Last week at our Financial Focus dinner we discussed the theme “As FinTech continues to grow and following our exit from the EU, what will the UK Financial Services sector look like in 2030?”. The meeting was attended by a healthy spread of leaders from the financial services, technology and professional services industries, which also provided us with coverage across the US, UK and Europe, leading to an impassioned debate. Here are some of the key talking points:
On the future of the UK FinTech industry…
It was acknowledged that FinTech is generating significant positive innovation in the product manufacturing space and is likely to see an increase in user adoption as banking becomes increasingly open. However, there was an element of consensus on the fact that the growth of FinTech will slow down, largely due to the following factors:
– the wave of investment into Technology start-ups off the back of a relatively cheaper period of investment capital is already starting to dry up in the UK following the Brexit decision,
– big businesses do not partner well with small entrepreneurial companies and to date we have not seen much real impact on the big players from the FinTech community,
– FinTech valuations are clearly over inflated and not sustainable, as that impact is finally felt, the ability to value these initiatives more accurately will lead to significantly lower valuations, having a knock-on impact on the size and availability of capital raises in the industry.
What FinTech has done successfully is lead the thinking on where the change in the industry needs to happen and galvanise businesses into action. By 2030 the best parts of the FinTech industry will essentially become mainstream and there will be a significantly lower amount of FinTech manifested in the form of the disruptive start up, as a proportion of the FS industry.
On the future of Retail Banking…
On the customer side, banks will have even tighter regulation on their core services and a broader set of unregulated complementary data-based services that take advantage of the increasing API strategy of open banking to offer an extremely personalised and more holistic consumer experience. Behind the scenes, on the supply side, we will see the increasing dominance of aggregated platforms which will enable many more entrants into the banking sector, with products that can quickly take advantage of these platforms with the aim of differentiating through customer experience. The “challenger” category will no longer mean anything as the “digital journey” will be complete and so the main differentiation will be product suite and customer experience. The technology consumer conglomerates, particularly Amazon and Google, whose interest will be in using capital to expand and accelerate the supply and demand side of their core business, may represent another threat to the legacy banking market.
The outlook seemed a little more pessimistic for the insurance industry with the belief that many traditional lines would be eroded through the increase in self-insurance as companies continue to grow and markets continue to consolidate. Although already late to the party on data, the availability of richer consumer data will provide increased personalisation in pricing and services for the end consumer and a move from risk mitigation to prevention.
On Brexit and UK…
The EU roadmap whereby London was intended as the EU portal to the global FS industry was rudely interrupted by the Brexit decision and that is at the heart of the uncertainty ahead, because there is no clear plan B right now for anyone. The financial passport issue clearly remains the single most important determining factor for the UK’s outlook. The group was split as to whether the UK FS sector will be better off or worse off than today… so uncertainty remains.
By Simon Bittlestone, CEO