Fintech Talk – June 8, 2016
While it is always my intention in these blogs to give equal weighting to fintech developments in the UK and the US, there are times when it’s difficult to be fair - no more so than this week where the UK fintech sector has witnessed a flurry of activity.
With just over two weeks until the UK’s EU referendum (June 23), the media has ramped up its coverage of the referendum, the ongoing tussle for votes between the two sides and the possible consequences of a Brexit to the UK and its various industries. As you can imagine, the fintech industry has not escaped the attention of the media and its future, regardless of the outcome, is being scrutinised at every opportunity. To illustrate this point, Financial News surveyed 118 fintech professionals, including the founders of Azimo, TransferWise and Xendpay, to gauge their opinions on the potential impact of a Brexit. The survey found that more than two-thirds thought it would be detrimental to fintech, while nearly 18% believed that it is unclear what the impact would be and 13% believed that the fintech sector would benefit leaving the EU. While we are all quite familiar with the detrimental consequences of a Brexit (shortage of talent and funding), it’s interesting to understand the reasoning behind those in favour of going it alone - 63%, of those who believe fintech would benefit from leaving the EU, said it would free up resources that could be reinvested into innovation, with 58% arguing that it would be cheaper for fintech companies to do business with clients outside of the EU.
In addition to costs, the success or failure of fintech rests largely on the development and application of regulation. The UK regulator, the FCA, continues to support the development of the fintech sector having launched its sandbox and, more recently, its specialised robo-advice unit. To receive help and advice from the unit, including individual regulatory feedback, robo-advisers will have ‘to demonstrate their potential to deliver lower cost advice to “unserved or underserved consumers” and offer “genuine consumer benefit….” This approach aims to promote greater accessibility to financial advice among the less well-off members of society, as well as encourage greater competition in the robo-adviser space.
Another story of interest last week was the Bank of England’s unveiling of the new £5 note, which will be printed on polymer, a much cleaner, secure and durable alternative to the cotton paper that has been used for UK banknotes for the last 100 years. This development and investment may seem strange in light of the increasing popularity of alternative payment methods (contactless, mobile and online) in recent year. However, recent studies have in fact shown that cash is still king, with it accounting for 45% of all payments in the UK last year.
While the media has widely covered the story and the potential benefits from a consumer angle, there has been significantly less attention paid to the impact on businesses. The move to polymer notes, beginning September this year, ‘will cost shops and banks up to £236m due to the cost of upgrading self-service machines and cash machines (one of the first examples of fintech)’, according to payments consultancy, CMS Payment Intelligence.
In an interview with The Guardian earlier in the year, Brendan Doyle, chief executive of CMS Payments Intelligence, said that ‘cash-, vending- and self-service machines would all need to be recalibrated by an engineer, while some older cash machines would need to be replaced completely.’ He also expressed further concern citing the potential disruption and costs to the cash supply industry and retail sectors, and suggested that there would be huge operational challenges for all merchants, particularly those who host the aforementioned machines on their premises. His fears were somewhat allayed by the Bank of England’s chief cashier, Victoria Cleland, who said ‘that the Bank of England was working closely with the cash industry throughout the process and that feedback from the industry had been positive.’ Regardless of who ends up being right, it will be interesting to see how the payments and retail sectors adapt to the changes and, what lessons can be learnt and transferred to other countries looking to move towards using polymer notes.