Professional Documents
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A YEAR IN FINTECH
How a maturing industry is
moving towards collaboration
to create value for customers
and society
Contents
03 06 10
Top trends
Executive The FinTech in FinTech -
summary landscape 2016
25 27 31
Start-ups A closing
and corporate The road note from
collaboration ahead Francisco
Executive summary
The financial technology (FinTech) sector continues to evolve. CSO of Arvato-Bertelsmann. This does not only focus on
After several years of excitement about the sectors potential Blockchain and artificial intelligence but the real integration
to change the face of financial services, some of that change and new use cases that come along with that.
is starting to be realised, with leading FinTech companies From our position at the heart of the FinTech ecosystem,
commercialising their services at pace, both independently and Startupbootcamp and PwC enjoy a unique view of emerging
in collaboration with incumbents. trends in this sector. Based on the qualitative intelligence and
Inevitably, early expectations have had to be shifted. Where experience gleaned from this work over the past 12 months, as
FinTech companies were once seen as a threat to the incumbents, well as quantitative insight from the programmes application
promising disruption in an industry suffering from a loss of data and UK funding data, this paper provides key insights into
customer trust, the emphasis has shifted to collaboration. the evolution of the FinTech sector.
FinTech now also has a lens on technologies that address
operational challenges as well as customer expectations. Our key findings are:
Advances in areas such as artificial intelligence, big data and
blockchain offer huge opportunities in this context. These areas Despite Brexit, the UK should remain a global FinTech leader.
are opening up new avenues of growth and delivering greater Economic and political uncertainty poses a threat, but the Eu-
operational efficiency and productivity, while all the time ropean FinTech sector is in a healthy position, led by the UK.
focusing on specific customer pain points. Regulators across Europe are following the UKs example as
We think that the ongoing trend of a maturing FinTech they seek to foster an agile environment conducive to inno-
space will stay the most exciting one says Elias Reitter, Group vation; the UK, meanwhile, has built FinTech bridges with a
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growing number of international markets and continues to at- Serving the un(der)served has become a key priority for start-
tract investors from territories such as Canada and Japan. ups globally. FinTech companies are aware and concerned
about the unfairness and opportunities that arise from a huge
More start-ups want to work with existing financial services number of people that are not served by the financial services
businesses. Growing understanding of each others cultures sector. More than one in 10 applications to Startupbootcamp
and working practices has seen FinTech companies and incum- FinTech 2016 (12%) came from start-ups aiming to tackle issues
bents work together much more frequently. Start-ups offering of financial inclusion and wellbeing. Traditionally a focus
a business-to-business proposition accounted for 56% of in developing countries, UK and European FinTech companies
applications to Startupbootcamp last year and for 71% of UK are increasingly engaged with these issues too.
funding; their focus is very often on improving incumbents
internal operating processes. Great change has taken place in the collaboration between
start-ups and incumbents, but these are only the first steps as
The most successful artificial intelligence and machine there is more work to be done. Much progress has been made
learning advances put the customer at the centre. FinTech as FinTech companies and incumbents have got to know each
companies pioneering these technologies have moved towards other better, but the search for the perfect collaboration model
a design-led approach. The increasing volume of open source continues. Until now most projects end on proof-of-concept or
material available to start-ups has enabled them to focus pilot studies. The next phase of growth is to turn more of these
on technological advances from the perspective of specific into real business. Too many corporates are struggling to measure
customer problems. success in FinTech.
We think that the ongoing trend of a
maturing FinTech space will stay the
most exciting one. This does not only
focus on Blockchain and AI but the
real integration and new use cases
that come along with that.
Elias Reitter,
Arvato-Bertelsmann
06
The five largest UK VC deals in FinTech during 2016 | Source: Innovate Finance 7
The Brexit effect
The shockwaves caused by the UKs decision to vote for Brexit What access will UK FinTech companies have to the EU
in last Junes referendum have certainly reached the FinTech once Brexit is completed? Were the UK financial services in-
sector, with three questions in particular now troubling many: dustry to lose its passporting rights, FinTech companies might
struggle to do business in Europe. However, we find that most
Will the UK now become less attractive as a talent pool for early stage FinTech companies have a domestic focus so this
young entrepreneurs? While the UK is currently home to a should not be an issue.
third of all technology start-up employees in Europe, tougher
immigration rules and a supposedly less attractive environment It is important to stress that such concerns remain purely hypo-
could jeopardise that. At the Startupbootcamp FinTech Selec- thetical given that negotiations over the terms of Brexit have not
tion Days (a three-day event where we invite up to 20 of the yet begun and are unclear. However, despite this uncertainty
top start-ups that applied to the programme), 16 out of 19 we have found the impact Brexit has had on early stage start-
companies had non-UK CEOs, showing the importance of ups to be minimal so far. Jan-Michael Gorecki, CEO of KyoLab
international talent in the UK. (a participant in the Startupbootcamp FinTech programme)
said Brexit has been more about speculation than actual
Will start-ups access to capital be jeopardised? The sharp impact for us.
