I wrote last week about the fear that the fintech industry has over a potential hard Brexit or cliff edge Brexit as it is also known.
A sudden loss of access to the single market and the ability for banks to trade across Europe will inevitable mean the UK is no longer the place for fintech’s to be headquartered. But that is not the only problem with less access to talent a major concern.
At a recent House of Lords EU committee meeting Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, which is a network of entrepreneurs and tech experts that support the UK tech startup sector, warned of dire consequences for tech startups, particularly those in the fintech sector. He stopped short of telling these firms to move their headquarters to an EU country but recommended they set up a presence.
This is happening. The Financial Times reported this week that London-based payments company Currencycloud has started to implement its Brexit plan. According to the FT the company is applying for a license in the Netherlands. This is to ensure it can still serve clients in the EU and access much needed talent.
Todd Latham, chief marketing officer and head of product at Currencycloud told the FT: “While we’d love for the UK to have a soft Brexit, you can’t guarantee that. Our concern is about how we service customers and how we make sure that we’re bringing the best talent into the organisation.”
The talent issue as Computer Weekly reported earlier this month is a major concern. The quota for tier two skilled workers from outside the EU has been reached for the last few months, sparking fear that an exodus of EU IT professionals might leave tech firms short of much needed expertise.
Jackie Penlington, senior associate at law firm Stevens & Bolton, said Brexit is reducing the availability of skilled staff. “You can’t say for certain, but I think the impact of Brexit, with less EU workers coming to the UK and all the uncertainty, is fueling the increased demand for these visas,” she said. “We are in a global market for workers and people may be deciding to go to other countries.”
One of my colleagues met up with a tech firm last week who told him that they recently offered someone from the EU a job because they really needed their expertise, but were rejected because of Brexit.
I am interested in hearing from the fintech sector about preparations for Brexit.
An international fintech delegation to UK: now you see them, now you don’t. Just like that.
I was all geared up to meet 50 fintech companies from across Europe and Israel as part a delegation invited by the Department for International Trade (DIT) and the City of London. I would have got to interview the head of DIT’s Financial Services Organisation as a well as some of the startups.
But sadly I was informed, a day before the event, that rather than attending the entire two-day event, journalists would only be allowed to attend a networking event for just two hours in the evening. A major last-minute change of plan.
This is a shame as I was interested in what these fintechs thought about the prospect of the UK financial services sector losing passporting rights after Brexit, as well as other Brexit-related questions. I am sure every journalist that planned to attend had the same thought, it would be a giant elephant in the room for two days.
It must be hard selling the UK to these fintechs at the moment with so much uncertainty around Brexit. How do you entice a company to come to the UK with so much uncertainty?
Last week I listened in on a recent House of Lords EU committee meeting, where members discussed the impact of Brexit on the UK IT sector.
Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, which is a network of entrepreneurs and tech experts that support the UK tech startup sector, said that fintechs will be finding it hard if the UK can’t secure a good deal with the EU.
“If we go over this cliff edge it will be immensely disruptive. The entrepreneurs that I meet say they will just get on with it and make the best of it but it will be a very, very disruptive process for a number of them, particularly those in the fintech sector. That is one of the most vibrant aspects of the tech community in London and many of the companies will need passporting rights.”
But it is not just the loss of passporting rights that might put fintechs off building a big presence in London or UK, but also issues such as a talent shortage. EU staff make up about 8% of employees working in the UK tech sector. These are highly skilled and talented people with most earning salaries between £45,000 and £80,000 a year, he added.
I am sure the UK and London in particular will remain attractive to these firms, as most major economies are, but perhaps they will have smaller UK operations than they would if the UK remained in the EU. They will want to ensure they have access to the EU market, which is not yet guaranteed, so will ensure they have an EU presence.
Back in June I spoke to a London-based fintech startup at an event who said plans were in place for his company to set up a Dublin office.
If you are a fintech it would be great to hear your views.
Fintech is one of the most promising tech sectors in the UK but it could be the one that suffers the most as a result of the UK leaving the EU.
The loss of passporting rights, which gives finance firms license to trade across all the EU, could make the concerns of startups outside the finance sector seem minor.
