Former US Federal Reserve chairman, Paul Volcker addressed an international banking conference in the wake of the global financial crisis telling the audience that “the most important financial innovation that I have seen the past 20 years is the automatic teller machine, that really helps people and prevents visits to the bank and it is a real convenience.”
Financial technology like ATMs and personal identification numbers (PINs) are classic examples of what is now better known as fintech and while Scotland played a significant role in the development of the ATM and the PIN, our current report card on fintech is arguably “could do better”; a talented child with lots of potential who finds it difficult to concentrate on the job in hand and has fallen behind his or her classmates.
Having spent the last week speaking to many of those more in the know than me, the picture painted across the board is one a nascent industry that finds it difficult to collaborate and identify the key opportunities and challenges, never mind put in place a coherent strategy and action plan.
One industry insider suggests this is no surprise when you consider that banking and financial services players - who are taking the lead on fintech in Scotland along with the Scottish Government and its enterprise agencies, industry associations like Scottish Financial Enterprise and professional services firms like Deloitte - are components of one of the least collaborative sectors in the UK.
In the oil and gas sector, to give something of a crude example (excuse the pun), it is not unusual to see BP and Shell launch operational partnerships to further their own business strategies but you could hardly imagine RBS and Lloyds doing something similar.
Yet it is the banks in Scotland, now mainly run from power bases in London, who are key constituents of the working groups designing fintech strategy north of the border along with asset managers like Standard Life and Aberdeen Asset Management. It’s easy to see the conflict here for the financial sector and government alike as it’s generally accepted that advances in fintech and automation will lead to significant job losses in back office functions.
Turkeys voting for Christmas and banks helping to further a nation’s fintech agenda anyone? To use a Game of Thrones analogy, they know winter is coming and, like the next series of the cult HBO series, it’s a horror show where cannibalism by largely unknown forces is fairly certain to be rife and is most certainly going to be bloody.
Rather than being devoured by flesh-eating zombies, a more drawn-out decline will come from disruptive startups populated by coders and developers displaying human characteristics - very probably dressed in jeans and t-shirts drinking soy lattes and snacking on avocados - armed with killer algorithms and artificial intelligence.
Scotland is home to some promising early stage and high growth fintech ventures - startups like cash flow forecasting app, Float, data analytics specialist, Aquila Insight, peer-to-peer SME lender, LendingCrowd and global fintech success stories like FNZ, a London-headquartered wealth management specialist that employs hundreds of people at Tanfield in Edinburgh. But as government chiefs readily admit in private, we lack critical mass and the glass is definitely half empty rather than half full.
To give them some credit (last pun I promise), RBS get brownie points for launching a new fintech hub at Gogarburn in February. While for many a fintech hub sitting in the headquarters of a high street bank is always going to be something of a contradiction, it’s also reasonable to say we need to stack as many building blocks as possible in our tech ecosystem to give fintech the best chance to flourish.
To improve our next report card, we need to attract people and organisations to Scotland who have been there and done it in fintech, like a challenger bank or an accelerator like London-based Level39, get more of our startups roped into steering groups that are currently conspicuous by their absence and spend more time thinking about what our niche in fintech could be. As we continue to build an enabling ecosystem, the chances also improve of us producing a fintech startup that scales up and would in itself help to move us forward from the back of the class.