Less than a week ago the UK voted to leave the EU. This comes against a background of severe problems for listed US marketplace lenders, a worlwide tailing off of institutional capital into the sector and only a tiny number of Fintechs having achieved profitability (many years after launch).
I thought it time to take a big picture look at Fintech – is Fintech 1.0 flagging? Do we need Fintech 2.0 to take us onward and upwards? Will Brexit be a positive force or a negative force for Fintech?
I could think of no better figure to discuss this with than Giles Andrews who has been at the top of perhaps the UK’s oldest Fintech Zopa per se as well as one of the most blue-chip today.
It’s a wide-ranging conversation but one that lays out some of the parameters of the territory ahead – one which right now may be shrouded in fog but one which we all, including the Fintech sector, will travel through.
It’s a longer episode than normal and there is plenty on the show. Some main topics we discuss include:
- a look forward to next week’s episode on the weaknesses on Financial Services and the opportunities this offers for Fintech
- Giles career experience at Zopa and experience of the whole evolution – originally before the word existed Zopa used to call themselves a “technology-enabled Financial Services business” – which while a mouthful is perhaps a more insightful term
- consumer finance businesses take far longer than anyone expects to grow; need to build trust before one spends too much money on marketing
- the impact of the 2008 crisis (“not a good thing”) to have a positive impact on the development of Fintech (and parallels with perceptions of “Brexit” as being a crisis)
- “for Fintech businesses to be interesting they need either to offer either better value to consumers or better service experience or ideally both”
- “I don’t think better service is enough to build a business” – we are still seeing this in many Fintechs right now [one aspect of Fintech 1.0 that needs upgrading – a shiny, in essence user interface isn’t a deep business angle]
- most Fintechs are aiming at achieving profitability quicker now then they were a few years ago – the need for strong marginal economics and the imprtance of that as a direction/narrative
- the Executive Chairman/CEO respective roles at Zopa
- uncertainty of Brexit being implicit in the vote which was in essence for or against something without any vote on what would happen next – there being a wide range of possibilities
- conservative risk management in the circs esp re consumer credit in any economic downturn that may or may not happen
- balances of opportunity and threat – periods of change being more of a threat to incumbents (the larger they are) and more opportunity for new startups to react faster
- UK focused Fintechs versus those more outward looking ones (esp those that need scale to succeed)
- the long running negotiations to come balancing eg membership of the single market with demands for open borders (which was a real pain point for much of the electorate)
- Fintech 2.0
- an example being Bitcoin (1.0) and Blockchain (2.0)
- in payments a comparison of GoCardless (1.0) running on existing rails versus payments 2.0 with direct access to the Bank of England accounts and payments systems
- an increasing onus to demonstrate profitability and self-sustaining Fintechs – so a shake-out component
- Fintech having set its stall out as being focused and not diversified – so one growth option for Fintech 1.0s would not appear to be diversifying into different types of Fintech
- early stage businesses often define themselves in terms of what they are not into one of defining themselves by what they are demonstrably good at
- partnering with incumbents such as banks and the possible stage after that of being acquired by banks
- Metro Banks lending of some of its depositors funds to Zopa as an example of partnership
- the best speech on Fintech (in passing never delivered) was Giles believes by Mark Carney the Governor of the Bank of England “Enabling the FinTech transformation: Revolution, Restoration, or Reformation?”
- the future of the whole PSD2 impulse now the UK is going further from Europe – will Banks lobby more successfully or will our traditional; less bureaucratic approach triumph? This set against a global trend to greater lobbying and political power in corporates worldwide
- the whole FS regulation is up for grabs – will we “roll our own” – or copy EU – or even copy the US’s?!
- the whole topic of institutional versus private funds and how that is affecting the industry and Zopa in particular (more than half the funding for Zopa comes from private money still)
- types of insitutional money – “fast” and “slow” money – and how long it takes to find long term partners in the second category
- Zopa’s three product offerings and the thinking behind them
- app-only banks, the challenge of challenger banks ending up being too similar due to the regulator applying pressure to recruit existing bankers [see eg Tom Blomfield’s challenges in remaining the CEO of Mondo]
And much much more 🙂
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