The financial services industry is at a tipping point. Transactions that were once only possible through a visit in person to your local bank can now be completed with just a few taps on a mobile phone. And that is just the start of it. Disruptive technologies have found a way into this highly regulated industry and are transforming the way the financial sector operates.
Financial technology (fintech) companies are finding new ways to automate the delivery and use of financial services to drive better consumer experiences. We have already seen the evolution of digital payment solutions, online credit approval and cryptocurrency. Add the potential of blockchain, quantum computing, AI and machine learning and we have a very different horizon for the financial sector.
Business Leader Magazine and SETsquared, the global number one business incubator and enterprise partnership, gathered together leading academics and entrepreneurs from a range of industries for a roundtable debate to discuss the trends, challenges and technologies shaping the world of transactions and payments.
Tom Fox from KPMG works closely with businesses across the tech space to explore the potential of fintech for their global audit, tax and advisory services. He was asked: What trends are you seeing around the future of technology and how is this impacting transactions and payments?
“KPMG released a detailed report about the key trends and its overarching themes centred on the integrity of data, cybersecurity and regulation. One of the pressing questions regarding data is how to get international agreements in place, so you can ensure best practice to manage the speed of transactions across borders. Will the regulation do that, or will we see protectionism coming in?
“Collaboration is another big theme. Established companies are looking at how they can innovate without bringing everything inhouse – and this means working with smaller enterprises who are at the cutting edge of how to integrate everything together to improve the customer experience.”
OakNorth Bank is one the UK’s fastest-growing challenger banks. It was recently confirmed as a ‘unicorn’ – which is a business that has a billion-dollar valuation attached to it.
The bank is known for its pioneering approach to technology and its Chief Information Officer Sean Hunter was next to talk during the debate. He was asked: How are you leveraging technology to improve transactions and the customer experience?
“We’ve built a platform that uses data analytics and human expertise to do credit analysis and monitoring for SME and mid-cap lending. OakNorth Bank is based in the UK and we also license our technology to other financial firms outside of the country. The technology evaluates very complex lending scenarios and it allows us to reach a wider breadth of businesses with our funding options. We use ML (machine learning) models and data analysis but with humans in the loop to do the last piece of the puzzle, in order to make a good decision fast.
“This lower-middle market is worth trillions of dollars globally, so it’s a large blind spot that banks have; they find this type of lending too difficult, but our technology makes it easy.”
Sean also talked about how they are using technology to analyse lending risk. “With SME and mid-cap lending, there isn’t a lot of standardisation when it comes to data so it can be difficult to assess risk. Artificial intelligence (AI) and machine learning can help with being able to compare one company with another.
“For example, if somebody comes to us with an idea for a vegan restaurant, past data won’t give an indicator of how successful this company could be in the future because it’s a new trend. To help with this, we use AI and machine learning to pull various financial data sets about the company from a myriad of sources and map it into something that is consistent, so you can make a fair judgement.
“In addition, we pull in external data so we can understand what the trends are in the market, who is interested in vegan food, how is it performing and how might it be impacted in the future?
“We use advanced data analytics to compare external data and internal data to make reasoned judgement. We also use AI to bring all that data together and create financial modelling and then we make the final decision the old-fashioned way by bringing in humans.”
The debate then spoke to lawyer Ed Chapman, who works for the legal firm Ince Metcalfes, to see how technology advances are impacting his sector and improving transactions and payments.
“In the legal sector there is a big demand for increased responsiveness and new technology is allowing us to be much more efficient in how we manage legal transactions and payments for our clients. The challenge is mass adoption and making sure that firms are aligned with client expectations. But we’re seeing change, and technology is allowing us to create better experiences.”
Tom Bangay works for Juro, a contract management software business, built on Ed’s comments and gave his views on: How technology is changing contract management.
“The answer is slowly; Microsoft Word is still the dominant platform used for contract management. Getting people to do things differently is difficult and the demand for alternatives varies by sector.
“One of our customers needed a contract to be signed by its CFO and he called us because he was trying to sign it with his finger on his laptop screen and it wasn’t a touchscreen. This is an example of how it varies by sector just how willing – or able – people are to embrace new technology.”
Following this, Tom was asked: When do you see a tipping point happening?
“The real issue is finding out why some companies decide to try a challenger vendor like Juro for their contract management. It’s usually because they have a pain point and they want to remove it. Companies often switch to us because they manage a high volume of contracts and our platform simplifies the process.
“Where we often see mass adoption is with high-growth businesses because they don’t have a legacy problem to unpick. For example, Deliveroo was one of our first customers because what they required was speed.
