary to the Treasury, Greg Hands, were on hand alongside industry leaders like Eileen Burbidge, Business Insider’s coolest person in UK tech. Events were also held at both Number 10 and Number 11 (the residence of the Chancellor) Downing Street.
BI Intelligence attended a number of the events, two of which we’ve highlighted below.
The FCA (Financial Conduct Authority) hosted an event on how to foster innovation in the UK finance industry.
Key takeaways from the event:
- UK regulation aims to promote disruptive innovation. The UK has been a nurturing environment for innovation and startup activity, and the lead regulatory body intends to keep it that way. The FCA’s Project Innovate is designed to help startups get regulated in the UK and beyond, and in particular it is looking at “removing some of the barriers to UK authorised firms looking to scale overseas” and vice versa, according to Christopher Woolard, Director of Strategy and Competition at the FCA.
- The FCA is focused on finding new ways to make life easier for startups. Enter RegTech. The FCA recently launched a call for input on how to progress with RegTech — the use of technology to make regulatory compliance easier. The FCA gave distributed ledger technology as an example which could be investigated under this call for input, given that it has been touted as the technology to solve all financial services problems. The FCA argues that by pushing for advances in RegTech it will actually make it easier for fintech startups to launch quickly and operate within the law.
- No one wants to say what will happen in the event of a Brexit. Currently firms in the UK have to abide by both EU and UK regulation. UK regulation is mostly closely aligned to EU regulation and is designed to ensure UK firms are compliant with major EU regulation ahead of the rest of Europe. (See PSD2 and the UK’s Open Banking Standard). The question posed is: In the event of a UK exit from Europe, will the FCA continue to ensure UK regulation aligns with that of the EU or chart a different course? The FCA declined to comment.
Lloyds hosted a panel discussing robo-advisors, where traditional wealth management companies mixed with startups such as Nutmeg and MoneyFarm (just launched in the UK). A quick survey showed very few attendees currently used robo-advisors and that 50% would consider it, a percentage which didn’t change after the panel concluded. It is estimated that personal wealth platforms already bring in £0.7 billion ($1 billion) to the UK economy annually, according to Ernst & Young.
Key takeaways from the event:
- Target demographic for startups is people with £10,000 ($14,000) or more to invest – and one said they wouldn’t bother going lower than that, instead they’d look to attract a wider geographical spread of clients. They considered the return on clients with lower investment levels not worth the effort of going after their business. That said, there was much emphasis on appealing to the “mass market”.
- Regulation and the savings and investment averse UK population were hot topics. The robo-advisory industry is currently awaiting the outcome of the FCA’s Financial Advice Market Review (FAMR), with current regulation around financial advice seen to be hampering growth. It was also pointed out that 50% of UK households either have no savings (deposits and investments), or savings of less than £1500 ($2000), and that the average UK consumer is unwilling to pay for financial advice. All factors are considered major obstacles to the success of robo-advisors.
- UK consumers prefer hybrid solutions. General consensus was that purely automated platforms were cheaper, but that UK consumers still wanted some level of human involvement. This is an overall trend in the robo-advisory market, as even experienced investors would choose a hybrid solution over a cheaper, algorithm-only solution, or a high-cost, human-advisor account, according to a survey by E*Trade.
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UK CONTACTLESS SPENDING EXPLODES: Annual spending on contactless cards tripled in 2015, reaching £7.75 billion ($10.75 billion) — double the preceding 7 years combined, according to data from the UK Cards Association. Apple and MasterCard have also paired up to offer London commuters free travel, if they use their iPhones loaded with a MasterCard to pay, on Mondays 29th February, and 7th and 14th of March.
- Transport for London (TfL) continues to drive adoption. Spending on London’s transport network continues to drive up contactless payment numbers, with over a million journeys a day being paid for on contactless cards. TfL is seen as the benchmark for new payments technology in London. Once consumers are using a certain payment method at least once a day on transport, they are then far more likely to deploy it elsewhere. Using a payment method on transport builds a habit which is then transferred to other situations such as cafes and shops. Rising contactless spending is not limited to London either, with Leeds seeing a 211% increase and even Blackpool seeing a 200% boost, according to Barclaycard.
- The end of spending limits may be in sight. The rise in the contactless payment limit from £20 ($28) to £30 ($42) last September resulted in an increase in both spending amounts and number of transactions. There is also a plan in place by Visa and MasterCard to make sure every card terminal in Europe accepts contactless payment by 2020. If that plan goes ahead, the technology will be ubiquitous in 5 years and, combined with a third factor — the growing use of technology in banking apps to remotely cancel cards — the right combination of security and convenience should exist for consumers to feel comfortable spending any amount contactlessly, including on their phones.
Around the world…
Australian government gives fintech hub boost. The Australian Treasurer announced on Friday that the government would give financial support to an Australian fintech hub to help them make the country a fintech centre in the Asia-Pacific region. The amount pledged was small — $150,000 (AUS) ($108,000 (US)) — but the hub also gets funding from major Australian banks and retailers, all of whom want to drive homegrown competition to the Asian fintech centres like Singapore and Hong Kong.
Lending Club changes business model. One of the largest online P2P providers in the US has announced changes to its business model which will see its banking partner taking on more of the risk on its loans, in return for higher fees. The Wall Street Journal suggests the move is the result of an ongoing legal case regarding state controls on interest rates.
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