As an unprecedented heatwave and almost-unprecedented World Cup Football success gripped the UK, a delegation of New Zealand companies recently descended on London, the hotbed of global FinTech, for a week of meet-ups, connection building and market scoping, timed to coincide with the Fintech Week conference taking place in Westminster.
Our group represented a cross-section of the FinTech landscape in New Zealand, from ambitious start-ups and scale-ups (JRNY, Invsta, Choice, SavvyKiwi, Hedgebook) and esteemed incumbents looking for a fresh burst of innovation (Forsyth Barr, Paymark) to local success stories in emerging sectors (Blockchain Labs) and tech trailblazers already flying the NZ flag globally (Xero, Vend). And of course a leading New Zealand technology law firm (Hudson Gavin Martin)!
It was a busy and rewarding week for all the delegates - and here are some key takeaways from it:
- FinTech is booming and the UK is the epicentre.
Global FinTech investment hit $57.9 billion over the first half of 2018, which is 37% more than the whole of 2017. And who got the biggest share of that substantial pot? The UK, with $16.1 billion - beating out China and the US. A decent chunk of that figure was the $250 million raise by digital banking upstart Revolut (who attended a networking event organised for the delegation by NZTE and law firm Fieldfisher). They have global plans and some significant funding to implement them, so it was encouraging to hear their Business Development Manager for the UK and Europe speak so positively about New Zealand as a priority market - they are launching here later this year.
- It's all about partnerships...
If one overarching theme emerged over the week, it was that strategic partnerships are the holy grail for this sector in the near term. Both Transferwise and World Remit - two of London's most successful FinTechs in the payments space, described themselves as "partnership businesses" during a FinTech Week panel discussion - with Transferwise trumpeting a recent tie-up with digital bank Monzo, and World Remit explaining how partnering with traditional banks and payment providers in foreign jurisdictions is core to its model. From a New Zealand perspective, it is worth considering how international partnerships may help our FinTech companies succeed globally, by easing the pain points of new market entry."
- And platforms.
The unbundling of traditional financial services by platform players like Amazon and Ant Financial in China was another major talking point. The difference between platform and traditional models can be stark from a customer experience perspective - seamless, connected, digital-first platforms are somewhat of a revelation in the financial services space. Can the traditional providers fight back? Well, Ant Financial has a user base of over 600 million, which it has leveraged to move at lightning speed from chat to mobile payments, then into business lending and wealth management - all while mining the treasure trove of data provided by this massive pool of users. So it's going to be a tough battle. And Transferwise's Head of Business Stuart Gregory laid down the gauntlet to the incumbents, saying of their disruptive FX business model that "any bank could have done this".
- Regulators are innovating and collaborating too - and we want more.
All this talk of partnerships is not lost on UK regulators. At a roundtable discussion on the UK/NZ FinTech landscape, the delegates heard from the Financial Conduct Authority - the UK's financial markets regulator - on its plans for a "global sandbox". This is a collaborative project which could provide FinTech companies with the ability to test their solutions concurrently in multiple markets, as well as promoting cross-border solutions to common regulatory challenges. This would augment the "Fintech Bridge" agreements already in place between the UK and certain key partner jurisdictions (including Australia, who have the most far-reaching agreement thus far). While the FCA has made some initial high-level proposals, the strong message was that they want other regulators at the table driving this initiative with them. Hopefully our own Financial Markets Authority is listening.
And for a great example of genuine regulatory innovation in action - check out Gibraltar, where the local Stock Exchange has set up its own "Blockchain Exchange" for crypto tokens. Applying best practice from traditional capital markets (like continuous disclosure obligations) they have implemented detailed token listing standards, built a digital token 'launch centre' and are working on a secondary market.
- The UK is providing some interesting lessons on Open Banking.
The delegates spent an enlightening afternoon with senior representatives from Open Banking Limited, the company tasked with implementing the UK's Open Banking programme. Among the insights we gained:
- Take-up has been steady but not huge - with 30 licences granted to FinTechs wanting access to bank data and around 140 companies in the licensing pipeline.
- There has been an element of "culture shock" for some of the tech companies subjected to a financial services licensing process for the first time - impacting the speed of uptake.
- Although payment initiation has the most potential to disrupt the industry (particularly the card schemes and traditional payments players) it is more complex to implement from a technology and security perspective. So account information solutions (using banking data to provide insights to retail customers) are where most of the action is currently.
- There was a strong message that a clear regulatory directive (in this case an order by the UK's Competition and Markets Authority) has been key in providing a firm framework and sense of urgency for the programme. Placing responsibility for both setting and implementing open banking standards with a single entity was also viewed as key to unlocking efficiencies and corralling the various players.
- Another successful element of the UK programme was a 'use case workshop' held between participating banks and a selection of FinTech providers before launch. This was used to scope likely applications, test assumptions and refine the technical approach.
All food for thought as the Open Banking conversation continues in New Zealand.
- Brexit is good news (for New Zealand FinTech, potentially).
Controversial as the headline sounds, there was a definite sense from our time in London that the UK is looking outwards in the context of Brexit, and New Zealand is fairly high up the pecking order of trade relationships given our historical links, similarities in culture and systems, and perceived ease of doing business. It was clear from the Round-table discussion that there are "principle" as well as "mercantile" drivers for international trade, and while NZ is a relatively small market - we tick a lot of boxes with the UK on the principle side. There is also a prevailing view of New Zealand as a gateway to Asia, and particularly as an "indirect play" on China. Ambitious Kiwis take note!
- Trade bodies are an excellent resource.
Both NZTE and their UK equivalent - the Department for International Trade - were brilliant in setting up events and providing contacts and guidance to the delegates on the ground. Take a bow Dhaval Gore (NZTE) and Odette Hurle (UKDIT). Any FinTech business looking at the UK market should get in touch with these two as a matter of priority
- Standing on the shoulders of Kiwis.
It's not easy making your voice heard amongst the FinTech din as a country of 5 million people at the bottom of the world. But it certainly helps to get people listening when you can point to major success stories like Xero. As well as being part of the delegation, Xero's UK arm hosted us for a fascinating discussion, providing insights on the UK market from the coalface. It was also great to see Mark Pascall from Blockchain Labs chairing a Fintech Week panel discussion on marketing of ICOs, and flying the flag for New Zealand as a blockchain centre of excellence. Everyone loves a good story - and our international successes provide a great jumping-off point for discussions on trade, investment and collaboration.