In the wake of the 2008 financial crisis, the financial technology sector, dubbed “fintech”, has seen rapid growth as consumers and businesses seek alternative financial services solutions.
For those unfamiliar with the term, fintech means any financial technological innovation in the financial sector which can change the way people pay, transfer money, borrow, lend and invest.
Although most people think that fintech is a modern concept with well-known examples being Paypal, Bitcoin, TransferWise and Crowdcube; actually, an early example of fintech is the abacus which was invented by the Chinese in 3000 B.C.
Given that fintech, regtech, healthtech or anytech are such hot topics for so many of our commercial clients, here are three reasons that might incentivise you to swot up on fintech:
1. Millennials are ahead of the game
Where most fintechs are now a product of digital innovation, millennials are arguably already ahead of the game: not only in terms of their use and understanding of tech but also in terms of their connectivity with peers who could be future fintech leaders.
2. Area of focus for UK growth
London, as the ‘Global Fintech Capital’, has already seen a variety of successful fintech start-ups within its well-established financial services sector. The UK government, recognising the UK’s role as the leader of innovation in this sector, has shown its commitment to innovation when last year at the Innovate Finance's Global Summit, the previous Economic Secretary (H M Treasury), Harriett Baldwin, announced several new initiatives to further promote growth and innovation in the fintech sector.
The UK’s financial regulator, the Financial Conduct Authority (FCA) has also set up an initiative called ‘Project Innovate’ and is setting an example for other regulators worldwide by giving fintechs the opportunity to test their technology within the confines of a regulatory “sandbox".
3. Innovation requires (balanced) regulation
Fintechs operate on their ability to provide a secure, trustworthy service, which means that compliance with legal financial regulation (that doesn’t stifle innovation) is a core part of their businesses.
However, fundamental changes to financial services such as blockchain (a digital ledger that removes the requirement for a trusted third party e.g. a bank) are giving rise to a variety of regulatory and compliance issues. In essence, fintech advancement is outpacing regulatory legislation so there is a demand for advice and clarity.
It is not just fintech start-ups but traditional financial institutions, such as banks, insurers and asset managers, who are seeking to capitalise on the sector potential by developing their own fintech products or by acquiring the start-ups themselves.
This article was written by trainee solicitor Celine O'Connor, based on her experience sitting in Burges Salmon's financial services department.