I listened in on a meeting yesterday between the House of Lords EU committee and three executives from the IT sector in the UK. These were TechUK CEO Antony Walker, Simon Hansford CEO at UK cloud hosting supplier UKCloud and Russ Shaw, founder of Tech London Advocates and Global Tech Advocates.
Shaw highlighted the huge risk to the startup community in a scenario where the UK has no deal with the EU or even a bad deal, but emphasised that fintech could suffer the most.
Shaw, who was representing the views of tech startups, said: “If we go over this cliff edge it will be immensely disruptive. The entrepreneurs that I meet say they will just get on with it and make the best of it but it will be a very, very disruptive process for a number of them, particularly those in the fintech sector. That is one of the most vibrant aspects of the tech community in London and many of the companies will need passporting rights.”
He went on to praise the FCA for trying to find solutions to this type of problem.
But it is not time yet for UK based fintechs to go through the pain of relocation. He said that while UK startups and early stage firms should probably be opening up a presence in Europe to ensure they have access to customers in the EU, he did not recommend moving headquarters.
There is a lot to lose for the overall UK tech sector if the final Brexit deal is bad news. Tech firms in London, many of which are fintech focused, received more venture capital funding in 2017 than all other major European cities combined, with the amount invested doubling since 2016, according to research by the mayor of London agency, London & Partners. It found that £2.45bn in funds were invested in London-based firms in 2017, compared with £1.23bn in 2016. London accounted for 80% of investment in the UK.
The European city with the second largest influx of funds was Paris, which received £565m, followed by Berlin with £456m. So you can see why the EU might drive a hard deal. Cities like Paris would like to have London’s cake and eat it and as the Japanese ambassador said this week after meeting Theresa May, if being in the UK makes Japanese firms unprofitable there is no reason to be there.
Lloyds Banking Group has banned its customers buying Bitcoin on their credit cards as the value of the cryptocurrency falls sharply.
The bank will no longer allow transactions involving virtual currencies on its credit cards. This includes Lloyds bank, Bank of Scotland and Halifax customers.
The volatility of virtual currencies has put the fear in banks that they might end up paying customer debts. Recent fluctuations in value have been dramatic. Just before Christmas the value of bitcoin was £14465 but is now below £6000.
But if they are not put off by the bank’s drastic action Lloyds Banking Group customers can still be use their debit cards.
According to research by City, University of London, Bitcoin is the biggest cryptocurrency but that it has been steadily losing ground to its closest rivals.
Cryptocurrency is a niche pursuit and I must admit I struggle with the whole concept. Lloyds’ decision seems sensible as credit cards are dangerous as they can lead to huge debts
I am always shocked at the bland responses I get from banks after they suffer an outage.
When there is an outage the most I get from the press offices at the big banks is something like: “We are aware that some of our customers are unable to access mobile and online banking services. We are currently fixing the problem and will update you….”
Then, unless it is an outage on the scale of the infamous RBS crash in the summer of 2012 and customers could not access funds for a week or more, a message is sent reassuring that all systems are back up and running. Twitter is often the medium used by customers to highlight problems and for the banks to keep the customers informed.
The bank statement when everything is fixed reads: “We apologise that some of our customers were unable to use out online banking service and mobile banking app some of the time for a short period last Friday. The services are now fully up and running….”
Then radio silence. As an IT journalist I have the privilege of being able to call the press office of the banks and ask them what happened. Unfortunately they never say what happened. It sometimes seems that they don’t actually know.
It would be good if they gave a little detail about what happened so at least we could explain to customers whether this is serious or not.
So it was great to read last week that challenger bank Monzo did just that a week after a problem. The bank gave a detailed explanation of why services were unavailable during a 30 minute period.
“Hi everyone. I’m a backend engineer at Monzo and I’m here to provide an overview of what happened last week when we experienced an outage. Last week, we experienced problems that affected both the prepaid and current account for around 30 minutes. Similar to the last major incident we experienced, I’d like to provide an overview on the causes of this outage, the timeline, and the steps we’ve taken to prevent similar events from happening again.” Then there is a detailed explanation which you can read here.