fall-off in VC led investment in FinTech companies during the One of the key areas of speculation is whether London will
second half of last year suggests Brexit weighed heavily on in- remain the FinTech capital of Europe or be surpassed by cit-
vestors minds - we do not yet know whether this will continue. ies such as Paris or Berlin. However, rather than seeing these
cities as competition, there is a positive story to be told around technology companies, in close proximity to one another, is
increasing innovation across Europe. also a natural advantage.
Indeed, there are several countries now following the UKs In fact, the UKs FinTech sector has continued to progress
lead to reduce regulatory restraints and increase innovation. since the Brexit vote. Some examples include the London Fin-
This is particularly coming from countries we wouldnt necessar- Tech bridges forged with China, South Korea, Singapore, India
ily immediately associate with FinTech. Lithuania, for example, is and Australia. Japanese firm Softbank, meanwhile, has said the
set to establish a new regulatory regime to ease the way for Fin- headquarters for its 80bn technology investment fund will be
Tech start-ups and is working with the FCA to ensure businesses located in London, which is an encouraging sign for investment.
that the UK regulator has approved get fast-track approval from In short, while Brexit has given FinTech companies and the
the Lithuanian authorities. London-run Revolut and Contis have broader investment community pause for thought, progress
already secured passporting rights. has continued since the referendum. There will be uncertainty
Its also important to stress that Londons pre-eminence in in Europe whilst negotiations develop in the years to come, but
the FinTech space is the result of disparate factors, many of we will see continued support from the regulator to encour-
which are unaffected by Brexit. The UK has always encouraged age innovation and even if we see loss of investment and talent
innovation and Innovate Finance believes that critical to this from the European region, this can be compensated by other
has been a forward thinking, open and collaborative regulato- territories, such as Asia, coming to the UK. London will still re-
ry regime driven by the FCA. The fact that London is home to main a global capital of FinTech, but we might see its growth
such a large concentration of financial services businesses and slow down compared to other regions.
10
North America 5%
Middle East 5%
Australasia 7%
As for the types of businesses, the FinTech sector spans an increasingly broad range, with sub-sector demarcations
blurred by increasing crossover, particularly as businesses embrace more ambitious targets. However, to facilitate
comparisons, we categorised applicants to the Startupbootcamp programme using the same categories as in our
2015 report that were originally set by the World Economic Forum.
12
Cloud solutions and improved processes - new technologies Empowered investors - new technologies are transforming
are helping financial services companies to improve processes the way institutional and retail investors make investments
and make efficiencies by outsourcing them to FinTech provid-
ers, often using the cloud Crowdfunding - new ways of raising and investing capital are
changing the landscape of capital markets
Cashless world - existing payment systems are being adapted
to enable new payment methods and customer behaviours Alternative lending - new ways of assessing creditworthiness
and issuing credit are transforming lending markets
Smarter, faster machines - blockchain, machine learning and
artificial intelligence have been enabled by the increasing pow- New market platforms - regulation and technological ad-
er and decreasing cost of computing vances in capital markets have resulted in several new trading
platforms emerging
Shifting customer preferences - upcoming companies are
creating new ways for customers to interact with financial ser- Emerging payment rails - cryptocurrencies and other new
vices, driving change throughout the industry technologies are transforming the way individuals and compa-
nies make payments
13
14%
Cloud solutions & improved processes 22%
19%
Cashless world
17%
12%
Smarter, faster machines 16%
11%
Shifting customer preferences
14%
17%
Empowered investors
11%
6%
Crowdfunding 7%
6%
Alternative lending
6%
4%
New market platforms 5%
11%
Emerging payments rails
3% 2015 2016
15
17%
Cashless world 14%
16%
Smarter, faster machines
9%
14%
Shifting customer preferences
15%
11%
Empowered investors 12%
7%
Crowdfunding 8%
6%
Alternative lending
6%
5%
New market platforms 5%
3%
Emerging payments rails 4% APPLICATIONS DATA 2016 FUNDING DATA 2016
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ii. The human applications of AI and machine learning are emerging fast
There is no shortage of technologies with potential for FinTech The financial services sector is certainly not alone in recog-
companies to exploit. The percentage of applications to Start- nising the potential of AI and machine learning, with significant
upbootcamp from entrepreneurs in the smarter, faster ma- investment in such technologies over the past year coming
chines category was 16% in 2016, as the approach of design from corporations including Google, Facebook and Amazon.
