Is there a certain inevitability about the fact that London’s longed for big investments in early stage companies is coming at last, not from multinationals acquiring ingenious apps hatched and built in the garden sheds of reclusive coding geniuses, but from an all too familiar, and not entirely trusted source; the banking industry?
Figures released by Accenture reveal that the UK is the fastest growing FinTech hub on the planet. Although dwarfed in size by Silicon Valley, which attracted $950 million of investment in 2013 alone, compared to London’s $781 million since 2004, deal volume in the UK has grown at an annualised rate of 74% since 2008, compared to just 13% in California. The UK now attracts 53% of total European investment in the sector, the vast majority of which flows into London.
Perhaps both sides of the Tech / Finance divide have concluded that “if you can’t beat ‘em, join ‘em”, but where then does that leave the likes of disruptive start-ups, entrepreneurs and digital creative and design agencies, which have called the Silicon Roundabout home since way before the Government to make Shoreditch its pet project?
Well, entrepreneurs know better than anyone that however the situation turns, you have to make the best of it. In the film Heat, the maverick Robert de Niro lives by the watchwords “have nothing in your life that you cannot leave behind in less than 10 seconds”, whilst Al Pacino’s detective hardly enjoys the most functional of private lives. Would these 2 great protagonists be better together, establishing a relationship of trust? On Tuesday afternoon at Google Campus Arifa Khan introduced us to 4 companies caught in the crossfire, and chaired a panel debate to try to identify exactly what the options were for the future of FinTech in the Silicon Roundabout.
CEO George Kaye of Derivitec was the first speaker, and once he had mastered the unfathomably complex collection of computers, projectors and microphones arranged on the stage in a way that made the set of the X-factor look like pub karaoke, proceeded to discuss what cloud computing could do for derivative analysis. Cloud computing, as we all know, is a hosted resource that is scalable and on demand, paid for according to usage. It’s reliable and means you don’t have to run up a massive in-house IT bill; perfect, then, for small to mid-tier hedge funds with less than $150m assets under management, of which 70% will trade derivatives, according to Kaye’s research.
Derivitec’s portfolio analysis tool will most likely be familiar to anyone who has had to evaluate risk post 2008, since when the Volcker rule, and Dodd Frank, have introduced stringent regulatory requirements for anyone wishing to hedge their investments with derivatives. What is new is the cloud computing element, and an impressive demo suggested that Hedge Funds would lose nothing from switching to the cloud via Derivitec, and most likely gain by reducing their overall IT costs.
Whilst the Derivitec concept perhaps treated FinTech as a reversion to the mean, Tibdit was most definitely a disruptive idea. Founder Justin Maxwell thinks he has found a solution to the micropayments problem, by introducing a platform that allows you to “tip” sites, pages, and recommendations in cyberspace. A Tibdit account allows you to define and make micro-payments for services such as journalism (returning content to the reader rather than the advertiser), ad-free browsing, stack overflow, dating sites and more. An exciting concept that empowers internet users and could have a significant impact on the way websites and content are thought about and produced. If I were an investor I would have been reaching for my business card.
Vice President Todd Latham introduced us to Currency Cloud, which has already attracted funding from the likes of Atlas Venture, Norton Capital and the Silicon Valley bank. The concept is straightforward, allowing companies to send money abroad at a reasonable rate, with charges declared up front and reliability guaranteed. Todd’s pitch was persuasive, with the emphasis on building trusted relationships with clients, no surprise then that the Company has already attracted $5bn of payments in a market worth $21bn, attracting $10m of investment along the way. FCA regulated, this felt like a Company that was ready to deal with a level of oversight and regulation that others might struggle with.
Similar to Currency Cloud, but experiencing the similar technical problems to Derivitec, this time the loss of the @ key, which made its founder look a little bit like he had not used an Apple computer before (sure this is not the case), TransferCo was set up in Lithuania to facilitate migrant workers sending money back home. 65% of their revenues still come from Lithuania, however the product is scalable, the technology clean, and the remittance market in Europe alone worth £130bn. Money transfers can be slow, confusing and expensive, therefore a proprietorial digital system with automated KYC is another welcome addition to the marketplace.
So what can we conclude about the prospects for FinTech in and around the City from the 4 pitches above? The subsequent panel debate, although revealing in many ways, suggested that we are no closer to answering some of the key concerns. Do entrepreneurs take the banks on, or accept that, however innovative they may be, they cannot compete for size and scale? What can major international banks learn from FinTech start-ups, and can they be shaken from their occasionally complacent attitudes towards emergent challengers to their profit margins? And, where does FinTech position itself, in this case quite literally. Buddying up with a bank guarantees you an address in trendy Shoreditch as rents spiral, but drive out digital agencies and creative, and it won’t be trendy for long. Tech and Banking are the City’s odd couple. How long can the marriage last?