A new edge for fintech centres in a post-Brexit world
The uncertainty produced by the Brexit vote – and the turbulent negotiations since – has led some to question whether the UK can maintain its status as a global fintech capital.
But for London as much as for its rivals in the US, China and beyond, the key may lie in capitalising on the next competitive edge for fintech centres, uncovered through the research by the University of Cambridge Institute for Sustainability Leadership (CISL) and its Fintech Taskforce, writes Andrew Voysey, director of sustainable finance at CISL.
We see a major opportunity to deploy fintech to help solve critical global social and environmental challenges in the real economy. And the most successful global fintech capitals will be the first to establish the right environments to bring such solutions to market.
Having already taken on the business models of banks, stock trading and insurance, the next big opportunity for fintech lies in channelling capital towards critical sustainability challenges.
The size of this challenge is enormous – and so too are the rewards. When the world’s governments agreed on the Sustainable Development Goals in 2015, it was estimated that they would require investments of $5-7 trillion per year, globally, to achieve them by 2030.
Yet those trillions already exist. We do not need to find new capital to meet these needs. But we do need to redirect existing investment flows and if there’s one thing we know disruptive fintech solutions can do, it is this.
The irresistible design opportunity is therefore to focus the firepower of fintech innovators on these critical global challenges. Such “social good” applications of financial technologies clearly align with a number of powerful external trends. Those that can achieve scale of adoption quickly will surely have a bright future that others will seek to emulate.
For instance, a major Chinese financial institution, Ant Financial, has mobilised some 200 million Chinese consumers to make different investment choices through its Ant AliPay Forest app that gamifies cutting greenhouse gas emissions.
In the US, OpenInvest, presents itself as an automated investment advisor that allows retail investors to build investment portfolios that align with their values in a low cost, transparent way.
So, the question for cities or countries vying for a competitive edge over their peers in the fintech space is how to create the right conditions to support such solutions to emerge.
The Fintech Taskforce at CISL tasked 16 multinational companies, financial institutions and fintech start-ups, and a group of leading banks to look for answers. And what we found was that opportunities are being missed because the mechanisms for multi-sector innovation are not sufficiently developed.
Our conclusions (click here to read the full report on CISL’s findings) show the key is to create “fintech for sustainability” catalysts to trigger targeted, collaborative innovation across sectors, bringing together corporations, financial institutions and start-ups.
There are already promising examples of this kind of multi-sector innovation to learn from. A UK-based start-up, Provenance, uses blockchain technology to deliver breakthrough transparency to global supply chains so that companies can confidently choose producers that care for communities and the planet.
Another, Halotrade, then uses the power of this technology to incentivise sustainable sourcing by providing access to faster and cheaper working capital through banks’ supply chain finance.
Big companies are watching with close interest. One top supermarket CEO said that achieving increased and universal transparency in supply chains was “an exciting step forward”.
Alongside its headline recommendation, the Fintech Taskforce has published 10 design principles to guide the design of “fintech for sustainability” catalysts.
One of the more striking ideas is that each round of innovation supported by a catalyst should require that due time is taken to design for industry-wide scale. The sustainable development goals set out a transformative agenda for business and time is short. Solutions that cannot easily be adopted by others are insufficient. Instead, we must prioritise widely shared data standards and open-source solutions.
Another of the Taskforce’s priority design principles is that catalysts should be located to benefit from physical access to as wide as possible a selection of multinationals, financial institutions and start-ups. Multi-sector innovation works best when collaboration between sectors is made as easy as possible. Face-to-face interaction is still a key ingredient, so co-location with existing innovation and business clusters matters.
Although centres around the world can increasingly facilitate these kind of connections, this is a clear opportunity for the UK. In particular, the corridor connecting London and Cambridge’s “Silicon Fen” ecosystem of science- and technology-based innovators offers an obvious starting point.
At a time when the UK is looking for guiderails to shore up its Brexit journey, investing in connecting our business, finance and technology strengths so that we harness fintech for sustainability is an opportunity too good to miss.