thinking evolves. We found that applications in this area mainly The global AI market is expected to be worth more than $16bn
focussed on artificial intelligence (AI) and machine learning. by 2022, achieving annual growth rates of more than 60% be-
AI and machine learning, by which we refer to all the multi- tween now and then.
farious aspects including deep learning, natural language pro- For FinTech companies in particular, potential AI appli-
cessing and many more has been a significant trend in FinTech. cations are likely to focus on the opportunity to reduce the
One in 10 applications to Startupbootcamp last year came from amount of human resources required for less valuable work,
businesses seeking to exploit these technologies. freeing up employees to focus on more value-add areas. Ma-
What we have seen in the past from technology focussed chine learning, meanwhile, offers an opportunity to enhance
people and organisations is a desire to understand and devel- the customer experience, particularly as businesses learn how
op AI & machine learning, with finding a use case often com- to better exploit their data.
ing as a secondary activity. This year FinTech companies in this Chatbots are already a well-established application of AI and
space are identifying customer problems to be solved and then machine learning, with tools becoming more accurate and useful
considering how technology might help. This is exciting: tech- as they are used more extensively. Virtual assistants such as Google
nology should enable organisations to create value, for both Voice and Amazon Alexa are increasingly popular. The financial ser-
customers and themselves, and the greater the focus on where vices sector is also making good use of such tools in customer ser-
that value is required, the greater the chances of success. vices, particularly in the area of payment systems and online banking.
Enterprise Bot, a member of the 2016 Startupbootcamp
cohort, provides a good example of what is already possible,
having developed AI-powered virtual assistants that can be
deployed as white label solutions on various platforms to im-
prove customer service. People entering these fields now are
not necessarily people from a technology background but from
the business side, observes Enterprise Bot CEO Pranay Jain.
This has allowed for a much better understanding of the prob-
lem - AI/blockchain aren't seen individually but rather as tools
to solve a problem for banks and consumers.
There will be further progress in years to come, especially
as more data becomes available. Moving on from retail applica-
tions, incumbents and start-ups should be looking at how AI and
machine learning can solve more complex issues and queries,
offering both business-to-consumer (B2C) and B2B functionality.
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From our cohort we had two examples of companies that tar- Digital Inclusion at Lloyds Banking Group. FinTech has widened
get this space. One is Europeone, which aims to provide banking the opportunity and choice for people wishing to manage
services to over 30 million Europeans on the move around the their money online. The majority of people banking online
continent, who struggle to get service from local banks. report that they worry less when they have more choice and
Incumbents will play a role too. Some incumbent organisa- control around their real-time money management. This can
tions, such as Lloyds Banking Group, already have initiatives in have a significant impact on wellbeing given that financial
place that explicitly focus on addressing social and economic stress is ranked as one of the top causes of mental health
problems. But FinTech companies can do much more to build issues in the UK.
on such work with financial management tools, education plat- Incumbents should be looking to collaborate with these
forms aimed at children and adults, and robo-advice services FinTech companies in order to enhance and deliver on their
that will help the financial services industry to substantially re- financial inclusion strategies. The un(der)served market is a
duce the un(der)served population. big challenge and a great opportunity for FinTech. It will also
We know that there are more than 13 million people in the continue to develop as a public policy issue.
UK with low financial capability comments Leigh Smyth, Head of
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ii. RegTech
The Financial Conduct Authority describes RegTech as the Against this backdrop, the financial services sector increas-
adoption of new technologies to facilitate the delivery of reg- ingly recognises the need to shift to a new way of working.
ulatory requirements, and is supporting start-ups in this area. There is an opportunity to employ technologies that enable a
In a period of consistently rising compliance pressure - as well much more agile way of dealing with regulation, reducing the
as the mounting challenge of managing cyber security in a da- cost of evolving the business in a changing environment.
ta-focused environment - such innovation will be welcomed For these reasons, FinTech companies offering RegTech
across the financial services industry. solutions will find themselves in huge demand during 2017
All the more so since many incumbent financial services pro- and beyond. More such businesses are emerging: 4% of appli-
viders have felt compelled to increase compliance hiring and cations to Startupbootcamp came from RegTech companies
spending; as these incumbents look to protect their margins in 2016.
