The fintech industry is booming. Browse through the business pages in any national daily and you’ll likely hear about a fintech startup challenging convention or setting the pace with funding and investment. London seems to be at the centre of it all, with the city providing a unique environment to nurture growth in the industry. Deal volumes have grown at a rate of 74% each year since 2008 (2013’s total value reached $265m), as fintech startups have raised over $700m from investors over the same period, according to a report from Accenture.
The banking landscape and voices of concern
A recent announcement from the Competition and Markets Authority (CMA) stated that the ‘Big Four’ high street banks are to face a competition inquiry amid concerns that they offer little choice for small business borrowers. In theory, the CMA inquiry could lead to a break-up of some of the ‘Big Four’, demonstrating that the current banking system isn’t quite suitable for SMEs. The inquiry is hardly surprising – the CMA estimated that only 4% of UK businesses change their bank each year.
This shows the vast gap in the industry where technology has the opportunity to disrupt traditional banking habits. In fact, The Bank of England’s ‘Trends in Lending’ report earlier this year identified that there is considerable market demand for alternative sources of finance, which can provide flexible sources of credit tailored to the needs of the business – in contrast to some of the more standard platforms offered by the high street banks.
Financial Technology platforms
London’s fintech scene is witnessing a stream of new innovative financial products emerging from a growing list of startups. The sheer range of options available to SMEs is set to have a huge impact on areas such as banking and trading, as innovations spring up in asset management, payments and increasingly crowdfunding.
Innovations in international payments are also making waves in the fintech industry, catering to a market of SMEs challenged both by high fees imposed by banks on international transactions and a complex system of rules and standards in forex. The market now has access to fintech platforms providing knowledge and support to navigate the forex market, many of which use alternative networks through the cloud to streamline integration with the customer’s needs. This reduces the burden on the customer’s existing technology, making transactions far easier to process.
Importantly, this market of new fintech platforms offers diversity and flexibility to SMEs previously limited by the options available from banks and thereby providing a huge boost for enterprises. As George Osborne’s recent Innovate Finance scheme demonstrates, this is being noticed in Government.
Disrupting the industry
There are signs that the industry is catching on to the technological changes, Barclays’ recently announced a call for startups for its fintech accelerator programme, aimed at harnessing the innovations they produce in an attempt to adapt to the changing financial environment. In addition, Lloyds has instead backed a ‘startup bootcamp’ scheme aimed at supporting the work of certain fintech businesses, allowing members to benefit from its software and networks and a large cash injection.
The wider banking industry may begin to look different before the end of the decade and it can only be a matter of time before technology leads the field in both banking and trading, as we see customers benefit from innovative cloud-based lending and payment solutions, removing the constraints of outdated IT systems unsuited to fast-moving SMEs.
Fintech clearly has the potential to revolutionise the industry. While banks are slowly coming around to technology to facilitate traditional banking and trading methods, the changing needs of SME borrowers are increasing at a rapid pace. They are now in an excellent position to take advantage of the huge range of technology platforms available to meet these demands and, if the high street banks don’t take this into account, they may find their role becoming increasingly marginalised.