TLA FinTech @ Rise London for London Tech Week 2017

The TLA FinTech group was delighted to host a breakfast discussion @ Rise London during London Tech Week, June 2017.

The event was the first in what we hope will be a series of collaborations between TLA FinTech and Rise London. We’re hoping to run further breakfast sessions for small groups of FinTech influencers as well as finding ways to bring our wider TLA FinTech group together to learn, share experiences and network.

Our discussion, held among a well-informed group of prominent investors, experienced entrepreneurs and mentors, as well as FinTechs themselves, focused on the investment landscape in FinTech: challenges and opportunities post-Brexit, what can we do to create more FinTech scale-ups and how can we attract more sustainable investment in the sector.

Jeffrey Tijssen of Capco, who facilitated our discussion, kicked off the conversation by asking whether, after the Brexit vote and a UK General Election ending in a hung parliament, the UK FinTech scene was in better or worse shape that it was 12 months ago.

Generally our delegates felt that there was still a lot of money in the system and plenty of appetite for FinTech investing. For example, on their programme, Techstars have seen a big uptick in the number of start-ups securing funding during the programme whereas once the Investor Day at the end of the programme was the key opportunity for start-ups to show their products and attract investment. While this may point to the growing quality of the programme and the start-ups selected to be on it, these levels of success also suggest plenty of interest in and competition for new products coming into the market.

We also suggested that while Brexit is a big deal for the banks, with most already a long way down the track in their planning for variations on a hard or soft Brexit, start-ups typically have more imminent and pressing concerns. We did question however whether Downing Street and the current government still have their eye on FinTech in the way we saw in the heady days of 2014 when the then Coalition government first announced a series of measures to support the growth of the FinTech sector and encourage innovation in finance. Perhaps, like the start-ups, our current government also has more pressing and imminent concerns!

There was acknowledgement that market uncertainty caused by the political environment could be prompting a softening of investor sentiment. U.S. money in particular may have slowed down in recent months, and while big Asian investors like Softbank have deep pockets, start-ups may also be wary of the strings attached to some sources of international capital. We also acknowledged that for start-ups whose business plans rely on passporting or other aspects of harmonised European regulation, funding requirements may have increased to support the opex required to scale in Europe.

But what the investors in the room were saying was that the real reasons that there is a lack of capital flowing to the later stage market, from Series C rounds and beyond, is because investors aren’t seeing the sustainability they are looking for in current FinTech business models.

We spent quite a bit of the session considering if this was a fair assessment, why this might be and where the points of weakness are. Consensus was that there are a range of factors at play, including the maturity of a market which started out largely as a B2C/retail banking play, and is increasingly seeing the value in B2B/back office use cases. This shift has seen many start-ups take a very diverse route to market and just too many companies, even by Series C, are not able to produce a cogent argument for how they will monetise their product and scale, and are not able to succinctly show what their USP is.

For FinTechs on both the buy-side and sell-side of the market, our delegates saw a worrying disconnect between FinTech and banks as one of the greatest barriers to success, and more partnerships and collaborations between these players as being the most likely solution to this problem. In spite of all the networking events, accelerator and incubator programmes, investor days and one-to-one meetings that aim to bring “little” and “large” together — culture clash is a big problem!

FinTechs find banks to be lacking in transparency, with unclear governance structures and slow and cumbersome decision-making processes. They complain that many of those in the innovation or investment arms of banks tasked with talking to FinTechs and looking at new ideas are measured on conversations rather than on successful investments or collaborations. What we need is to get the balance right in the “‘talk about stuff’ to ‘pay for stuff’ ratio,” said one delegate. Even those in innovation teams within the banks, we heard, can find it hard to identify the right decision-maker or budget owner within their own institution to take an idea forward.

