Tuesday, June 18, 2019

What is driving the expansion of Fintech in Europe and the UK?
While Fintech growth has exploded across Europe, there is a slower uptake in the United States. This is despite an enormous potential market in the US, thanks to a large population of consumers ready to shift over into newer technology.

The rapid development of Fintech in Europe has been due to huge amounts if investment, from banks and from venture capitalists. It’s also been helped by regulatory changes within the European Union (EU) and the UK that have opened up the market to competition.

Global investment in Fintech increasing

Fintech is a broad term used for the merging of financial services and new technology. It’s the new banking apps that are proving popular with consumers, and online payment options. These are the two areas most consumers are familiar with in their daily lives, but it also covers more in-depth areas. These include alternative lending, robo-advisors powered by AI, peer-to-peer lending and automated loans.

Global investment in Fintech companies reached a high of $122 billion in 2018, according to research from KPMG. This is more than double the amount spent in 2017, which peaked at $51 billion. Europe reached $37.5 billion worth of Fintech investment in 2018, more than tripling the $12.2 billion in 2017. The UK’s Fintech investment leapt from $5.6 billion 2017 to $24.1 billion in 2018, representing the biggest increase in Europe.

Banks have been forced to accept that Fintech start-ups present tangible and potentially damaging competition. This has led to more financial institutions partnering with start-ups to develop new consumer solutions. Many of these Fintech developments have taken place in Europe, with a slower growth in the US.

Europe embraces regulatory changes

Europe has shown itself to be more accepting of new technology, with the rise of Fintech bridging the gap between traditional banking and new services for tech-savvy consumers.

While European Fintech companies are thriving this side of the Atlantic, they are slow to expand into the US. This is at least partly down to the complexity of the regulations surrounding financial services in the US, and the lack of open banking.

The EU has introduced two major regulatory changes that have boosted the Fintech market in Europe. These are the General Data Protection Regulation (GDPR) and the Payment Services Directive (PSD2). The first allows consumers much more control over their data via an opt-in system, and the second allows third party providers to offer services to businesses and consumers.

PSD2 forces banks to provide consumer data in their records to third party providers. This enables Fintech firms to develop solutions to consumer’s financial needs, and to offer tailored services. This has opened up the financial services market in an unprecedented way.

These kinds of regulatory changes create a massive opportunity for small start-ups and Fintech firms to corner a market they didn’t have access to. Banks have had to play catch up, and partner with Fintech firms to try and stay ahead of the game.

Open Banking boost UK Fintech sector

The UK has also opened the market to Fintech through the Open Banking initiative. This also provides consumer data to third parties so that they can utilise it to create new financial services. Since the market opened, 63$ of start-up Fintechs have taken 14% of all bank and payment revenues in the country. This shows that the Fintech sector really does know what consumers will respond to, and how to deliver it.

Until the US alters its regulatory framework in a similar way, it’s unlikely that Fintech start-ups will be able to make the same kinds of inroads. It is up to the banks and financial institutions that hold consumer data as to whether they want to adopt Fintech into their services. This makes it a slower adoption of Fintech, but no less significant.

Fintech still has a foothold in the US, and it’s likely that this will catch up with European adoption of disruptive technology over the next few years. More US financial institutions and banks are seeing Fintech as a huge opportunity rather than a competitive threat and responding accordingly.

Tuesday, May 28, 2019

Frederick Achom looks at how the Brexit delay is affecting small businesses

Small businesses in the UK are showing signs of Brexit fatigue, according to research by the Telegraph. Its business trackers shows that morale ‘remains very low’ among small businesses, and the most commonly cited reason remains Brexit uncertainty.

The index analyses Tweets from 25,000 UK small businesses and entrepreneurs. After extracting marketing and neutral posts, it compiles the data to show how many businesses are showing signs of strain or positivity.

Government delay continues

There have been no further votes in Parliament regarding Brexit since 10 April, which has left the UK enduring a level of sustained uncertainty. As the path to leave the EU remains unclear, businesses have been sharing their opinions online.

