FinTech Talk: April 20, 2016
Last week saw a great deal of activity around the Brexit debate, with the official launch of the Vote Leave and Britain Stronger in Europe campaigns and the UK Treasury’s (HMT) analysis on the potential economic impact of the UK exiting the EU. The analysis indicates that Brexit would have a negative effect on both the financial services and technology industries, and therefore fintech.
The report warns that, in the event of a Brexit, UK-based financial services firms would lose access to passporting rights, which allow businesses authorized in one EU country to offer services remotely in the other 27 EU states without further authorization. This, therefore, makes it easier for firms to scale across all EU markets. This is particularly important for fintech companies as they need access to a large customer base to compete with incumbents - UK population of 65 million people vs EU population of 508 million.
Secondly, according to the HMT, the UK will no longer be seen as a ‘gateway to Europe’. Access to the wider European market is one of the major reasons non-EU fintech firms choose to base themselves in the UK. In the event of a Brexit, this would mean fewer foreign firms coming to the UK, which would result in a decrease in foreign investment in the country, which is key to the sustainability and growth of the UK fintech market.
The UK would also lose the ability to influence EU regulation. At the moment, the UK has substantial influence over what EU law looks like, including financial services regulation. This is, in part, due to having veto rights, as well as a large number of Members of European Parliament (MEPs). If the UK were to leave the EU, they would lose this influence and the ability to ensure EU and UK regulation are aligned. That could create problems for firms that want to operate in both markets.
On the subject of Fintech and the EU, the European Parliament is, this week, set to host a four day conference on virtual currencies and Blockchain in an attempt to educate MEPs about the fast-growing world of distributed ledgers. The event will consist of a series of roundtables and presentations from representatives from the World Bank, the IMF, the UN, academics, central banks, established Blockchain companies and startups. Recently, an increasing number of major banks around the world have been investing, and participating, in Blockchain trials because of the potential for delivering increased efficiency and cost savings.
However, banks and the financial services industry are not the only ones to get in on the act. Home-rental company, Airbnb has “acqui-hired” the majority of the team behind ChangeCoin, a start-up that runs a bitcoin-based micropayments service. Airbnb has been looking to incorporate Bitcoin and Blockchain into its services for a number of years and has been studying how the technology could improve its services, by safely storing and sharing its customers’ data, and facilitating more secure and faster payment methods between users.
Alongside Blockchain, funding in Insurtech - an area of fintech that uses technology to innovate and disrupt in the legacy insurance industry - has grown substantially. Investment in Insurtech has nearly quadrupled year-over-year in Q1 2016, while the number of deals more than doubled, according to CB insights. In Q1 2016, Insurtech firms raised $650 million (£450 million) through 47 deals, compared to $171 million (£121 million) through 22 deals in Q1 2015. While that's just 10% of the $6.7 billion (£4.7 billion) raised by the fintech sector as a whole in Q1 2016, Insurtech's share has grown from 5% of global fintech funding a year ago.
One explanation for this growth is the advancement in data collection and analytics. Developments in the Internet of Things (IoT) sector, such as wearables and connected cars, have made collecting large quantities of good quality data much easier. Equally, on the consumer side, Insurtech companies have made significant progress in making the user experience better. Selecting an insurance plan is often considered an onerous task by many consumers as incumbents often offer extremely complex and nuanced products in combination with a poor digital experience or none at all. Therefore, there is an opportunity for Insuretech companies to build consumer-friendly user interfaces, allowing customers to enter data quickly and compare products.