“Another example is when the first point of customer contact for a business is a contract. Rather than send reams of documents in the post to be hand-signed, offering a digital alternative could create a better customer experience.”
The debate then left the subject of contracts and the legal sector and moved to the construction industry, to talk to Sam Gamble, from Automated Markets – a business that is pioneering data collection work in the sector. He was asked: How technology might improve processes in the construction sector?
“We’re delivering a blockchain project that is capturing data to analyse goods, works and services on construction sites to find out where the value lies in how they operate. The focus here is not so much on the payment itself between suppliers but on the data, because in construction they generate lots of information but generally have nowhere to store it or a sensible way of retrieving it.
“This sector is very process and price-driven and there are lots of processes to store data, but they have no implementation of software and no way of sharing data. We’re looking to try and solve this problem and create more positive outcomes for the data that is generated.”
The construction sector is one of the biggest in the UK, but it can often be slow to adopt new technology and processes, something which Sam and his team are on a mission to change.
The debate then talked about some of the general challenges that businesses in the tech and transaction space are facing. Funding, staffing and scaling the company are often the most common challenges and the group heard first from Paul Barker, founder and owner of Claritum – an automated e-procurement business.
“Often the technology is well understood but it’s about attracting the required funding to bring them to market, which is a common challenge. We don’t have big venture capital behind us, and we’re bootstrapped as a business, so the biggest challenge is breaking out of the cycle of doing everything that your customer wants whilst also trying to scale the business. Often with technology products it’s all about breaking out of that circle and creating something that is easy to monetise and is usable.
“Also, at what point in the business cycle do you decide to take the profits you have made from your original idea and invest it into something new. This is the tension that many technology leaders face, and it’s been the same for us.”
On the theme of funding, Julie Barry, Head of Business Development at Rift, an R&D tax credit consultancy, said: “You see lots of businesses in the technology space that think it’ll be easy to get funding but that usually isn’t the case. Often people have a good idea, but they don’t have a business yet or they have funded a business by themselves and they need a million pounds now to take it to the next level.
“Having a good idea is no longer enough as there are so many good ideas, which means that many of them are unfortunately going to be disappointed. The key is to prove market fit and to demonstrate that people are going to use and ultimately pay for your product and service.”
What about serving specific sectors with financial services? Howard Allen set up Healthbank to support people of all ages and their carers. “What’s important is enabling people to manage their own care and health.
“The financial requirements of the health and social care sector is not specifically served, and I think it can be. Bank grade security is not good enough for vulnerable people and someone with arthritic fingers may not be able to use an app, so I see the potential of voice-activated platforms such as Amazon’s Alexa as being an alternative, possibly combined with text messaging and an app.”
By bringing so much financial services online, how to do you make it safe? Dr Tiejun Ma, Associate Professor in Risk and Decision Analytics at the University of Southampton, applies AI to the banking sector. He develops predictive behaviour algorithms to analyse credit risk and improve their accuracy to prevent online fraud. Dr Ma said: “One example of a huge change that’s happened over the past few years is using mobile phones to actually borrow money and make transactions. How can you prevent fraudsters trying to use fake IDs to borrow money? Well, risk assessment through the latest AI models plays an important role in trying to identify such malicious activities through multi-dimensional behaviour analysis and smart risk assessment models, which could substantially reduce operational costs for finance firms.”
The financial industry is transforming and there are lots of new technologies coming in. Aside from the tech itself, there are also opportunities for understanding the human factors; confluence of data science and human psychology, and this is important when understanding data capture and use.
Only 12% of financial services companies are mature in their digital transformation. This presents huge opportunity for digital disruptors to seize market share and offer consumers more convenient and faster ways to transact with each other.
However, fintech start-ups are unlikely to wipe out traditional banks completely, but they are forcing the banking and financial services industry to reinvent themselves. Fintech companies can partner and collaborate with larger incumbents in the financial sector to provide the technologies that their customers want.
Sourcing funding and driving business growth can be a challenge. SETsquared can help fintech companies to scale-up and raise investment for their R&D. Stephen Mayers has over 30 years’ experience leading effective teams and driving commercial scale and he works for SETsquared: “We provide access to public and private investment alongside the leading academic expertise of our six partner universities to help boost R&D and business growth.
“Sometimes you have to work outside of your comfort zone to complete your technology and provide added value for your users. We can put you in touch with academic experts or other start-ups in our business incubators, who you can collaborate with for that finishing touch. This often is the key to unlocking the next phase of business growth.”
To find out more about SETsquared and its Scale-Up Programme visit www.setsquared.co.uk