Fintech is one of the newer buzzwords to hit business lexicon and it means essentially what it says – the convergence of financial services and technology. Given the critically important economic role of the IFSC and our thriving technology sector, it could prove a real opportunity for Ireland in the coming years.
The question is where the opportunities lie. Despite signs of stability returning to much of the world economy, established financial services institutions remain under huge pressure. Boards of banks, insurance companies and other financial services organisations have to manage the expectations of shareholders, regulators and government. They are tasked with avoiding the mistakes of the past and delivering a return to profitable growth while coping with massive technological disruption.
Rapidly growing payments facilitator Stripe is a superb example of a company disrupting the payments industry. That company is intent on simplifying how organisations accept payments and as a consequence is disrupting more traditional bank driven channels.
Interestingly, Stripe, which now processes billions of payments every year, initially set out to be appealing to coders and other tech-savvy businesses. The company has operated in part on the premise that site developers could have a significant input into the choice of payment systems businesses would end up choosing.
This was perhaps not a huge surprise given that founders Patrick and John Collison are coders themselves. However, recognising that not everyone codes, Stripe is implemented via a relatively straightforward interface and merchants are free to customise their user interface so that their customers have a seamless transaction experience. This type of disruptive technology poses a myriad of challenges for long-established organisations.
"Established financial services businesses are grappling with disruption to business models but also with unprecedented regulatory obligations, new corporate structures, stretching customer acquisition targets and ever-present risk," says Darina Barrett, head of financial services markets at KPMG in Ireland. "Technology can support management efforts to manage these issues more efficiently and cost effectively."
Myriad of rules
According to Barrett, issues such as Fatca (the US Foreign Account Tax Compliance Act) and AIFMD (the EU Alternative Investment Fund Managers Directive) highlight just a few of the areas where technology can assist. “There is a lot of effort and responsibility required to verify whether a fund is compliant with the myriad of rules required, for example. Increasingly, we are finding that tailored technology solutions are playing a role in helping decision-makers adhere to the regulations.”
Therein lies at least part of the opportunity. Barrett's KPMG colleague, Dublin-based tax partner Anna Scally, works with a range of high-growth tech companies and is enthused by the potential opportunity offered by fintech.
“It is very clear that the use of technology can deliver huge efficiencies in many areas for financial services companies. Opportunities abound to improve many business processes including dealing with risk, anti-money-laundering efforts or mitigating the risk of cyber-crime.”
Technology can also be paramount in improving customer experience and taking on new competition which is coming from beyond the traditional financial services players and from the technology development companies themselves, according to Scally.
“New technologies”
“New technologies are revolutionising what was once the preserve of banks and other traditional FS players,” she says. “Mobile banking, simplified payment mechanisms, digital wallets, peer-to-peer lending and crowd-funding are all now becoming part of common parlance and are only possible because of technology.
“Technology is driving the creation of new business models, new platforms and new ways of delivering services to clients. Aside from the benefits tech can bring to financial services, the financial services arena offers huge potential for tech companies. However, monetising technological innovation can be a huge challenge.”
She notes that tech entrepreneurs quite often struggle to find a way in to larger more established companies. In addition, they may struggle with the regulation that is often involved in dealing in with financial services companies and in financial services markets. “We see the potential for matchmaking between smart tech entrepreneurs we work with, who have potential solutions, and large financial organisations, who would benefit from these solutions in driving their businesses,” she says.
Scally points out that support is often needed beyond the initial introduction or product specification and that tech entrepreneurs can benefit from an understanding of the regulatory environment in which financial services organisations operate.
Barrett says: “Aside from disrupting traditional financial services businesses, technology provides opportunities for growth.” She cites developments in the payments sector as an example of the far-reaching implications technology presents for what had been for decades a sector dominated by conventional banking.
“Advanced payments systems are breaking into a market which in inherently low margin. The transaction fees which can be earned directly from providing payment services are, however, not always the main attraction. The potential value lies in the access it provides to customer and market data and the ability to target added value services. In effect, payment data can be more valuable than payment fees.”
Scally sees this as just the beginning. “We are only just starting to see the true potential in this area and expect increased convergence to result in greater opportunities for both sectors.”