As you can see the explanation is very detailed and explains what is being done to prevent it happening again, see the interesting section headed Mitigation and Prevention. This is reassuring to customers if they commit their money to a digital only bank. See what they did there? Turn a short term problem into a long term strength.
Outages no matter how small add up and can do harm to a banks reputation due to the speed at which new of a problem spreads across social media. Even people that weren’t trying to use a banking app or online banking service will join in with the complaining.
With banks reducing the number of branches and support staff, mobile apps are becoming more important for customer services. Figures from the European Banking Federation (EBF), which include the UK, revealed more than 9,000 bank branches were closed in 2016, and more than 50,000 people working at those banks lost their jobs. So banks have to minimise outages as in the future downtime might be a reason for a consumer to switch banks. There are many on offer and it is easier than ever to change current account provider.
I received some survey results this week looking at why people are not moving their money to challenger banks at a faster rate.
Turns out that they actually quite rate their banks after all. The study of 1000 people from marketing agency True and research company Strive, found that 86% of people between 18 and 55 scored their current bank at 7 out of 10 or more for satisfaction. And 59% of people agreed that there is little to be gained from switching banks.
Read the full report here.
As we know since the financial services turmoil, which began about a decade ago with the credit crunch, the UK government and the EU have been eager to introduce more competition in the sector. Making it a bit easier for banks to become regulated and introducing a system that can switch a consumer’s bank account quickly are good examples. But there has not been much take-up of the switching services and the challenger banks, as the new banks are known, have not had much impact on taking customers from traditional banks.
I opened an account with a challenger bank to see what all the fuss is about. I must admit the mobile banking experience is fantastic and there is some great functionality. But would I move my main business, which includes current account, savings account and mortgage? No I don’t think so. I don’t have enough reason. Give me a good interest rate combined with the great digital services and then we are talking.
So back to the research. Why do so many people rate their bank highly and why doe 58% see little reason to change?
The research found that new banks might be over estimating the importance of their user experience credentials.
“The era of open banking is upon us and these findings help established incumbents and new fintech propositions understand what they can do to get people to care enough to move their money,” Tim Jones, MD True.
The study included a test of the on-boarding experience of traditional high street giant Barclays and challenger bank Starling. It found that while most people preferred the Starling experience they were reluctant to switch accounts based on that. “The disruptor has to provide reassurance that they are legitimate, secure and worth the effort,” said the True report.
Another issue holding back fintech banks is that consumers want for face-to-face interaction with a real person. It found that. Sixty five per cent (65%) of those surveyed said they thought Barclays, Lloyds and other traditional banks would offer the highest quality advice, with their high street presence.
What does the future hold for the challenger banks? One of the earliest challengers, German bank Fidor, was acquired by French retail bank BPCE in July. Meanwhile all the big banks are investing heavily in fintech to ensure their digital experiences are close enough to the new banks to make switching more hassle than its worth for consumers. A recent Ernst & Young (EY) study of more than 200 of the world’s biggest banks, found that 85% of banks put the implementation of digital transformation as a high priority. Only improving cyber and data security ranked higher (89%).
So where do the challengers go?
Open banking and PSD2 have just come into force which help fintechs get closer to customers by using their banking data to provide relevant services, so who knows the next few years might bring the much sought after changes. Although differentiation on interest rates etc still seems the only way to convince large numbers of consumers to switch banks.
The law of cause and effect might be hard for Donald Trump to comprehend, but experts in areas from transport infrastructure to community development need to apply their expertise to the relationship between digital lifestyles and traditional ways of living.
Digital transformation comes at a price. We have already seen industries shrink and even disappear as digital competitors overrun them. But digital disruption goes way beyond transforming business sectors, with physical infrastructures requiring transformation as well as communities being transformed by stealth.
Ford’s CEO Jim Hackett, recently said cities will have to be rebuilt to cope with changes brought on by digital services trends. He said taxi apps like Uber, driverless cars and the increased need for delivery services as people buy online, will put huge pressure on transport infrastructures.