The most recent results from Business Tracker concern Tweets from 25,000 small British businesses, start-up owners and entrepreneurs that were published between 26 March 2019 and 22 April 2019. As this is the immediate aftermath of the decision for a Brexit extension being taken by the Government, it has yielded particularly relevant data.

Overall, the tracker shows around 64% expressing pessimistic sentiments, and 35% remaining generally positive. Measured against 2018’s results, there has been a significant increase in pessimistic Tweets on a month-to-month basis. There are around 19% more negative Tweets from the representative sample of businesses compared with the same time period last year.

However, not all of the negative posts are directly concerned with Brexit. Just over half of the negative posts specifically point to Brexit as the cause for their flagging morale. So, while it isn’t the biggest concern for every business, it’s the biggest for a significant number. More than half are worried for their business’ future given the seeming lack of progress in negotiations. More than 11% are worried that the UK may still leave the EU with no deal at all.

Confidence measuring index

The Federation of Small Businesses (FSB) runs its own confidence measuring index (SBI). And the most recent data from the index concurs with the Telegraph’s findings. It shows almost 90% of small businesses completely ceasing to recruit new staff, and 12% actively reducing their workforce.

Out of the small businesses that rely on European exports for trade, expectations are the lowest in the eight-year history of the index. Just over 25% of SMEs that rely on trading overseas expect to see their exports rise during Q2+3 2019, compared with 42% last year.

Around 68% of small business say that international sales are either declining or failing to rise, up 3% since Q1 2018. And looking ahead to the near future, under 40% expect to see revenue rising, a fall of 45% from this time last year.

What the SME community can do

The SBI measures small business confidence at -5.0 for Q1 2018, compared with +6.0 from Q1 2018. Can Brexit be blamed for the sharp drop? Mike Cherry, Chairman of the FSB believes so. He says: “Small firms… have suffered 1000 days of uncertainty since the Brexit referendum, leaving us unable to plan, invest and grow.”

As a community of small businesses, entrepreneurs and investors, we must accept that, for now, the position remains uncertain. Starting from this basis, we must find ways to remain resilient and continue our contribution to the UK economy. The Brexit transition period is particularly difficult for the SME community, as they are lighter on resources and less likely to weather cashflow storms.

Some small businesses that rely on European trade are simply refocusing on different regions, such as the US and Asia. By transferring business operations to countries outside of the EU, they can retain some balance and remain in business.

We also shouldn’t ignore the positives showing in the economy nationally. We have decreasing levels of unemployment, for example, with 32.7 million currently in work. Additionally, data shows that small businesses outside of London are finding positives in the support they are receiving. About 12% of the Tweets in the Telegraph’s business tracker are enthusiastically positive about the high levels of support available to UK SMEs. This is where we can find the positive of the current situation and continue working towards a brighter future.

Tuesday, May 21, 2019

Frederick Achom explains the complexities of Fintech


Fintech is a topic you hear a lot about in the media right now. It’s long been a key interest area for me as an investor and supporter of start-ups and disruptors. But it’s more than just a buzzword.

Think of Fintech as an umbrella term for a variety of working based on developing new, innovative technology to improve the financial services sector. There is no definitive definition, and it’s changing all the time. In this blog, I’ll talk about what I believe encompasses Fintech, and breakdown some of its sub categories.

What makes a business ‘Fintech’?

First things first. The word Fintech derives from two words: financial technology. Most people understand it as a descriptor for agile start-ups that focus on delivering financial services using technology. And many Fintech companies do come under this description.

Broadly speaking, Fintech companies are smaller businesses that are flexible, agile and quick to disrupt a traditional sector. But it’s worth remembering that many well-established financial institutions, including the major banks, are also working in this sector too. Most are using Fintech in the background and working with consultants and Fintech start-ups behind the scenes to come up with new ways to streamline and improve the financial services sector.

What does a Fintech business provide?

A confusing aspect of Fintech for those new to the sector is whether it should be used to describe the companies providing technology, or the companies providing the end service to the consumer.

I think it’s both. Some businesses use digital platforms which have been developed by Fintech companies to deliver financial services. Other use different aspects of financial technology to deliver services directly to the consumer in a more traditional manner.

