Literally bits of paper that said how many shares you owned! It was normal to have to go into a bank and physically sign a piece of paper if you wanted to buy or sell, and it was difficult to see everything on one statement let alone keep tabs on a whole portfolio.
Nominee ownership has changed all that with pooled share ownership recorded electronically. Today the norm is to buy and sell at the touch of a button and analyse all your holdings in one place.
As the pace of technological advancement has accelerated, financial services seem far more open to accepting technology. They recognise it can make them more efficient and more profitable as well as enriching their customer experience.
Then there are disruptive technologies that aren’t giving the established players any choice, like Bitcoin and crowdfunding platforms that have shaken up the way traditional systems operate.
We find ourselves at the centre of the FinTech hype cycle, FinTech – a portmanteau of the words financial and technology – has become something of a catch-all term for innovation in finance.
And FinTech is a huge area of research and development.
Where is the R&D in FinTech?
FinTech is largely digital but encompasses a huge number of themes that have the potential to qualify for R&D tax credits. If you are developing new or improved products, services or processes and there is an element of risk in the outcome then you could be eligible for this generous government support. Areas include:
- Payments and transactions
- Big data
- Mobile banking
- Trading, commodities markets and FX
- Peer-to-peer lending and crowdfunding
- Retail banking
- Risk and compliance
- Privacy and security
- Alternative and digital currencies
- Digital wallets
- Advice and insurance
Where is FinTech happening?
After the financial crash, banks – undertaking industrial levels of cost-cutting – shed many of their in-house developers. Now we are seeing many of these experts forming disruptive FinTech start-ups to sell their innovative products back to the banks. They are in a sweet spot of knowing what the banks need and what today’s technology is capable of achieving.
With London’s dominant position in global finance it was always going to be a likely contender to lead the way in FinTech too. And that is exactly what has happened – in Europe at least. In 2013 for instance, the UK and Ireland accounted for more than half (53%) of all Europe’s FinTech deals and over two thirds (69%) of the FinTech funding. Globally though, America and in particular Silicon Valley lead the way.
In London and there are a number of FinTech hubs and accelerators that offer support to the sector. One of the most prominent is Level 39. Named after the floor it occupies in the iconic One Canada Square at Canary Wharf it offers workspace for FinTech teams of 8-30 as well as mentoring and events. In its first year it welcomed 86 member companies, hosted 3 accelerator programmes and provided more than 340 hours of mentoring.
The FinTech Innovation Lab London is an accelerator programme offering 12 weeks of mentorship to FinTech companies with IT execs from 15 of the world’s largest banks. $33 million in funding has been raised to date and alumni companies have created over 50 proofs of concepts for banks, and some notable successes include UTrade Solutions, FinGenius and Logical Glue.
The Startupbootcamp FinTech Accelerator provides funding, office space and mentorship for up to 10 selected FinTech startups with access to 200+ Angels & VCs. Partners and sponsor organisations donate services to participants, with companies like Softlayer, Google, PayPal and Amazon donating hundreds of thousands of dollars worth of support services.
OK, FinTech has probably touched all our lives in one way or another in recent years, think mobile banking apps or contactless card payments. But arguably the most famous – and disruptive – fintech of all has been Bitcoin. Even though most of us won’t have experienced it directly.
Bitcoin’s rollercoaster ride
This digital currency was created by Satoshi Nakamoto and released in January 2009 as open source code. It is a peer-to-peer electronic cash system. Since its launch it has had something of a roller-coaster ride. Its value has fluctuated wildly, making and losing early-adopters fortunes overnight.
Part of its open-sourced infrastructure sees it relying on an open network of third party computers to verify the transactions by solving increasingly difficult cryptographic problems. In return they are rewarded with bitcoins – the practice is called mining. In the early days people participated in mining on their laptop, but as the puzzles have become more complicated, more specialist equipment has become necessary to make it worthwhile. There was a case of one person leaving his laptop in the garage mining away, forgetting about and returning to find $12 million worth of Bitcoin on his hard-drive!
What does the future hold for Bitcoin
Bitcoin is so disruptive no-one really knows what its future will be. On the plus side it offers a low cost way to transfer money across borders and a route to financial services for people in both developing and developed economies who have hitherto had little or no access to bank accounts. However it has also been a useful tool to crooks looking to money-launder and there have been a series of high profile thefts of the currency. Debate has even raged as to whether the whole thing is a giant Ponzi scheme!
FinTech for the back office
Whilst most of us are familiar with FinTech in the form of Bitcoin and contactless payments, much of it is developed for the back office of financial institutions. Be it to execute trading more efficiently, attempting to stay ahead of the curve with cybersecurity or helping multiple client databases talk to each other. This last point is especially important in an age when firms have to demonstrate to regulators that they ‘know their clients’. Not to mention the competitive advantage that understanding your data can bring.
FinTech for social good
Financial services, particularly the banks, have taken on the role of pantomime villain in recent years. But one of most positive aspects of FinTech is its capacity for social good. Here are three positive ways that it is influencing vulnerable people’s lives:
- In many of the poorest countries in the world, millions of people have no access to the banking system. Even in the UK it is thought that 4% of households do not have a bank account. Two companies M-Pesa in Kenya, bKash in Bangladesh are giving people access to financial services with mobile-based payment systems.
- Sending money abroad has traditionally been expensive and also had opaque charges. Transferwise – is a website that cuts out these fees making it up to 90% cheaper to send money across borders.
- Crowdfunding and microfinance have been increasingly popular. Like the other solutions they have offered people an alternative to the banking system. Deki is a charity that facilitates microloans of as little as £10 from the developed world to hardworking entrepreneurs in the developing world. Agricultural loans are provided to enable farmers to purchase seeds and livestock, provide stock for market stalls or make capital equipment purchases. Loans are typically repaid in 6-12 months and business training and support are integral components of the programme.
Kickstarter is a new way of funding projects. While the creators keep 100% of the ownership of their work the supporters normally get something in return – backers of a book may get an early copy, while a bigger pledge to a film may get the donor into the premiere.
Get support for your FinTech project
FinTech is a massive area of growth. Inward investment grew from less than $930 million in 2008 to almost $3billion in 2013. Globally, total investment in the sector tripled to a staggering £8.2bn last year, growing at triple the rate of VC investment as a whole. FinTech investments in London grew by 136% to $623m last year.
Get in touch
If your company is innovating in FinTech contact ForrestBrown to see how R&D tax credits could help you grow your business.