Our fintech sector is stalling and taking the competitive pressure off of the big banks
Innovation and creativity put the fintech industry ahead of the big players, but rather than pressing on the accelerator, they’ve allowed themselves to stall and handing the power back to the institutional banks, writes Andrew Beckley
There is a cloud of uncertainty hanging over the fintech landscape. Usually so sure of itself, the fintech ecosystem in London and the rest of the UK has taken a battering of late, with Brexit, a talent shortage and a less favourable funding environment combining to leave businesses and investors in a difficult situation. Even last week’s UK fintech week – normally a celebration of the industry’s offering – was dampened by the challenges ahead.
Investment into the UK’s fintech sector slumped eight per cent last year, although we remain well ahead of rival hubs in Europe and Asia. Yet fintech success stories have been few and far between in recent months amid the furore around Generative AI and the growing focus on sustainability. But why is that? And what does it mean for the future of fintech and the wider financial services industry?
Fintech’s relative decline has coincided with a rebound of the institutions the industry was supposed to replace. Indeed, nothing summarises the resurgence of Big Banks quite like the recent fire sale of Silicon Valley Bank to HSBC shortly after Barclays took over Tech Nation’s role in the UK tech ecosystem.
Simply put, innovation and creativity put the fintech industry ahead of the big players, but rather than pressing on the accelerator, they’ve allowed themselves to stall. For too long, founders and their teams have had the financial services product blinkers on. By following shallow money needs such as splitting funds into pots, offering cashback on purchases, and chasing customers on an individual basis, fintechs have lost their innovative edge and allure among the VC community.
Unfortunately nothing in fintech has broken through as originally expected. For example, the industry has so far failed to deliver the Open Banking revolution that was promised. Although it could yet have a major impact, investors have grown tired of the broken promises and have moved on to other opportunities.
Is there enough space left to innovate? Definitely. But this comes with a whole host of caveats. If fintech ventures revert to a consolidated underlying need mostly, they are little more than a digital front-end on a legacy industry. This has created an emerging sense of having lost their way, where clear-sighted leadership and bold ambition is lacking or has been burnt out by the grind of daily customer acquisition reporting. They are add ons to current offering, rather than pushing the boundaries of what could be achieved.
With the fintech slowdown reducing some of the competitive pressure on the big banks, it seems many have reverted to safe and expensive rather than innovative and actionable. Swooping in to save the likes of Silicon Valley Bank and to replace Tech Nation, these institutions have proved their worth with stability and size. While the fintech industry has faltered, the legacy players have reminded us who has the muscle to create impact.
At the same time, this probably isn’t an existential crisis for fintech. Although it is vital the industry regroups and begins delivering ideas that reshape financial outcomes for people, not just their digital experiences.
There is also a huge opportunity for fintech to join the movement to make a more sustainable world. After all, economic empowerment is fundamental to the world changing its ways more sustainably.
The fintech industry has a choice to make, stand up, lead that movement or be content with middle age and the irrelevance to come.