Brexit may be looked on with trepidation by many sectors of Irish business but for fintech, it brings real opportunity.
According to UK-based fintech expert Chris Skinner, in Dublin to give the keynote speech for Enterprise Ireland’s Future of Fintech conference in January, the loss of passporting rights for British-based financial services companies represents a boon to Ireland.
“It’s a massive loss to the UK, resulting in a market of 28 countries reducing to just one.” But it’s a “gift” to Dublin, he said, and one that is already being delivered.
Post-Brexit, Ireland is the best location for US banks
“US banks are actively relocating core European services to Ireland, I’m not just hearing that, I’m seeing it,” he said.
“It doesn’t mean they are moving their whole operation to Dublin. London is still seen as a global financial centre, but for access to Europe, with the assumption that London no longer has that access to Europe, the next best place for US banks is Ireland, and not just Dublin but along the west coast too.”
In the meantime, new opportunities for the fintech sector are emerging as bank attitudes towards the sector mature.
“I talk about fintech being like a parent and a child, with the bank being the parent and fintech the child. Five years ago, everyone was talking about fintech being disruptive, a destroyer out to get rid of banks. But five years later, the banks are still here, just as big and just as important.”
The result is a more mature conversation among fintech companies about partnerships, co-creation and collaboration with banks.
Banks as curators of fintech solutions
This will pave the way for what he sees as the future of banks, as ‘curators’ of a raft of smart fintech solutions. Having a suite of innovative services will enable banks to differentiate themselves in the market, while having the imprimatur of a trusted bank will help fintech firms succeed.
It’s already happening, with fintech “currently making its greatest impact by creating markets which were unserved or underserved by the historical financial system, whether that is in relation to small business credit and loans, or student facilities or P2P payments and loans,” he said.
Fintech is also driving improvements to the existing financial system. “The thing about banks is that, because they have government licences, they are trusted to store your money. As a consumer you know that if they have any problems, you will get your €100,000 back. You don’t have that guarantee with unregulated companies and customers are aware of that,” he said.
People are also “quite frightened of money” in a way that leaves them loathe to switch account providers, he said.
“UK account switching rules have been in place now for five years, to encourage people to change banks. Yet there are less people changing banks now than there were before the regulations were brought in. The reason is that people ask themselves, what would make me want to change my bank when all I want is something that is safe and works, like a utility?”
So how does a fintech attract customers away from that? “It’s very difficult, particularly as most fintechs have no history, no brand and no trust, whereas banks have centuries of history, millions of customer and billions of Euros.”
Fintech innovations deliver better customer experience
It is this realisation that has encouraged fintechs to take a more grown up approach to growth. “They have gradually moved to a point where they say, okay, I’m not going to replace the bank, but what I’m going to do is take the banks’ services and make them better. And in these areas fintechs are really succeeding, improving the customer experience by making it easier to deal with the bank.”
They are removing “inefficiencies and stupidity” from bank processes such as customer on-boarding, processes which, he points out, were designed during the industrial revolution and require you to turn up clutching utility bills and passports to open an account.
Some fintech innovations are still going through a teething phase however. “Blockchain has gone through the hype cycle and is now firmly in the trough of disillusionment, mainly because it got talked about so much in 2015 and 2016 and then hit a hard wall of reality, in that it is still very experimental,” said Skinner.
“It’s still difficult to develop because it involves – if it’s going to be worthwhile – lots of different third parties working together. The whole point of blockchain is to build a database of trust between people who don’t trust each other.”
You don’t need it if you are creating an internal database, because you trust your own internal organisation. You do need it where, for example, you have financial counterparties transacting between Russia, China, the USA and Dublin, who don’t trust each other, he points out.
“Currently that is the SWIFT network, and tomorrow it will be Ripple, or the SWIFT network on a blockchain, but to build that will take years because there are so many third parties involved, and the technology itself is not ready for prime time.”
However, while it is still experimental, distributed ledger technologies of some kind or other will transform an awful lot of the core infrastructure between institutions, particularly between governments, businesses and banks, he said. “The groundwork for that is being laid today but it will be another three to five years before it comes out of the concept stage.”