Fintech has grown up fast. The initial wave of startups that came out to challenge the traditional finance sector in the 2010s looked shiny, felt exciting, and were disruptive. The industry quickly became a darling of investors, and is now expected to reach a global value of $1.5 trillion by 2030.
This extraordinary rise was predicated at least in part on Fintech’s customer-centric promise of meeting consumer needs in an unconventional and adaptive way, as well as catering for those whose needs may not have been met at all by traditional banks. As a sector, Fintech has been agile enough to rapidly absorb the learnings of new technology.
In a 2015 article titled “The Fintech revolution”, The Economist predicted that Fintechs would cut costs and improve the quality of financial services: “They are unburdened by regulators, legacy IT systems, branch networks—or the need to protect existing businesses.”
In challenging the traditional banking and financial services systems, Fintech companies have come a long way—even partnering with the banks that were once their competition. But there have been bumps in the road, from market fluctuations to allegations of money laundering. Has it lost some of the early promise that won it the hearts and minds of businesses, investors and consumers?
In this week’s episode of Payments Innovation, host Piers Marais was joined by Gemma Lingham, Head of Fintech at FleishmanHillard and Janine Hirt, CEO of Innovate Finance, to look at how the Fintech sector has evolved, and what it needs to do to continue to keep building its reputation.
Adjusting to growing pains
For Gemma Lingham, who works with a portfolio of Fintech clients, the difficulties the sector has been facing are a reflection of its entry into the mainstream. “It’s not the underdog,” she said. “It’s not the bubble waiting to burst. It’s not the new kid on the block. Despite some turbulence, it’s still a thriving industry. I think it’s natural that as a sector grows and becomes more ingrained in our society, there’s more likelihood that there’s going to be a scandal or there’s going to be a crisis.”
For example, Lingham said, what happened to lenders such as Silicon Valley Bank (SVB), which collapsed in March 2023 after a bank run, came about because of the speed at which the tech industry has grown. While not devastating, the collapse dented confidence in tech startups, including Fintechs, many of which had relied on SVB funding.
“I think what it does show,” Lingham observed, “is that this is a real moment for Fintechs to make sure that they have their checks and balances in place, and to make sure they aren’t caught out should happen.”
Share and share alike
As Fintechs have reached mainstream status, they are increasingly taking a larger slice of the financial services pie. In the UK alone, 84% of consumers are using Fintech to manage their money.
“In 2022, we saw more than $90 billion invested into Fintech globally, and in the UK, we had around $12.5 billion invested into the ecosystem,” said Hirst, “so looking at where we were 10 years ago to where we are now, I think it’s important to reflect on the natural maturity of the sector that we have seen over the years. It’s no longer about the Fintechs eating the banks’ lunch. It’s about how do we see these partnerships taking place between the incumbent financial institutions and the Fintechs?”
The relationship between banks and Fintechs can be beneficial for both, with banks helping Fintechs to navigate the regulatory landscape and Fintechs providing the innovative technology that banks need to continue to meet client expectations around digital access to financial services. Pairing up plays to the relative strengths of banks and Fintechs, allowing each to grow in both strength and customer base.
From Lingham’s perspective, “We’re seeing lots more collaboration, lots more partnerships. Fintechs and the banks aren’t arch enemies anymore. It’s about coming together.”
UK growing as a global leader
With the UK a dominant force in the Fintech market, consumer awareness has grown to the point where 48% would like to see their bank partnering with Fintech companies, and 52% view banks who do so as more innovative, according to “The Fintech Effect”, an annual industry report.
Hirst believes that Fintechs still excel at the customer focus extolled by commentators in the sector’s early days. “More and more, I think what Fintechs do that sets them apart is that they increasingly focus on the consumer,” she said. “With that in mind, they are able to innovate in a way that puts the customer first, whether that is looking at speed, whether that is about increasing access to different types of products, or embedding it so that they don’t even realise they are using a financial services tool.”
The result is that Fintech investment is no longer just coming into the London market, said Hirst, but dispersing out into regions across the UK, such as Manchester, Edinburgh, Bristol and Cardiff, which are also now developing as new Fintech hubs.
“We are actually ahead of all of Europe combined in terms of investment,” Hirst observed, “so we are the European leader and very much a global leader. And I think that’s really a testament to the amazing entrepreneurs that we have here and also to the regulatory environment and to the government support that is so necessary to foster this type of innovation, as well.”
Following a recommendation in the Kalifa Review of UK Fintech, the UK Government set up The Centre for Finance, Innovation and Technology to further the country’s position as a global leader in the sector.
Be your authentic self
So what’s next for Fintech? After any questions around valuation and charges of irregularity have settled, how can the industry keep innovating from a technology perspective while continuing to secure customer loyalty and trust?
Lingham says that ultimately, it comes down to authenticity, and the need to communicate openly with customers on the topics they really care about. She cites savings account provider and peer-to-peer lender Zopa as a great example of a Fintech that is doing this well, by issuing a steady stream of updates on areas of concern such as interest rate rises: “They’re very quick to communicate on what a change means, when a change happens, and what it means to the customer, how it relates to a customer, how it’s going to impact them ultimately.”
Hirst also highlighted the significant impact Fintech has had during the cost of living crisis, from tools to support more flexible wage structures to looking at budgeting affordability.
“Some programmes even offer opportunities to identify vulnerable customers before they get to the point where they’re really in a problematic space on their financial services terms,” she noted, “and so there’s all of these new products and new companies coming to the forefront in the Fintech community that are having such a positive impact and positive benefit. When we look at the conversation and the narrative around Fintech, I think it’s integral that we start bringing this into the discussion, too.”
As more Fintechs become critical to the global financial services ecosystem, that commitment to flexibility, accessibility and diverse lending strategies is worth remembering.
Until next time!