The FinTech 50 – the future of finance

Guest blog post by Alex Macpherson, Head of the Ventures team, Octopus Investments

The FinTech 50 provided a great opportunity to learn about and discuss the current trend of emerging innovative financial technology companies in Europe. The FinTech sector has never looked more exciting as economic, technological and social catalysts combine to create an appetite for innovation in this market. The financial services companies themselves are recognising that they need to invest in new technologies to manage the pressures of increased data flow, content production and user demand. What’s more, it is still early days and the opportunity for the FinTech market to respond to these needs and rapidly grow is clear.

The market is huge, with the term ‘FinTech’ encompassing many different sectors within the financial services industry – from banking to electronic payments to insurance to foreign exchange operations. Nevertheless, within this broad industry there are three particular areas where, to my mind, the drivers for change are resulting in innovative FinTech companies developing solutions that are and will dramatically alter the way business is conducted.

Peer-to-peer lending and crowd funding

With savers receiving paltry interest rates from banks on their deposits and newspaper headlines repeatedly serving as a reminder that funding for  small businesses and individuals is scarce, it is unsurprising that we are seeing such growth in peer-to-peer lenders connecting these two groups of dissatisfied customers. Funding Circle, which provides businesses loans, and Zopa, for individual loans, are two examples of this business model in practice. The Financial Services Authority has recognised the growth in crowd funding companies, and it is good to see the likes of Seedr and CrowdCube obtaining regulatory approval for their business activity to endorse the legitimacy to this form of lending.

Automatic processing and electronic exchanges

There is a significant opportunity for new innovative technologies across all areas of processing financial trades, as we seek to remove human intervention and the risk of human error that comes with it. Over the last few years we have seen the decline of open-outcry or face-to-face exchanges in favour of the electronic trading platform. This has been applied across product categories, most recently with the introduction of platforms for listed securities and high yield bonds with the likes of Chi- X and Vega Chi bringing innovative solutions to the market. The subsequent reduction in errors and cost savings of automatic trades should be regarded as a positive outcome for the financial services industry as a whole, and the opportunity for continued developments in this area is immense. FinTech companies are also crucially helping to reduce the cost of doing business by bringing new innovative technologies to market. This is well illustrated by the mutual funds industry, which has for a number of years existed with numerous different systems and little connectivity between them. However, Calastone is now providing a global transaction network for the industry to help make the overall market more efficient. 

Regulation

The shadow of the financial crisis continues to loom large over the industry, and the proliferation of regulation is just one side effect.  Again this provides opportunity to a variety of FinTech businesses that are focusing on finding ways of helping companies meet an increasing number of regulatory requirements. Semafone, for example, aims to support PCI DSS compliance, ensuring companies meet standards for the handling of cardholder payment information. New businesses and the technologies they bring to market often evolve out of the need to solve a problem and this is particularly significant in the financial services technology space.

As evidenced by the above there is a wealth of opportunity for FinTech businesses as changes to technology, business practices, consumer attitudes and regulation combine to create a dynamic and quickly evolving industry. The FinTech 50 Watchlist celebrates all companies in this space that have the potential to significantly transform an aspect of the industry, or the competitive staying power to continue being one of the industry’s game-changing technologies. The future of the financial services truly lies in the lands of the FinTech entrepreneur. 

NFC: Needs Further Clarity

Guest blog post by Bernhard Lachenmeier, head of products and marketing, SIX Payment Services

The Co-Operative Group recently became the latest retail chain to announce a roll-out of contactless payment terminals across the UK following the likes of Boots and Superdrug. This comes as Pret A Manger announces a 15 per cent rise in contactless payment transactions made in their stores over the past 12 months. Even Transport for London is riding the contactless wave, having introduced NFC bank card payment capability across the London bus network at the end of 2012. Organisations are undoubtedly starting to invest real sums into contactless payment technology, which would suggest that NFC is finally here. So why does it feel like this isn’t the case? 

According to the UK Cards Association, as of January 2013 there are 31.3 million contactless cards in the UK – suggesting that half of the population is walking around with an NFC-enabled card in their wallet. What’s more, according to ICM Research, the awareness level of contactless cards is 80 per cent, meaning most consumers are aware of the full capabilities of their payment cards. Yet the same research tells us that just one-third of contactless card holders have ever actually made such a payment. While I applaud the efforts and investment of the country’s retailers in providing contactless payment facilities – there are over 143,800 terminals in the UK – questions need to be asked around what will persuade consumers to make the jump from understanding contactless, to actually being comfortable using it.

Unsurprisingly, there are still a number of urban myths doing the rounds about the security of tap payments. Stories of electronic pickpockets who steal card details simply by walking past someone with an NFC-enabled card are enough to put many off the technology. Yet these are, as yet, unfounded rumours. We need a dedicated education campaign, focused on teaching consumers and retail staff – after all, cashiers are the people on the front-line of payment technology – the truth about contactless. 

The fact is that consumers are demanding increasing levels of convenience and speed in their day-to-day payments – and contactless offers this. What’s more, we live in a world in which we rely ever more on our plastic payment cards. According to the UK Cards Association, UK consumers spent £3.3 billion more using plastic in December 2012 than in December 2011. Using these cards in a contactless capacity is the natural next step, which is why card schemes, banks and merchants need to work together on an education programme.

Greater clarification is needed if contactless is to become a ubiquitous method of payment. Where NFC is concerned; it’s time to go back to school.

Contactless and e-wallets overhyped, new report

Ixaris and Anthemis have released the Payments Innovation Jury Report 2013, which, dear readers, you can download here.

Some interesting findings, in particular the stuff on e-wallets and mobile payments technology. Over half of the Jury, made up of major players in the global payments sector, does not believe there is a strong business case for e-wallets to replace credit and debit card payments. Mobile payments technology will have more applications in developing economies rather than developed economies. Although mobile technology is seen as the biggest driver for payments innovation, Jurors consider mobile payments to be overhyped. NFC/contactless payments are the most overhyped mobile payments type, with e-wallets second.

A solution in search of a problem, then, or is there some substance to all the mobile payments hype? I'm not sure 2013 will bring us any closer to the answers.