Urban traffic is expected to triple by 2050, and two thirds of the world’s population will live in cities, compared to 54% today, according to the United Nations.
For transport more people might chose to use services like Uber or Zip Car, which lets you hire cars by the hour through an app, to make short journeys rather than a bus. Then you have the development of driverless cars that will not only mean more traffic on the roads but potentially changes to the infrastructure to accommodate them. And don’t forget the increased digital platforms like Amazon to buy any product imaginable. All this requires delivery.
Cities were designed for a world which is disappearing gradually as behavior changes.
According to the Telegraph, Hackett told an audience at this year’s CES show that city transportation grids will mutate around what the cars need.
But he said this has already happened over the last century with the dominance of cars, claiming car ownership had eroded community life in some towns and cities. “Parking lots overtook community centres. Fast food centres crushed the family diners and restaurants. Technology has been at the expense of our shared sense of belonging.” But today the pace of change seems to get faster and faster. Things unimagionable ten years ago seem normal today.
It brings home the changes that digital lifestyles bring to the physical environment. When you are ordering a meal on your smartphone it all seems so easy. People are more likely to have the food delivered today rather than visiting a takeaway, as it is all automatic on ordering. But actually the process making and delivering food is the same and we don’t think about the effects of our choices.
I was ordering a takeaway while in a cab the other night and the driver was informing me, as they often do, that I should phone the takeaway and order it that way. This is because it means the takeaway does not pay commission and is more likely to offer you extra. It got me thinking that people lose the personal relationship with the local takeaway by using apps like Just Eat.
Local communities are already being transformed, many believe negatively, by another digital disruption. App based room and property rental services, like Airbnb, are encouraging people to rent out their homes and transforming the people that live in certain areas. The local community is being replaced by temporary residents
With people offering their properties to people for as little as a day through there are accusations that house shortages are resulting because home owners prefer this to long term rental customers. Also prices are going up for locals amid new competition for properties.
In the Netherlands there has already been action by authorities to regulate companies like Airbnb. This was a reaction to the fact that tourists that had booked accommodation heavily populated areas were causing disturbances, and prices were rising for residents due to tourist demands.
I am curious what will happen to the business quarters of the big cities as more and more people take advantage of working from home. I regularly visit offices of businesses b and I am always surprised at how many empty desks there are. When I ask them why it is always that they have flexible working and many people work from home. What will happen to all the big skyscrapers when flexible working becomes the rule rather than an extra? Capital cities will be virtual.
Last month I wrote a story about a UK insurtech startup Honcho which had to find £650,000 when money due from the EU was put on hold due to Brexit. I can report that the company has succeeded in getting the funding it needs, and a bit more, to move forward.
I told the story of how Honcho was trying to raise the money through crowdfunding platform CrowdCube, with Investors getting shares in the company.
North East England based Honcho is a free mobile app that promises to take on the established price comparison websites for car insurance. Rather than the customer looking for the best deal, they put their details into the app and the insurance providers make bids to the customer. Insurers pay £1 to bid and there are three rounds of bidding, with insurers able to see what prices competitors are offering.
When I first wrote the article in early December the company had received £300,000. The good news is the company exceeded its target and has received £850,000 in investments.
Honcho was originally getting funds from the Joint European Resources for Micro to Medium Enterprises (Jeremie). This is part of the European Investment bank fund, which is shared by organisations across the UK. But this was put on indefinite hold due to Brexit uncertainty. This came at a critical time in Honcho’s development and it could not afford to wait.
Honcho’s success in acquiring the funds is a reflection of a hot market for this type of platform. Insurtech is one of the growth areas in the UK at the moment as the insurance sector attempts to emulate what is going on in banking through fintech.
I am interested in hearing from any tech companies that are being affected by Brexit. Please share your views i n the blog or email me on email@example.com
On writing a news article about Google bringing its different payments services under a single brand I couldn’t help revisiting that all so often theory of Google Bank.
This week Google put services including Android Pay and Google Play under a single Google Pay brand.
Like Uber Google has become a default name for digital disruption in industries. But Google, the internet giant, has even been talked of as a potential bank.