So, while a company providing technology may be using a service model, they’re still ultimately delivering financial services. The Fintech sector is constantly evolving, and in many ways is in its infancy. With the advent and use of automation and artificial intelligence (AI), we can expect to see the sector continuing to create new business models, new technology and new products, apps and processes.

Fintech subcategories

Fintech encompasses a broad range of services and platforms. Here’s how some of its subcategories fit in.

·         Online payments

One of the most obvious and commonly used manifestations of Fintech is online P2P (peer-to-peer) payment platforms. Many of us are well used to using the likes of PayPal, Apple Pay and many others to complete day-to-day transactions. We pay with QR codes and our smartphones, as well as specific platforms and banking services.

The ability to make fast, secure, online payments without even using a bank or traditional financial institution is one of the revolutions created by Fintech. This also means businesses can quickly scale their operations without having to wait on financial institutions to go through their often-slow processes.

·         Banking services

Technically, there are very few pure banking services that come solely under the banner of Fintech. This is because in most countries, banking services are highly regulated and controlled. However, there are many Fintech companies working in different parts of the banking delivery chain.

For example, a Fintech start-up could offer a service that focuses on opening and account quickly and easily and moving money between accounts. Along the way, they will also be working with a licensed financial institution or bank, although it may not be immediately apparent.

There are some hybrid companies that offer both tech and banking services, including solarisBank, which is based in Germany. They are both tech companies that also own and operate a banking facility. They’re not common, and most Fintech companies are facilitating a portion of the chain, rather than offering an entire banking service.

·         Money lending services

Another category within Fintech that is already commonly used by consumers. Both individual people and companies can use technology platforms to access funding of all kinds. This could be a simple loan, right up to business finances and mortgages.

·         Personal finance and investment assistance

There are many tools available, and plenty in development, to help people manage their personal finances and make investment decisions. Examples include comparison websites for credit cards and loans, to automated investment apps.

Fintech companies are present within every part of the financial services sector. You’ll find them in the cryptocurrency and blockchain space, as well as crowdfunding and much more. It covers a wide range of services, products, apps, many of which are in the background of the services delivered to the consumer.

Thursday, April 25, 2019

Frederick Achom reviews Apple’s new credit card announcement 

Apple Pay is now an every day way to pay for goods and services for millions of people. And Apple is set to capitalise on its success and cement its place in the financial sector, with the announcement of its new Apple Card.

Partnered with Mastercard and Goldman Sachs, the Apple Card offers a host of benefits and easy-to-use features that could have Fintech competition deeply worried.

How will the Apple Card work?

The first notable feature of the Apple Card is how simple it is for customers to access it and use it. There is no waiting period to be accepted, no gap between applying and using it to pay, in fact, nothing that could be associated with traditional credit cards.

Some Fintech companies already include simple online sign up for credit cards, but there is always some kind of a delay between applying and using. The Apple Card will be included as a built-in feature of the Apple Wallet on iPhones. All customers need to do is sign up and they are immediately able to use it.

Apple say that the card offers a ‘healthier financial life’ to its customers. As well as 2% cashback on every transaction paid daily, it is designed to help people make smarter financial choices.

All of these features are tried and tested with the millennial generation, who respond to rewards, loyalty offerings and, crucially, easy to use products. This is how Apple is tapping into the zeitgeist to beat Fintech start-ups at their own game.

When will Apple Card be available?

By September 2019, iPhone customers in the US will be free to sign up for an Apple card. As they already tend to have heavy loyalty towards Apple and are used to its first foray into the financial sector with Apple Pay, the transition to their credit card should be seamless.

Apple have simplified the sign-up process, they’ve made it easy and immediately available to use, and they offer all the other benefits associated with credit cards. This includes automatic categorisation of transactions. This is something that is already used a lot in Fintech products, and there is no direct evidence yet to show that it’s beneficial for customers in any meaningful way. However, it is what consumers expect, and it is a trend Apple intends to have a slice of.

