In her recent introduction to FinTech Week, Harriett Baldwin, MP for West Worcestershire and Economic Secretary to @HMTreasury expresses her vision in no uncertain terms: ‘This week has two key aims. The first is to celebrate our status as a leading global FinTech hub… Second, we know that if we are to remain a leading global FinTech hub, we need to go further, be more progressive, more ambitious, more far-reaching.’

They’re strong words; an exciting concept. But I think FinTech Week’s remit goes even further than being a showcase for FinTechs to show their capabilities. It’s a tacit recognition of the role and value that FinTechs represent to the financial community at large. Or at least, what they could represent.

You may have spotted a clue in Harriett’s FinTech Week introduction (if you missed it, here it is again: the need to foster ‘greater collaboration between FinTechs and traditional financial services firms’).

It’s a change in perception, though, and it’s easier said and done. FinTechs and traditional players have been at it like Tom and Jerry since Fintech first emerged, and the tension – perhaps even suspicion – has been palpable. There does seem to be some give and take now, however, since the FSI establishment appears to have acknowledged that FinTech businesses have a right to exist on the same planet.

Come on, come on, let’s work together

With the Fourth Industrial Revolution knocking at the door like a particularly excited and peckish wolf, creating new collaborative ecosystems is paramount, and these need to be based around a symbiotic model where everyone does what they’re best at. A startup FinTech is agile, flexible and innovative. They aren’t as hidebound and constrained by regulation and legacy infrastructure. So let them help offer frictionless customer experiences across digital and physical touch points, streamline and automate basic services, leverage mobile devices and create better insight and new revenue streams from data. Meanwhile, the establishment has three major advantages over startups: data, brand trust (while acknowledging that in some cases trust can have been hard-won and easy-lost, making heritage into a double-edged sword) and deep knowledge of the banking systems.

Some global banks are tapping into this, by either investing in start-ups or setting up their own incubators. It may be costly and difficult to manage, but the pre-existing willingness to partner with the new guard means that relying on IT providers isn’t a shock to the system. And as former Group CIO at Deutsche Bank Tony McCarthy said in October last year:

‘if you don’t figure out new ways to work and new ways to partner, you don’t stand a chance.’

(I found it ironic, incidentally, that during FinTech Week, Pitch10 offered innovative startups the chance to present their business ideas to a delegation from Government and Tech Businesses at No 10, yet the Advisory Panel didn’t include a single old-style bank or building society, nor was there a legislator to be seen.)

The new rules of the game

Harriett’s article also indicates a belief that regulation needs to be looked at if the new ecosystem is to flourish.

I agree.

Thanks to the velocity of change, regulators are way behind the curve, and I can sympathise with their position. Financial Services are complex enough before you introduce an enhanced potential for global competition, let alone before the regulators start getting their head round technology. A failure to read the needs correctly could mean killing innovation stone dead or opening the back door sufficiently for all hell to break loose. So how can they keep up and protect customers? It’s a question which we’ll be trying to answer over the next few weeks.

A case in point is cryptocurrencies: a recent report by the IMF launched during WEF at Davos (Virtual Currencies and Beyond: Initial Considerations) states that ‘The potential for rapid change in the financial industry engendered by VCs is a challenge for financial regulators and supervisors. The challenge… has often turned on finding a balance between addressing the risks and vulnerabilities posed by VCs while not stifling innovation.’

Test and test again

Incidentally, Dan Schulman of PayPal suggested at WEF that a Sandbox environment could enable the establishment and FinTech to share data and experiment with new technologies and ideas in a way that enabled the regulators to have better visibility. It’s an idea which I feel has a lot of appeal and needs to be explored further – and fast.

What’s that coming over the hill?

There are a couple of technologies worth looking at in more detail, not least because they are likely to have a major effect on the industry. The first one, which has massive and exciting potential is BlockChain. As John Cryan, CEO of Deutsche Bank said at Davos,

‘BlockChain has the potential for digital identity – if governments will adopt it’.

Certainly, the waters have been muddied by Silk Road and Bitcoin, but given the way in which the technology has been developed over the last 25 years, like P2P (Peer-to-Peer) lending, BlockChain has plenty of capacity to drive more far-reaching social change. I’ll be considering their challenges and the opportunities they’re set to open up in the sector, in future blogs.

Also upon the event horizon – and it’s something which I believe will have a huge impact on the sector – is the Open Banking Standard Framework. Created in part to comply with changes in EU law, the framework will enable customers to receive their data over the internet and easily, safely and securely share it with third parties, improving competition and efficiency, and stimulate innovation. Again, I’ll be looking at it more closely in a future blog.

Deciding on your future business model
With so many technologies, innovations and potential business models, you may find our recent report ‘FinTech Innovation Model 2015 – Technologies for the future’ useful. This looks at the key factors and essential steps which should be taken. It outlines the extent to which different technologies have been adopted by FSIs, the impact of new business models and how to grasp new technology’s opportunities. You can view it here.

I’d also really like to hear your views on the speed at which regulation should be introduced to FinTechs. For example, should we test in advance, or should we hold our breath until problems appear in real life?