Q&A: What's happening in the growing fintech industry?

Fintech - or finance technology - has gained some serious traction in recent times, predominantly thanks to the growth and mass adoption of the Internet, smartphones and mobile applications.

To learn more about what's happening in the industry, we spoke to Lawrence Wintermeyer, CEO of Innovate Finance.

We’ve been hearing a lot about Innovate Finance recently. What exactly do you do?

Innovate Finance is an independent, not for profit organisation that represents the voice of the global financial technology (FinTech) sector. We launched in August 2014 with 50 founding members. Since that time we’ve tripled our membership to over 150 companies ranging from big banks to startups to policy makers. Together we are promoting and fostering dialogue across the FinTech ecosystem. We are also working closely with government to support policies that encourage growth and investment for the sector - which is worth over £20 billion to the UK economy.

Innovate Finance is based in London at Level 39, the largest FinTech accelerator in Europe. Members pay a fee to join the organisation. We also receive financial support from the City of London and Canary Wharf Group.

How did you come about?

In the wake of the financial crisis in 2008, a paradigm shift occurred in financial services. Consumers began to demand better, more ethical and transparent services. At the same time the launch of the smart phone gave rise to a new generation of tech savvy mobile consumers. Large incumbent financial institutions realised that many aspects of their businesses needed an overhaul to meet these changing consumer needs. At the same time this was happening, innovators realised that there was an opportunity for new entrants with new ideas to serve consumers in this space and that technology provided the solution to these challenges. The FinTech evolution began.

Innovate Finance was a response from the sector to set up a trade body to represent them and to help shape a better future for finance. Since our launch we’ve worked closely with FinTech companies and financial institutions and have become a single point of access to policymakers, regulators, investors, customers, educators, talent and key commercial partners.

How big is the FinTech scene?

In the last two and a half years alone, 855 FinTech start-ups have been founded globally. These range from crowdfunding platforms to remittance companies, digital only banks, cybersecurity, big data, robo-advice and blockchain companies.

The earliest successes for FinTech startups came in disrupting products and services by competing on price, speed of execution or by providing a service that consumers lacked. These were in the lesser- regulated verticals such as payments and remittances. In fact some 40 per cent of all investment in FinTech to date has been in these two verticals alone.

Is there investment for new startups too?

Absolutely. Overall investment is already on the rise for FinTech firms. In 2015, over $7 billion in venture capital investment was been channelled into 650 FinTech startups.

UK and US based startups have enjoyed the majority of this investment but FinTech has truly become a global phenomenon with exciting hubs appearing in the Nordics and Baltic regions, Singapore, Tel Aviv and Sydney.

The UK and US dominate in providing the optimal environment for FinTech startups. What is the secret to building a successful FinTech ecosystem?

You need the following things:

  1. FinTech friendly regulation and policy. By building a regulatory framework that encourages competition and allows innovative technologies to grow, you encourage business models to come to market
  1. Industry and government support for both the FinTech and the financial services sectors that are trying to create a better future for banking.
  1. Fostering of long term technical expertise through the development of the next generation of talent in STEM subjects

Together these principles encourage and build mechanisms for cooperation between incumbent financial services institutions and innovators as a collective community

What are three things we can expect from FinTech community in 2016?

  1. Blockchain will help us create new services such as smart contracts and value exchanges such as digital currencies. FinTech firms to watch in this space include Bitfury, Coinsilium, Credits, and Coin Sciences.
  1. Robo-Advice will continue to grow in popularity as more investors decide to take matters into their own hands. Nutmeg and Gear Investments are just a couple of firms that will be on the radar in 2016.
  1. Cybersecurity: FinTech firms will push biometric layered security measures to authorise access to customer information. There will also be innovations in digital Identity, which will provide the ability to use a single tokenised identity in validating consumers across multiple financial services providers will become more mainstream.

Digital Shadows, Miicard and Crypta labs are doing impressive things to combat cyber attacks and we expect to hear more about their achievements in the New Year.

Which are the main FinTech firms to watch?

That’s a hard question to answer because there’s so much talent in this space!

The so-called unicorns of the sector such as Transferwise, Stripe, Funding Circle and World Remit will continue to grow globally, but there are so many other firms making a name for themselves in their niche market. In the peer-to-peer space for example, companies like Ratesetter, Lend Invest and Zopa will continue to attract new users to their platforms.

Seedrs will also remain a play a big role in helping companies to scale up through its crowdfunding option. We also have blockchain startups and bitcoin enabling firms such as Uphold and Elliptic supporting a world of digital currencies. Remittances will remain a fast growing market with companies like Azimo and Money Mover becoming more competitive.

The startup Origins will disrupt the bond market and companies like Sybenetix and Essentia Analytics will win new customers with their behavioural analytics innovations. Finally, alternative.

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