At its heart, fintech is the use of technology for financial services and products, but that definition doesn’t give much away. Fortunately, there are other tools we can rely on to find out more about what the digital economy has to offer. And one of the most fruitful is roadmapping, which – with FinTech Scotland’s forecast from 2022 to 2031 as a recent example – sheds a thoughtful light on the future of digital finance. So what are the big takeaways?
First up, themes. At a high level, the fintech sector can be divided into four key areas of innovation:
- Open financial data
- Climate finance
- Payments and Transactions
- Financial regulation
And to discover more, it’s worth diving into each one and exploring some of the success stories so far. Starting with “open financial data”, this includes the work of organizations such as Smart Data Foundry who are on a mission to “unlock the positive power of financial data to improve people’s lives”. Giving customers the ability to move their banking data easily and securely from product to product opens the door to greater competition in the financial market and gives fintech ideas improved growth prospects. Data can provide a wide range of insights. Financial information, for example, provides a measure of well-being and resilience, and making indicators available to stakeholders (in a safe and secure way) means that help can be provided more quickly when needed, and measures can be adjusted if they do not deliver.
Transformers
Making it easier for fintech firms to integrate multiple data streams is helping companies like Nude – a Scottish startup that raised more than GBP 3.5 million on equity crowdfunding site Seedrs. The company’s fintech app helps aspiring homeowners save money faster and more efficiently, by giving users a better view of their finances and adding smart behavioral science to the experience. Car rental fintech Coastr integrates vehicle telematics and other smart features – such as automated driver’s license lookup, powered through an API – into its digital platform. Again, the firm seeks to disrupt a traditional business sector – car rental in this case, rather than home buying – through the use of well-integrated, customer-friendly services.
Doing things differently is also crucial to the success of climate finance – another of the main themes in the fintech space. Done right, fintech has great prospects for enabling carbon markets and carbon offsetting activities that will be necessary to price a more sustainable business landscape. Audit and verification will also be crucial – for example, using satellite data to evaluate industrial activity; one of a number of innovations at play in green finance. There is also the circular economy to consider, and fintech can also make a positive impression here through apps that keep goods out of landfill.
In terms of where fintech is today, much of the attention is focused on payments and transactions, which include digital currencies, embedded payments (for a seamless experience) and the security needed to manage the transfer of money to the intended recipients. Over a third of Scotland’s more than 190 fintech firms are engaged in transforming payments and transactions. And globally, payments dominate fintech investment – as observed by accountancy giants such as KMPG, which has followed the sector closely through its ‘Pulse of Fintech’ series of reports.
Digital highlights
Stars of the tech world like Google and Apple are now very much a part of digital finance, bringing with them a large number of users. Banking regulations have evolved and allowed the sector to open up. And, of course, interest is huge in exploring concepts like blockchain and digital ledgers – codified tools to secure a list of records. The cryptocurrency scene has equal parts fans and skeptics, but it remains an important area to watch, albeit from a safe distance. It is also interesting to note the rise of virtual money in the digital domain – in-game currency, which is proving to be rewarding for digital creatives and operators. Some game developers reportedly use economists to provide advice and better understanding of the consequences of adjustments made to their respective virtual worlds.
Last but not least on our headline tour of fintech is regulation, which may sound like a dry topic but is crucial to the longevity of the sector. It requires a set of rules that, on the one hand, brings confidence to investors, necessary to finance the growth of ideas, but without limiting the fresh thinking needed for fintech to really have an impact. Innovations here include the UK Financial Conduct Authority’s (FCA) regulatory ‘sandbox’ which – crucially for the fintech sector – ‘allows companies to test innovative propositions in the market with real consumers’. In 2022, which marks the scheme’s seventh year, the FCA switched to an open model that accepts applications throughout the year.
About 200 companies have used the framework to test a wide range of fintech-driven services. The projects include a semi-automated citizen advice tool to deal with debt problems, innovative insurance for rebooking disrupted journeys, a secure online registry for cataloging assets, behavioral assessment enabled through AI and facial recognition, blockchain tracking of humanitarian finances, apps to quickly cancel unwanted subscriptions, and much more. To keep everything under control, firms that are accepted (around 1 in 3 applications get through to testing, looking through the cohort statistics) have a case manager who both provides support and enables oversight of the pilot. “Sandbox tests are expected to have a clear objective and a clear positive impact on consumers,” writes the FCA. “They are usually performed on a small scale, for a limited duration, [and] with a limited number of consumers.”
