What to expect from FinTech in 2016

Despite the rumours of a FinTech revolution, the fact is that for most customers day-to-day banking experiences haven’t really changed all that much in the last few years. Yes, they might now sort out transactions through an app rather than on a desktop, or pay for things with a phone rather than a contactless card. But that’s evolution rather than transformation.

In reality, consumer engagement with the FinTech those in the industry are so excited about has generally been pretty shallow, and limited to a very select group of consumers who are already financially confident, motivated and engaged – not necessarily the group with the most to gain from real-time budgeting and other innovations.

Yet 2016 could be the year when consumer-facing FinTech really takes off.

Firstly, the launch of the Innovative Finance ISA, which will allow individuals to hold peer-to-peer loans tax free. SMF research has shown how the ISA wrapper makes investment more palatable to the public: 59 per cent view stocks and shares as a high risk product, but this falls to 42 per cent when they are wrapped in an ISA wrapper. When we surveyed consumers on product risk last year 49 per cent said that P2P lending was a high-risk option. It will be interesting to see how this changes with the introduction of the ISA wrapper.

We predict that the creation of the Innovative Finance Wrapper will introduce a substantial group of savers to P2P for the first time. For the industry, that’s going to raise new questions about how to communicate with these consumers, particularly over the liquidity limitations of P2P investments, what sort of products are appropriate for them and what sort of insurance provision needs to be put in place.

The Competition & Market Authority’s final decisions on the current account market, due in April 2016, are also expected to focus on technology – particularly ways in which it can be used to prompt consumers to switch and how it can help them navigate the complex current account market place.

Observers of the sector have already picked teams – those who believe that technology and personal data can create real change in this market, and those who think these are more of the same-old demand-side excuses for regulatory inaction. And, notably, the politicians in the Treasury Committee have landed firmly against the CMA’s proposals. Those of us who think competition in the current account market could be completely transformed by technology like midata and automated comparison have an uphill struggle on our hands.

Looking a bit further ahead, 2016 will see providers preparing for the implementation of PSD2 – new EU regulations to be made national law in 2017. One big change here will be to ensure consumers have access to aggregator tools which let them see all their financial services products in one place. To date, the adoption of aggregators has been notably slow in the UK in sharp comparison to the US and Canada; partly because some UK banks take the view that these tools, which require a user’s online banking password to scrape their data from their provider, violate terms and conditions, which can leave consumers potentially liable for any fraudulent activity on the account.

As banks move towards midata2 and prepare to implement the other recommendations of the CMA around making data available to consumers, we might expect a softening towards aggregators too – particularly as use of smartphone payments continue to grow and consumers become used to the idea of budgeting on their phones. Together, these moves to bring financial data closer to consumers and to help them make better use of it could mean FinTech finally makes its way into our pockets. 

Katie Evans is an economist for the Social Market Foundation.

Act now to retain UK blockchain leadership

Digital currency bitcoin and its underlying blockchain technology is arguably a British invention. It’s based on cryptography developed at GCHQ, and its creator Satoshi Nakamoto is rumoured to be from the UK. The UK is also regarded as one of the most promising places in the world to operate a bitcoin business, due to our financial pedigree, trusted regulatory regime and deep pool of fintech talent. 

The culture in the UK bitcoin community is quite different to that in many countries because many of us have previously worked in the financial services sector.  For example, Elliptic CEO Dr James Smith was an options trader at two leading market-making firms before co-founding Elliptic. This has created a pragmatic approach to promoting and increasing digital currency adoption. We have formed our own industry body, the UK Digital Currency Association, to promote the sector and provide a single point of contact for policymakers and regulators.

There’s also been growing engagement by a government eager to bolster London’s current fintech boom and maintain the city’s status as a global financial hub. Last year HMRC issued widely-praised guidance on digital currencies’ tax treatment, an approach which has recently been mirrored at the EU level. The Bank of England has produced two detailed reports on the economic implications of digital currency technologies and is working on its own digital currency. Chancellor George Osborne has also embraced digital currencies and, following a government consultation, announced regulations in the March 2015 budget.

However, while huge amounts of venture capital money are flowing into digital currency start-ups in the US and elsewhere, those of us in the UK are largely missing out, hindered by a lack of regulation and the refusal of UK banks to work with us. It remains almost impossible for bitcoin companies to obtain UK bank accounts, particularly if they wish to hold client deposits. Banks cite money laundering risks and the lack of regulator oversight as their reasons, although perceived reputational risk is a major factor. The FCA currently refuses to regulate the sector, and digital currency businesses are not subject to the UK’s anti-money laundering regulations.

If we are not careful, bitcoin will become the latest UK invention to be exploited by others. We believe Government and regulators need to act now to establish the UK as a global hub for digital currencies. In the meantime, those of us in the industry must educate regulators and consumers about the huge opportunities the technology presents and explain how the risks can be overcome.

Dr Tom Robinson is COO of Elliptic, the blockchain security and compliance company.