There is no doubt that fintech companes will continue to generate investment and interest for many years to come, but there are still a lot of issues to overcome which will determine the success of the industry.
Buried in the Sunday Times’ business pages over a busy Easter Weekend, were some interesting figures from Mondo, one of the better-known “challenger banks” to have emerged in recent years. According to co-founder Tom Blomfield, there is already a waiting list of 70,000 people who want an account, which, when you consider it has not officially launched, operates no branch network and offers nothing more than a simple current account with an overdraft facility via an app, is a staggering achievement.
Such is the hype around the challenger bank model, with investors keen to get in at the ground floor of a new trend, Mondo was also able to raise £1m in just 96 seconds through a crowdfunding campaign on fintech platform, Crowdcube. It now needs just a further £19m – small change to the banking industry – to gain its banking licence and become fully operational, something it expects to achieve by the end of the year.
To gain a better understanding of the impact of the challenger bank phenomenon, ifs recently held a fascinating panel debate, with four CEOs from newly-launched banks – Ffrees, Civilised Investments, Tandem and Mondo itself – to discuss how they are shaking up the sector. There was, as you might expect given the make-up of the panel, a great deal of optimism around the industry and a lot of confidence that more organisations would spring up in the near future with different propositions to take on the established brands.
Similar trends have been seen in other industries, invariably with the same results – a new normal is usually found between a mixture of start-ups operating alongside established businesses, with some succeeding and others, both old and new, falling by the wayside. But are financial services any different? Where should we draw the line? Is every fintech company going to succeed? How can we separate the hype from the reality and the fact from the fiction?
As Head of Careers at ifs University College, I have long been interested in these questions and, with that in mind, I was delighted to recently attend a “fintech for Breakfast” roundtable, held by our strategic partners, the Centre for the Study of Financial Innovation (CSFI) which looked to examine exactly this.
As one might expect, such an interesting topic generated some forthright views and many fintech were discussed at length, but throughout the morning a few themes emerged on which there was general agreement.
• Mobile payments: It was agreed that while these are proving incredibly popular, their growth should not be seen at the expense of more traditional methods of payment. While there is no doubting the efficacy of systems such as Apple Pay, people still like using credit and debit cards.
• Cult of PR: Much of the hype it seems in fintech stems from highly-effective PR campaigns, which have done a great job of selling the technology, but sometimes at the expense of the message behind it. Many investors, looking at the huge growth in businesses such as Facebook, are keen to find the next big thing and are staking their investments on similar growth in the financial services industry.
• Value vs nominal value: The success of fintech PR leads to a blurring of the figures; behind the hype, it can be difficult to understand the real value of a fintech company. How shareholders cut through the spin is a major problem.
• Regulation: The phenomenal speed in which technology is changing our lives is leaving many industries – not just financial services – struggling to keep up. Regulators are constantly playing catch-up to technology platforms they struggle to understand.
• Standards of practice: Naturally, if regulation is proving to be ineffective, how certain can investors be regarding standards of practice? This is especially prevalent in the peer-to-peer lending sector.
There is no doubt that fintech will continue to generate investment and interest for many years to come. How, as an industry, it overcomes the issues highlighted above will determine whether it goes the way of Facebook, or one of the many other “here today, gone tomorrow” tech companies that have long faded into obscurity.
Nadim Choudhury is Head of Careers.