On the other side, banks complain that FinTechs lack the detailed knowledge of how banks work that will enable a FinTech to make a good job of designing and pitching a product. FinTechs don’t understand how the sales cycle within an institution works, say banks, or have unrealistic expectations of how long the process will take. They don’t understand or prepare themselves well enough for the questions an investor or commercial partner will ask — be that about cybersecurity provisions; or whether the regulatory position for the business model has really had the tyres kicked, for example. At another level, FinTechs may present a tech “solution” without a sufficiently deep knowledge of the problem the institution may be facing. One example given was in the area of KYC — “How many hundreds of start-ups are trying to solve the KYC problem”, one investor complained, “without acknowledging the fundamental legal obligation that banks are under to not outsource liability for KYC checks”. This was not to say, the investor went on to point out, that he wouldn’t jump to invest in a great solution that really moved the dial on a small piece of the KYC puzzle. Banks, we all acknowledged, have been wrestling with the problem of making KYC more efficient for many years, and there is plenty of pain to be taken out of the process, even if only in small increments.

But delegates also acknowledged some really positive market developments in this regard. One is the number of experienced bankers who are now jumping the fence to join FinTechs (and bringing their deep knowledge of problems and processes with them), another is that we are starting to get serial entrepreneurs in the UK FinTech scene who bring a greater depth of expertise to the market as a whole. “Founder to market fit” was held to be very important to success.

It would be quite wrong not to acknowledge some of the pro-Brexit discussion points that our group considered also. For example, could the UK, once freed from some of the shackles of the European antitrust and state aid regime, find new ways to incentivise investment in Britain? Or are there ways in which we can look at policy level schemes like visa waivers and relocation allowances as a way of incentivising talent to come and stay in Britain, once we don’t have to worry about the free movement of all people within the EU? One delegate called on the government to be producing a “shopping list of post-Brexit levers” that could be used to encourage the continued growth and development of the UK FinTech market.

Before we wrapped up for the morning, all delegates were asked to suggest one thing that they thought would change our UK FinTech landscape for the better. We had some great suggestions, including:

1. More female investors

2. More international investors putting money into FinTech scale-ups

3. Tax breaks to encourage a shift in investment from early stage start-ups to scale-ups

4. An increase in the SEIS cap

5. A cultural shift in UK boardrooms that results in those who control the financial services industry being praised for innovation and not so frightened of failure

6. Government to do more to keep the big banks in the UK post-Brexit

7. Clarity between policy initiatives like GDPR and PSDII — actionable guidance on how industry can balance the protection of personal data with a drive to take advantage of digitals tools like big data and AI

8. More collaboration — particularly between international hubs (more FinTech bridges etc)

9. No Brexit! (Or conversely, Brexit followed by an EU2.0 based on shared values)

10. More diversity among job applicants in the sector

11. Universal portable standards and/or a regulatory change that makes finding a better KYC solution more likely

12. Renewed government engagement in the sector — Number 10 and HM Treasury coming out “all guns blazing” in support of our FinTech industry

13. Better, faster, clearer governance in banks with regard to their investment approaches and priorities

14. FinTech alliances based on shared values not geographic proximity

15. Consolidation and collaboration so that we can solve industry problems together

16. True account portability

17. A ranking of the top investors/partners/buyers of FinTechs — to show who the truly innovative and committed players are

18. London remaining the world’s FinTech capital!

One of the actions coming from our discussion is that TLA Fintech will work with Innovate Finance to explore the possibility of creating the ranking suggested at point 17.

Attendees were:

• Amina Ahmad, Rise London

• Ben Brabyn, Level39

• Benedict Nielsen, Finbourne

• Chris Adelsbach, Techstars

• Chris Gledhill, Secco Aura

• Ghela Boskovich, Rainmaking Loft/Startupbootcamp

• Hussain Al Hilli, Byoot

• James Layfield, Never Ever

• Jeffrey Tijssen, Capco

• Jenny Tooth, British Angel Association

• Mariano Belinky, Santander Innoventures

• Naresh Vyas, RBS

• Peter Janes , ShieldPay

• Rob Kerner, RBS

• Rose Hall, Allen & Overy

• Russ Shaw, Tech London Advocates

• Shaul David, ex-DIT

• Sonya Iovieno, Silicon Valley Bank

• Sophie Winwood, Innovate Finance

TLA FinTech would very much like to thank Amina Ahmad and the team at Rise London for hosting this event.

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