While heading up a business that goes to the heart of helping fintech companies deliver a better service for their customers, I have been tremendously excited to see how the fintech sector has moved up to a whole new level this year. What particularly excites me is the way that two particular groups have seemed to really recognise the role of fintech companies in underpinning economic growth.
First of all, there is the government. In the summer, the UK government appointed its first Special Envoy for fintech, signalling a real recognition that this sector has a fundamental role to play. A partner at the London-based venture capital firm Passion Capital, Eileen Burbidge, was not only appointed by George Osborne as the government’s special envoy for fintech, she also took over as Tech City Chair. She has also just been listed Number 4 in the Computer Weekly list of the 50 most influential people in UK IT for the next 12 months. With a reputation for spotting and supporting the innovators in our sector, Eileen is undoubtedly an advocate who will champion the disruptors and challengers who set out to make business better.
The UK government has also signaled a commitment to fintech with an ambitious goal to make London the global centre for fintech. In setting out this ambition, George Osborne said that British regulators would provide “the space where innovation can happen”, which was backed up by Bank of England governor, Mark Carney’s promise that reforms to the financial sector would be designed to make innovation easier. Bold promises that, if genuinely delivered, will truly shake up the marketplace.
The other group that, perhaps surprisingly, has embraced the change of being empowered by fintech is the very organisations that are being challenged by the disruptors: the traditional banks. In 2015 there was a growing groundswell amongst the traditional banks to get involved in the fintech sector, with a genuine interest in extending their services to deliver better value for customers. Key investments have been made by several of the high street banks, including Barclays and Santander, as well as the appointment of fintech specialists in a number of these organisations, and I firmly believe this is great news for the sector as a whole.
Competition is healthy. It inspires change and that can only be good news for the global economy. There are a wealth of businesses, from start-ups to established brands, that are looking for ways to improve people’s lives and they need to be able to do things differently and better, in order to achieve their goals and the payments process is a common thread through all of this.
Whilst much of this year’s headlines have focused on the innovations occurring in the consumer payments sphere, 2015 has also seen considerable developments in the B2B payments sector, which isn’t surprising when looking at the state of the global economy.
According to a McKinsey report published in April 2014, global trade flows were worth $26 trillion in 2012 and are set to triple from 2014 to 2024. The B2B international payments sector is estimated to be ten times larger than the B2C sector in transaction volume and three to four times larger in dollar volume. This presents a huge market opportunity for fintech with an eye for innovation; they can genuinely provide a real alternative to traditional banking, which is hampered by regulation and isn’t fast or flexible enough for the changing landscape.
Germany is currently the top export location for the UK, in terms of volume (11%) and value, with China following closely behind. Looking at imports, the USA tops the volume chart (11%), followed by China (9%) and the Netherlands (8%). It’s pretty much the same picture, in terms of value, except China takes the top spot, with the USA and the Netherlands following. These UK imports and exports alone add up to billions each month, but with businesses paying thousands of pounds in transaction fees and high foreign exchange rates, the payments industry has to come up with better solutions.
Alongside regulatory changes favouring the competition, technological advances have paved the way for cutting-edge solutions for problems customers didn’t even realise they had. Mobile payments, crowdfunding and cryptocurrencies all make the customer’s financial life more convenient, more streamlined and more accessible, regardless of geography. Whilst the consumer audience has been the first to benefit from this innovation, it’s now starting to permeate the world of business.
Fintech companies are in the perfect position to bring innovation to the international B2B landscape and a number of brands have thrown down the gauntlet during 2015. With no legacy infrastructures, lower running costs versus incumbents and increased transparency, the new breed of disruptors can finally get B2B payments moving. It isn’t just a question of charging less than traditional banks and cutting them out of the picture, fintech companies can collaborate with banks to help them successfully move into the digital payments market. In turn, banks can offer the fintech companies additional security through their regulation, offering added peace of mind to their customers, as well as dragging the payments process into the future.
2015 has been a year where the FinTech sector has moved on significantly, not least through the growing consumer appetite for better and quicker ways to pay: think tap and pay. 2016 has to be the year that the business marketplace gets in on the act.
By Anders la Cour, Chief Executive Officer, Saxo Payments.