and reduce costs, they will embrace new technologies. One member of the cohort, KyoLab, provides an example of
This year will require the sector to devote resources to regu- what is exciting incumbent providers. KyoLab enables clients
latory change including MIFID II, PRIIPS and PSD2, as well as to to archive and monitor mobile messaging, including messages
the challenges posed by the UKs decision to leave the Europe- from WhatsApp, WeChat, Yahoo Mobile and others; it provides
an Union. To take MIFID II as just one example, the regulation an audit trail and a basis for dispute resolution for all popu-
requires compliant businesses to maintain comprehensive au- lar mobile messaging apps and supports devices whether they
dit trails and more transparent trading systems than ever be- are company-issued or BYOD (bring-your-own-device). It is all
fore. Legacy systems will struggle to cope. Meanwhile custom- about identifying and mitigating compliance risks to help busi-
ers want more, not less, digitally driven insight and exploration nesses ease regulatory costs, says Jan-Michael Gorecki, CEO of
into savings goals. KyoLab. 2017 will see further upsurge in RegTech start-ups.
iii. Open banking
The banking sector is set for further FinTech breakthroughs in world. Furthermore, the number of FinTech start-ups focused
2017. As PSD2 and the UKs open banking initiative take centre on data will increase, as banks seek analytics solutions and
stage, banks are being forced to provide access to customer machine learning technologies that enable them to generate
accounts through open APIs; competition watchdogs see this actionable business insight from the exponential increase in
as a huge opportunity to increase innovation (and to improve customer information available to them.
customer choice). At the same time, machine learning, block- The banking landscape has already changed, with challenger
chain and internet of things technologies all offer opportunities banks emerging across Europe in recent years. New entrants to
for banks to improve the way they run, through enhanced risk banking, including organisations such as Tandem, Monzo, Star-
management, lower costs and greater operational efficiency. ling and Atom, are showcasing what is possible with emerging
Investment and retail banks have already been enthusiastic technologies and operating with cost-to-income ratios far lower
participants in blockchain proof-of-concept initiatives and this is than the incumbents. But, while last year was an important pe-
likely to progress into live pilots in 2017. Meanwhile, the internet riod for these challengers, with many releasing minimum viable
of things could transform the way customers bank, from the in- products (MVP), their share of market is set to increase in 2017
branch experience to risk profiling of mortgage applications. as mobile banking becomes more popular and the new entrants
Other developments include the increasing need for ad- expand their offerings.
vanced authentication and onboarding processes in the face Banking customers will increasingly be attracted to the
of regulatory change. Just 3% of applications to Startupboot- propositions enabled by open and flexible data, says Lukas
camps 2016 programme came from businesses working in this Zoener, CEO of moBILLity. We will see the first huge impact of
area, but this is likely to be due to a crowded market in this PSDII throughout Europe in 2017, especially in the UK with very
space. We will need to see more of these companies being used interesting consumer-facing propositions, he predicts.
and integrated into banks processes as we move into a PSD2
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The three areas where I have seen this move forward are:
Change of founder profile and professionals working in innovation in banks - Many of the entrepreneurs we
have seen emerging in recent years have been seasoned professionals who have been part of the financial
services sector in some way or another and are now applying new technologies and new operating models to
solve old problems. We have also seen incumbents searching to hire people for their innovation teams that do not
necessarily fit the traditional mould in order to encourage a change in the way of working.
Change of mind-set and attitudes - Where once the objective of entrepreneurs was to take on the incumbent
providers, we are now seeing more mutually-beneficial partnerships between FinTech companies and established
providers than ever before. Incumbents now recognise the threats they face and understand FinTech companies
can provide the solutions that will enable them to build much stronger relationships with their clients.
Increase in appetite and execution to carry out pilots - As FinTech companies and incumbents have better understood
each other, they have become increasingly more open to new ways of working together. This has allowed the commer-
cialisation of new ideas to accelerate. FinTech companies and incumbents have been testing the boundaries of new
technologies and business models from blockchain to AI and machine learning through more pilots. Although a positive,
we need to start seeing more of these pilots being transitioned into commercial relationships.
This has all been done under the unstable macro environment of 2016. Despite political, economic and financial uncer-
tainty causing people to believe FinTech might be derailed, at Startupbootcamp we have yet to see any real impact yet.
This year, we have seen the sectors entrepreneurs, including the Startupbootcamp FinTech 2016 cohort, consistently
proving that they have genuinely transformative ideas to offer - and that these ideas are commercially viable.
One can only imagine what is next to come next, but both incumbents and start-ups should be prepared to embrace
the change.
Triin Linamagi
Marketing Manager, Startupbootcamp FinTech London
+44 7928 838 606
triin@startupbootcamp.org
Visit www.startupbootcamp.org/accelerator/fintech-london
Jessica Houston
Marketing Executive Financial Services, PwC UK
+44 2072131269
jessica.houston@pwc.com
Visit www.pwc.co.uk/fintech
In this document PwC refers to the UK member firm, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.