Payments will go into separate categories, and Apple will use machine learning to accurately label every payment with the merchant and location of the transaction. This is several steps further than most categorisation offerings in financial products and is likely to strike a chord with Apple’s customer base.

Key features of Apple’s credit card

The idea of taking a trend and improving it is behind other offerings from the Apple Card. Cashback has become extremely popular among Fintech companies as a way of guaranteeing customer loyalty.

Apple Card takes it a step further by offering ‘Daily Cash’ on transactions. This will be 2% of every purchase the customer makes, and they will be able to use that cashback straight away. They can either use it on Apple Pay, send to family and friends in Messages or use it to go towards their Apple Card balance.

Perhaps the most attractive feature of all for customers, the Apple Card will have no fees attached. Apple says there will be “no annual, late, international or over the limit fees…” However, the small print shows that it’s not quite as perfect as it sounds. Late payments will mean extra interest added onto the Apple Card’s balance.

The Apple Card looks set to offer everything other credit cards and products do, but with more finesse, shine and benefit for the customer. Apple already has millions of loyal customers and a vast swathe of consumer data at their fingertips. It seems the appetite is there for the Apple Card, and it’s difficult to imagine that it won’t be a soaring success. All of which will disrupt a sector more used to disrupting the traditional banks. 

Wednesday, April 10, 2019

Frederick Achom on what makes a Fintech start-up successful

What makes the difference between a Fintech start-up that crashes and burns and one that is successful? If you have the idea, the talent and the tech to move into the Fintech space with your start-up, you need to beat the odds. Stats show just one in ten start-up companies makes it.

It’s always easier to have the idea than to make it into a successful reality. Innovation, disruptive tech and forward-thinking ideas are vital for success in the ever-growing Fintech sector today. Competition is harsh and start-ups are not only up against their peers, but also established financial institutions who want their slice of this sector.

Some advice for Fintech start-up companies

Fintech is driven by consumer demand, and more businesses are seizing the opportunity it affords them every day. There are undoubtedly vast opportunities for the right kind of start-ups working across categories including distributed ledger technology, wealth management solutions, alternative lending services and payments solutions.

Consumers are more likely than ever to adopt innovate Fintech solutions, without the need to stick to traditional lenders and banks. Between 2015 and 2017, research from EY shows that adoption doubled. This is increasingly putting traditional financial giants on the back foot as they react to the disruption caused by Fintech start-ups.

How can you guarantee your Fintech start-up will be successful? Well, you may not be able to 100% guarantee success, but by working to key strategies you will give your business the best chance.

Create with the customer in mind

Every Fintech company’s ideas live or due by the user experience (UX). If a consumer finds an app or service too complicated, or it looks untrustworthy, that’s all it takes for a company to fail.

Lots of Fintech solutions we see on the market right now have poor UX, and this creates another sub-category of opportunity for disruptive start-ups. Combine smart design with tech to create a beautifully workable product or service and you will succeed.

Solutions, products, apps and services should be accessible and easy to use for anyone. The end product is aimed at people who aren’t generally interested in its technological complexities. They just want it to work.

Always ensure simplicity

If you can’t explain a Fintech app to the user within in ten seconds, the chances are it won’t work. The world of personal and business finances is complex and stressful for many people. Products and services must appear simple on the surface to stand a chance of survival. Dispensing with extraneous features and fussy embellishments can go a long way to ensuring a product goes down well with consumers.

Retain the human touch

While big data analysis, artificial intelligence and automation can solve many problems for consumers, it can also strip away a human feel. People want to be heard as well as helped. And although tech can analyse their data to improve financial offerings, for example, it can’t hear their individual story. This can get in the way of the trust between start-up and customer.

Innovate for the greater good

Successful Fintech companies have one thing in common – passionate employees. To be successful, start-up owners must activate and encourage this passion by having a higher purpose for their app or solution. The best people in all sectors stay with companies that are standing up for something.

Merely creating a new app in the financial sector can make money in the short-term, but without a deeper purpose, the good staff won’t stay. Create something that’s about more than making a profit.