But I doubt Google and for that matter any internet giant would want to be a bank. Many of these internet companies experience symptoms ranging from mild headaches to huge migraines when it comes to regulation that questions the stability or morality of their business models. The audacity of that, all they want to do make people’s lives easier. Errr, and make money.
Banks will say the same thing these days as digital banking accelerates. But there is a huge difference between banks and internet companies and tech startups when it comes to regulation.
So despite the term Google Bank often cited as the future (I am guilty of this) is it really going to happen?
One of my contacts, a senior IT professional in the UK banking sector and a keen advocate of digital challengers, thinks Google will cherry pick. “I think Google will do anything in financial services that will generate revenue without the need to meet heavy regulations,” he said.
The new fully fledged banks which have entered the UK since the government made getting a banking licence easier, many of which are driven by digital technology, still had to jump through lots of hoops to get approval.
So if Google wants to do more on the fringes of banking the new rules which come into force next week around the Competition Markets Authority’s Open Banking rules in the UK and PSD2 across Europe could be an opportunity. These regulations, which become law this weekend, will force banks to share customer data, if the customer agrees, to enable other companies to offer services using this data.
For instance a company could offer an app that puts all you financial services from multiple companies in a single financial management platform. Or a comparison company could use the information to offer recommendations about financial products that better suit a consumer.
According to Ovum analyst David Bannister: “PSD2 and the CMA’s Open Banking changes the nature of banking. At the moment you have all of your financial m services roughly with one bank. You are not getting any advice from high street banks. The new regulation allows a whole range of advisory applications, consumer advice generally, offers and things like that all in one place. That changes your consumer or even small business relationship with a bank.
So this is right down Google’s street surely? But Gartner analyst Alistair Newton, said Google usually ranks low when it comes to trust around financial services. “I think Google as a financial services aggregator would struggle in terms of the data we have. They fall well down the list in terms of consumer trust in banking. Many people don’t trust what Google is doing with their data.
He said Amazon is a more likely company to grow in financial services. “People trust them because they keep delivering stuff to their front doors. This is the kind of thing that builds trust.”
As a kid watching The Hitchhiker’s Guide to The Galaxy I was particularly fascinated with the babel fish.
Once inserted into the ear, this leech like creature makes any other language instantly understandable by the wearer.
According to the famous book, written by Douglas Adams: “The Babel fish is small, yellow, leech-like, and probably the oddest thing in the universe. It feeds on brain wave energy, absorbing all unconscious frequencies and then excreting telepathically a matrix formed from the conscious frequencies and nerve signals picked up from the speech centres of the brain, the practical upshot of which is that if you stick one in your ear, you can instantly understand anything said to you in any form of language: the speech you hear decodes the brain wave matrix.”
You can imagine the excitement I had when I received a press release about Air New Zealand using Google technology that translates in real-time for staff trying to help customers that speak different languages.
Wearing Google’s wireless Bluetooth Pixel Buds headphones and using a Pixel handset staff can receive live translation of 40 languages.
This is another example of the supersonic pace of technology advancement. The Hitchhikers Guide to the Galaxy was only written in the 1970s and although real-time translation of all the languages in the universe is still science fiction the babel fish concept is being developed. Imagine where we might be in another 30 years.
Well here is a prediction for just nine years from now. Before Christmas I met up with Chetan Dube, a prominent computer scientist specialising in artificial intelligence .
I asked him about robots and how human they can become. “I don’t think you will be able to distinguish between a human and an android in the next nine years,” he told me.
“Robots no longer have the Michael Jackson moves, they are becoming fairly smooth. They could now easily walk through a crowded mall and avoid people,” he added. “They can take escalators, climb down stairs and they can run fast than humans.”
So the dexterity and mechanical motion is getting there and within five years, at the current rate of technological advancement, robots will move just like humans
But Dube said the big component missing is obviously the brain. He said companies like his IPSoft are working on this. “When you can implant the brain into the android it will be able to walk and talk and have conversations with people.”
“The boundary between carbon based organisms and silicon based organisms will progressively get diffused.”