'FinTech' is a phrase we hear a lot but what does it mean, and is it just a buzzword?
Put very simply, FinTech, or financial technology, involves the use of software in the provision of financial services. That does not sound particularly new, or particularly exciting.
But FinTech companies, which are often start-ups, are using technology to disrupt the way in which traditional finance companies do business. From mobile payments, money transfers, loans, fundraising and even asset management, software is transforming the way these companies operate.
This transformation has already happened in the retail sector. Amazon and eBay, unheard of 20 years ago, are now household names. They are prime examples of how software has changed the face of the retail sector, with virtually any saleable item now available for purchase online 24/7. Core to eBay's offering has been its payment tool, PayPal, which it spun out last year summer into a separate listed company. PayPal was one of the first and is now one of the largest online payment companies which overcame a major hurdle to the success of online retail – the need for a secure payment mechanism which grabbed and held on to customer confidence.
Now, it seems, it is the turn of the finance industry. In 2008, the global investment in FinTech was reportedly around $930 million. This had grown steadily by 2013 to about $4 billion, and tripled in 2014 to over $12 billion in just one year.
In the UK, the financial sector is recognised as one of the main drivers behind the country's economic recovery since the global turndown in 2008. Statistics from the Mayor of London's Office claim that 40% of London's workforce now works in the financial and technology sectors. The UK Government has appreciated that to continue this growth trajectory, tech talent needs to sit alongside finance talent.
London-based company, Nutmeg, is just one example of what can happen when tech and finance talent combine. Its co-founder and CEO, Nick Hungerford, was previously a stockbroker who started Nutmeg because he was "frustrated by the exclusivity and lack of transparency in the investment world". In just three years, the company built the UK's first online discretionary investment management business which offers to manage your wealth for a small, transparent fee. Some see this apparently simple proposition as the start of a major shake-up in the world of private banking in which economics are so compelling that they eventually prevail over traditional banking relationships. Clearly Schroders saw the potential when they participated in Nutmeg's £30 million funding round which closed in 2014.
Part of FinTech's appeal is that it is a great leveller. Customers, perhaps unfairly, often expect the same services from a small firm as they do from a larger one, and technology allows David to compete with Goliath on a far more equal footing. It makes doing business quicker and easier, giving FinTech companies the potential to be more nimble, adapting quickly to change, avoiding the costs of operating a bricks and mortar business, and passing their savings on to their customers.
FinTech also helps itself. The traditional model of a new business turning directly to its local high street bank or a conventional investor is no longer the only way for a start-up to get itself off the ground. Crowdsourcing, for example, allows people with big ideas to get funding quickly and easily from anywhere in the world from an online community of people they have never met.
So what does this mean for Jersey?
Given the global investment statistics in FinTech in recent years and the crucial part the financial services industry still plays in the island's economy, it is perhaps unsurprising that Digital Jersey's recently published business plan identifies FinTech as one of its three key areas of focus for 2016. Its stated aim is to "draw together Jersey's tech and finance industries to develop new products and services in the FinTech space, to provide a platform for inward investment, to stimulate domestic development and the strengthening of our current position in financial services".
The drawing together and collaboration of the tech and finance communities in this way will certainly be fundamental to achieving this aim. Ensuring we have appropriate, proportionate regulation which keeps pace with innovation and protects our reputation as a blue chip international finance centre will also be key. But perhaps most important of all will be the need proactively to embrace the opportunities, and adapt to the challenges, that technology will inevitably bring.
FinTech is more than just a buzzword: it is the future of finance.
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