Fintech start-ups are in a unique position to make real, lasting changes to the way we all maintain our personal and business finances. From the way we pay for things to how we access loans, Fintech has the potential to revolutionise everything. If you can tap into something bigger than your start-up, you have a better chance of becoming – and staying – successful.

Friday, March 1, 2019

How could the UK Fintech industry be affected by a no-deal Brexit?

Frederick Achom

The pressure continues to mount on the UK’s Prime Minister to provide some clarity on the exit deal for withdrawal from the EU. Some reports suggest she should consider delaying Brexit, bearing in mind the difficulty that exists in reaching a consensus.

And, with the date set for our exit still 29 March 2019, there is increasing concern surrounding the possibility of a no-deal Brexit and what this will mean for industry.

Why is a no-deal Brexit a possibility?

For those with Brexit fatigue, here is a brief summary of where we are. If the Prime Minister’s draft withdrawal deal is passed by Parliament, then Brexit will go ahead in March as planned. The 29 March will mark the state of the transition period deemed necessary to thrash out trade agreements.

The Prime Minster has just announced another delay to this vote, which will now take place on 12 March, just two weeks before Brexit day. Assuming it is passed, the transition would last until December 2020 at the latest. If no agreement on the final terms is agreed during this transition period, the ‘backstop’ will come into force. The backstop will allow both parties to continue trading. It means the UK would enter a single customs territory, with Northern Ireland remaining under EU single market rules to ensure an open border between the UK and the Republic of Ireland.

This met much opposition, particularly from the DUP, upon which the Prime Minister relies to stay in power. From this information, global investment research firm Morningstar predicts that there is around a 30% chance of a ‘no-deal’ Brexit, where the UK would leave with no agreement at all.

The UK Fintech industry and a no-deal Brexit

London is the European capital for Fintech. Some even consider it the Fintech capital of the world. Businesses in this sector have attracted in excess of $5.08 billion worth of investment since June 2016. In comparison, Paris received $1.38 billion, Stockholm $683 million and Berlin $1.02 billion.

While it’s not known how a no-deal Brexit would affect Fintech, below I outline what we do know. Companies should be aware of the following and begin preparations if possible.

What is a third country customs regime?

In the event of a no-deal Brexit, the Government has said that the UK would enter into a “third-country customs regime” with the EU. This will mean initial supply chain disruption, at the least. There would also be delays importing and exporting software and equipment.

Imported goods and services from the EU would be considered third-party, which means they would have to pay import VAT. This will increase costs. Services from the Fintech industry heading out to the EU will mean the sender paying VAT in the country of entry. There would also be potentially extensive border delays due to more complex checks.

Potential impact on investment

Some Fintech companies have made decisive moves that have alarmed the industry. For example, one of the city’s few unicorns, TransferWise, relocated their HQ to Europe. The CEOs, Kristo Käärmann and Taavet Hinrikus, are clear that the move is partly down to the possibility of a no-deal Brexit, saying that the UK is no longer the “best place to build a Fintech business.”

However, London remains Europe’s Fintech capital, and it’s hoped that venture capitalists will continue to invest while we wait for Brexit clarification. Should we face a no-deal Brexit, this could further spook investors and inevitably this will impact small start-ups the most. To combat this possibility, start-up owners can consider launching their business outside of the UK.

How would workers’ rights be affected?

London is the such a successful Fintech hub because it has attracted the best and brightest people from around the world. An EY study shows there are more than 44,000 people working in the capital’s Fintech sector, the highest in any city in the world. According to data from Tech Nation, more than 50% of workers in London’s Fintech sector are from overseas.

The Government say that they will maintain workplace rights for EU nationals if there is a no-deal Brexit. In its advisory document it says: “The EU (Withdrawal) Act 2018 brings across the powers from EU Directives. This means that workers in the U.K. will continue to be entitled to the rights they have under U.K. law, covering those aspects which come from EU law.”

However, the future of EU workers who earn less than a stipulated threshold announced by the Home Secretary, looks more uncertain. For start-ups that want to hire EU staff in junior or mid-level roles, it could mean they only have access to the domestic labour market, which could mean shortages.

