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Fintech Talk: September 27, 2017

Adel Raslan

In a week where British Prime Minister, Theresa May, announced that the she was seeking a two year transition after Brexit and that the UK would effectively keep its existing relationship with the EU until 2021, banks and startups are rallying behind the fintech industry in a fresh push to keep Britain ahead after the transition. According to City AM, several of the world's leading banks, including Barclays, HSBCLloyds and UBS, have vowed to support fintech startups in the UK, while entrepreneurs have promised to remain rather than moving their businesses abroad. "Startups give the opportunity for incumbents to regain the trust that was lost through the financial crisis," said Lloyds global head of technology, media and telecoms James Schofield. The latest efforts come in addition to the creation of the Fintech Delivery Panel (FDP), an effort by the UK Treasury and industry group Tech City UK with support from across the industry to promote fintech after Brexit.

This positive outlook around the UK fintech industry is demonstrated by a number of fintech startups securing additional international funding. Firstly, 10X Future Technologies’, latest fundraising round, raised £34 million. The Series A funding round was led by Chinese firm, Ping An Insurance and consulting firm, Oliver Wyman. The company, founded by ex-Barclay CEO Antony Jenkins, will help banks and financial institutions modernise their back office technology. This will involve using new technologies, such as machine learning and cloud services, and bringing IT systems and solutions up to date. What’s more, GoCardless, a fintech that makes recurring payments easy for subscription businesses, raised $22.5 million. Accel, Balderton Capital, Notion, and Passion are backing GoCardless on the back of record annual growth in the U.K. and strong, early traction in new markets. Outside of the UK, the company operates its bank-to-bank payments network in the Eurozone and Sweden.

As you most of you will know, MiFID II remains a major headache for both buy-side and sell-side firms, with many of them hoping that fintechs and regtechs can take some of the compliance burden off them. For regtechs, MiFID II provides the welcome momentum they need as selling into a bank or asset management firm remains tough. However, not all regtechs have a solution that can make the City’s MiFID II nightmares disappear. Some bankers are still sceptical about working with regtechs because by conforming to the startup’s software they need to do 95% of the compliance work themselves to get the remaining 5% benefit from the regtech. However, fintech investors have a different view and consider MiFID II as the "a gift that keeps on giving” and that regtechs will continue to flock to their Mifid II-related software well into next year.

On a softer note, research from online training platform, FINTECH Circle Institute uncovered that 94% of financial services professionals suspect their colleagues of using buzzwords such as “Blockchain” and “Artificial Intelligence” without understanding their meaning. Over half (60%) claim that such bluffing is a common occurrence. The industry professionals questioned felt that lack of training within financial services organisations was the biggest factor preventing some employees from developing their digital and fintech skills, with 69% making this claim. Meanwhile, over one-fifth (22%) say financial services professionals are putting off developing their digital skills out of fear that it’s too late to catch up with existing fintech experts. This is despite the vast majority of financial services professionals believing that promotions should favour the most tech-savvy employees, meaning traditional financial services experts could be at risk of falling behind their digital-friendly colleagues.

Believe it or not, there is life for fintech outside of financial services. A recent article in Fast Company discussed how a new digital payment platform from the United Nations’ World Food Programme (WFP) is bringing efficiency and stability to refugee camps. Organisations working in international relief can lose up to 3.5% of each aid transaction to various fees and costs. What’s more, across the industry, an estimated 30% of all development funds don’t reach their intended recipients because of third-party theft or mismanagement. In Jordan, the WFP can use Building Blocks, a secure platform based on blockchain technology, to audit each beneficiary’s spending in near-real time. “By paying vendors directly, Building Blocks has reduced money-management costs by 98%,” according to Houman Haddad, a finance officer for the WFP and the founder of Building Blocks. For an aid organization spending $6 billion annually across 80 countries, that adds up to tens of millions of dollars in savings. Bernhard Kowatsch, who heads the WFP’s Innovation Accelerator, which incubated Building Blocks, sees more value: “Building Blocks provides even higher assurance to individual donors that if you give to the WFP, that money actually reaches the people it’s intended for.” 

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