Written by Matthew Dove (Digital Editor)
Come March 29th, some of the big boys may find themselves playing a game for which the rules are painfully unclear but what of the fintechs? Will they fare any better? Ian McKenna certainly thinks so…
When asked who he thought was suffering the most as a result of Brexit uncertainty, the fintechs or the incumbents, Ian McKenna of the Finance & Technology Research Centre and self-proclaimed finance futurologist replied;
“I think this has to be institutions. They inevitably have far wider issues to address. Ironically if Brexit forces UK fintech to concentrate on issues globally and especially the far east, where much of the most interesting action seems to be right now, there could actually be a significant benefit, although personally I would much rather we avoided this whole fiasco.”
Fiasco or not, McKenna refuses to indulge in the kind of negativity which increasingly sees Cheapside heading for the airport. He feels there are ample opportunities to be found in the fog engulfing Brexit, especially for those agile enough to seize them. However, McKenna predicts the upheaval sparked by the UK’s withdrawal from the European Union will be far broader in scope than most mainstream sources are suggesting;
“In practice Brexit will be the end of the United Kingdom. As I understand it, the Good Friday Agreement requires that if the UK leaves the EU there will be a referendum within five years on the reunification of Ireland, Northern Ireland voted to remain therefore reunification would achieve the wish of the population.
Equally Scotland, which also voted remain, will understandably be pressing for another referendum which, in the aftermath of the economic pain of Brexit, I would expect to result in a strong mandate for independence. The EU may find it tempting to offer them attractive terms to rejoin, although the Catalan issue may be a challenge there.”
Those of a delicate disposition may wish to read this next bit whilst seated comfortably with a cushion or loved one supporting the weight of their head.
In the wake of what he sees as the post-Brexit fragmentation of the United Kingdom, McKenna feels there’s only one way for the remnants to compete on the global stage;
“We need to be able to attract the brightest and the best. I think London is especially well placed for that but to optimise the benefits we probably need to go down a true Singapore type route, with London leaving what will be left of the UK and operating as a city state in the same way as Singapore does very effectively with Malaysia.”
Note: Whilst some of our more sheltered readers might already assume that London is it’s own autonomous city state, the conurbation actually resides (for the time being at least) within a small but proud nation called England.
The role McKenna sees fintech playing in this frankly startling vision of the future will be both as a crutch for the legacies and as a weapon wielded by others against them. He feels that just because banks are well placed to invest in fintech, it doesn’t necessarily follow that it will cure them of their numerous failings;
“some banks have learnt some lessons and you certainly see people in many organisations wanting to do better. Regrettably they are hugely constrained by their size and the need to constantly generate shareholder returns quarter on quarter.
The mutual model dispensed with in the 80s actually gave many institutions the opportunity to take a long-term view. All too often decisions are now taken to meet the needs of the next quarter’s results.
The banks will undoubtedly seek to acquire fintechs – they can achieve similar results in a fraction of the time and cost, however in doing so they must make sure that they manage the cultural challenges so that these benefits are not lost in the course of acquisition.”
McKenna went on to tell us that financial technology is best utilised by the fintech’s themselves as, “the major financial institutions are bogged down by a relentless quest for profit. They have consistently failed to replace legacy systems and only making investment where there is a legal or regulatory necessity. Too many institutions have lost sight of what is in their customers interests and only for products that are tired and self-serving.
Unconstrained by the costs of expensive bricks and mortar and legacy systems and being agile in their delivery, fintechs can genuinely put the customer first and deliver far more attractive propositions affordably to consumers.”
The CEO of MindBridge Ai, Eli Fathi, thinks that fintechs will not only out manoeuvre the legacies, he thinks they’ll thrive;
“The biggest challenge for post-Brexit firms will be managing uncertainty and that’s where innovative financial technologies will shine. Whether it’s potential changes in regulations or restricted access to markets and supply chains, technologies like artificial intelligence and machine learning will help firms break down barriers in acquiring, understanding, and reporting on data. No matter where they are located, these products and services are purpose-built to democratise traditionally complex and laborious tasks, and are agile enough to adapt to any changes in operating environment. As a result, firms smart enough to use these enabling technologies become more agile and resilient to change.”
Herein lies the kicker, if Brexit is closing doors then, it’s hoped, fintech will simply use the window.
“Fintech solutions have no borders in the technical sense, and allow firms to compete anywhere. More importantly, artificial intelligence platforms democratise data analysis and boost the scope of human understanding without significant costs, meaning smaller firms that are feeling the Brexit pinch can remain competitive and even open up into new markets and services that are currently dominated by larger and slower monoliths.”
John Iadeluca, managing partner of digital asset quant fund, Banz Capital, asserts that, in the years to come, fintech alone can offer consumers financial products they can trust. Furthermore, Iadeluca believes that a combination of fintech and regulation can foster conditions in which the vagaries of the past would be difficult to repeat;
“Regulation and fintech were the prime forces behind the global financial reform that occurred after 2008. The two worked parallel to one another, in different ways of course, but with a common denominator, which was to fix a legacy system only recently discovered to be broken.
In the case of regulation, the major problem that needed fixing was regarding individual entities. Virtually every investment bank and firm, minus a few macro funds or those who shorted subprime in 2008, went under.
Fintech solutions have no borders in the technical sense, and allow firms to compete anywhere. More importantly, artificial intelligence platforms democratise data analysis and boost the scope of human understanding without significant costs
Regulation redefined, where possible, a system where if something like that ever happened again, companies would fail out of their own faults, not as a consequence of pure jurisdiction. It was more of refining the framework, but the foundational structure wasn’t ripped out and replaced. Since imposing this effort, the financial regulatory environment has been more secure than it ever has, which as a result can be deduced that regulation effectively worked. However, while the environment was refined, the core foundation which was found to be flawed hasn’t changed, because it wasn’t designed for editing.
Fintech looked more at a direct solution. As a result of the financial crisis, financial technology as a whole analysed what was wrong with the core infrastructure of pre-2008 finance, analysed it, and came up with solutions to uproot what finance meant by rebuilding it using technology. In terms of fintech, if you look at the developments that have come to fruition since the crisis, the rate of growth is paramount, and it appears likely to continue through blockchain and immutable technology”
Whether you think that Brexit has its roots in the financial crisis of 2008/9 or not, one thing’s undeniable, the banks and the regulators have offered inadequate responses to both. Even in their infancy, the fintechs are more willing to answer questions on these most problematic of issues and, one suspects, when push comes to shove, they’ll be quicker to act too.