Any start-up concerned the rights of its employees to work in the UK should encourage applying for permanent residency if possible. This allows a citizen from outside the country to live permanently in the UK if they have spent more than five years here. The Government says that citizens can apply for permanent residency in the UK until 31 December 2021.

Wednesday, February 20, 2019

How start-ups can improve the UK’s image after Brexit

Whether you’re for or against Brexit, it’s a fact that the vote to leave the EU marks a turning point in our national history. The Government is still negotiating how to extricate the country from the EU. Until they provide clarity, we just don’t know how this will affect our economy and the way we do business.

Either way, we are still on the edge of a brand-new era for the UK. Our global position is changing all the time at the moment, and how we work together following Brexit will determine how we’re perceived. UK start-ups will have a meaningful role in shaping the UK’s brand when we have left the EU.

A positive opportunity for UK start-ups

Over the years, I’ve worked with lots of start-up investment projects. I’ve met many entrepreneurs, innovators and start-up owners, and I know how passionate they are about their future. This energy is priceless, and show be harnessed to take the country forward post-Brexit.

At the moment, the UK remains fifth largest economy in the world, but whether this will be the case after Brexit remains to be seen. The Government is working to secure trade deals and presumably make the transition as smooth as possible. In the meantime, there has been speculation that other countries could replace the City of London as the global financial capital. However, the UK has a quality that other countries don’t – the ability to directly influence foreign investors through its culture, history and traditions.

How is the UK perceived around the world?

Every year, the British Council conducts a survey called From The Outside In, which shows how young people who live in other G20 countries perceive the UK. Results from the 2018 survey show that the generally positive impression enjoyed by the UK has remained relatively unchanged since the vote. More than 71% say that they still think the UK is an attractive business proposition.

Interestingly, the survey shows that the UK’s power lies in its people, not its Government or institutions. More than half of respondents are unaffected entirely by the vote, while 14% say they’re more likely to want to do business with the UK. Just 19% say that it has affected their opinion in an adverse way.

Start-ups should utilise information like this to really understand the position they hold not just in the UK’s economy, but the wider global business sector. We have a really strong foundation in the UK to work from post-Brexit. Intelligent communication, branding, marketing and an open, trustworthy position can capitalise on this.

What should UK start-ups do?

Lots of people underestimate the role UK start-ups could have in the global economic community. By using the same tactics as established multinationals, start-up owners can grow their client base and their influence. By attracting investment and being agile enough to adapt to the changing needs of the global economy, UK start-ups are ideally placed to create brands, services and products with a human face.

     1.    Prove your product or service really works.

Our business infrastructure is admired around the world, and our position in the global economy combines to create a generally favourable impression from overseas. And while the UK Government may seem slow to react to situations, the external perception of the UK is still positive.

We benefit particularly from the impression that ‘British-made’ means quality. The expectation that companies and products from the UK will be exemplary does add some pressure, but also gives an opportunity to prove it’s true. This covers everything from the product or service itself, to how you sell it, your online presence, advertising, customer service and social media.

      2.    Use cultural codes in your communications.

The UK still has the reputation of being mostly polite, well-mannered and trustworthy. Small start-ups should capitalise on this and use it in communications, whether with customers or suppliers. Demonstrating calm, rational, polite customer service and selling techniques can enhance a UK start-up’s reputation overseas.

     3.    Show you are welcoming and open-minded.

A negative consequence of the perception surrounding Brexit is that the UK is intolerant to foreign people and businesses. Show this isn’t the case through your marketing, as well as the product and service. Use a language in your communication that is subtly open and welcoming and doesn’t alienate anyone. You can also use design to create something accessible, welcoming and appealing to everyone in your target market. This will engender feelings of acceptance within your target demographic and show you are open, inclusive and welcoming.

There is not doubt that UK start-ups can meaningfully contribute to the future of our economy. Working together holistically with overseas customers from all around the world will help to build an impression of a UK that’s open for business and happy to work with everyone. Start-ups could form the backbone of the UK’s economy after Brexit and improve the way we are seen by other countries.