Fintech: Assessing the future of financial technology

How is fintech really driving new economic and social value?

The fintech revolution is well underway with innovation and disruption affecting the financial services industry like never before. But how is fintech really driving new economic and social value, and for whom? And where will it take us?

Are we witnessing a revolution in financial services?

Fintech is potentially the most rapid change in financial services since the 1986 deregulation and computerisation of UK finance known as the ‘Big Bang’. Technology is revolutionising debt and equity markets, payments, credit assessment, regulatory compliance, personal finance and many other facets of financial services.

Much of the focus so far has been on alternative finance platforms – crowdfunding and peer-to-peer (P2P) finance. This market reached £3.2 billion of lending and investment in 2015 and has brought new investors, borrowers, companies and projects together that increase transparency and extend finance to some that would otherwise fail to find it.

Is this a disruptive innovation that will sweep away incumbent banks, in the same way that Instagram displaced Kodak?  Or do the recent signs of slowdown in the UK P2P market and US regulators probe into alleged malpractice at Lending Club herald the high water mark of the challengers?

Not only are we interested in start-ups that are exploiting new digital and mobile technology to serve customers, but also in how existing financial firms are taking advantages of new possibilities.

Some of the biggest changes might be apps from the likes of Monzo, Squirrel or PensionBee that help people to manage their money better.

Will advances in data analytics bring huge advances in credit assessment and market insight through apps such as Aire, Credi Karma and Kensho?

Will advances in artificial intelligence take finance advice into a de-personalised future, or will it drive new and more convenient opportunities for human interaction?

Some of the greatest impacts might be those that are felt ‘behind the scenes’ rather than from the more obvious new consumer brands and products, for example in revolutionising compliance and regulatory management, or start-ups focusing on cyber and data security such as Crypto Labs and Privitar.

The true promise of blockchain (mutual distributed ledger) technology is still hard to discern and although the hype might have arrived already, the real evolution and adoption of such technologies might still be a process measured in decades.

In order to generate insights for policymakers, public and professionals we are conducting research and engagement in tandem with the RSA in order to illuminate how these different scenarios might unfold.

Who are the winners and losers from this revolution?

But more fundamental to our inquiry is to stand back and ask how is this revolution going to drive economic opportunities and social progress?

To answer this question we will take a new look at fintech through the three different lenses of trust, purpose and regions:

  • Can technology increase trust in the financial industry to deliver appropriate, fair and transparent products favouring new entrants whose reputations are untarnished by the global financial crisis? Or as digital finance becomes all pervasive, will concerns over data security and privacy favour well established brand who have served us for centuries?
  • Will technology anchor financial service more securely in serving the real economy? Does fintech naturally benefit households and companies more directly, boosting investment in productive sectors and extending access to finance?
  • Can fintech play a strong role in supporting regional growth, firstly as a provider of local jobs and wealth creation and secondly by increasing flows of investment capital into regional economies

The only thing that’s certain is uncertainty

Financial service professionals are well-versed in the adage that “past performance is not an indicator of future results”, but dealing with uncertainty has been given a turbo boost by the UK’s referendum vote to leave the EU in June.

This adds a new layer of complication to understanding about how technology might affect financial services, with many unresolved issues from bank passporting to recruitment potentially having adverse effects on incumbents and start-ups alike.

Over the coming months we will report on the key issues that our work with the RSA identifies for the sector and some of the findings from our engagement with senior professionals, regulators and other financial sector stakeholders.

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