Scotland’s banking sector
Tech will transform Scotland’s banking sector
Clydesdale Bank introduced adding machines in 1899, Bank of Scotland installed a centralised accounting computer in 1959, and James Goodfellow invented the technology behind cash machines and personal identification numbers in the 1960s. Innovation continues today, with Royal Bank of Scotland using Facebook at Work, TokBox for online mortgage advice and trials of Bitcoin’s Blockchain technology, while Standard Life won a place in the IP100 intellectual property league table.
Customers have embraced technology, from online banking apps to Apple Pay and Android Pay on mobile devices and contactless payment cards – but what are the next banking system transformations? Opportunities lie ahead not just for existing banks but also for Scotland’s financial technology (fintech) companies.
Scottish Enterprise estimates there are already 50 pure-play fintech firms in Scotland, along with a further 200 or so businesses serving financial services alongside other clients. Graham Hatton, international senior executive at Scottish Development International, said Scotland has the right mix of financial services heritage and thriving tech scene to succeed in fintech. “We also have expertise in our universities – including Edinburgh Napier University’s cyber academy, Abertay University’s ethical hacking course and the School of Informatics at the University of Edinburgh – which produce talented graduates and carry out research,” he said.
Gillian Docherty, CEO of The Data Lab, said Scotland was sitting on a “goldmine” of data: “The largest challenge fintech is facing is posed by its largest opportunity: data. Scotland is sitting on a data goldmine, particularly in the finance sector. Doing more to harness the potential of data will deliver bigger opportunities for fintech and for Scotland. “Data science is critical to the future of fintech. It informs predictive technologies which pre-empt potential issues before they even occur.
By harnessing data advantages now, we futureproof the industry later. “However, data science talent is in high demand and short supply. It is critical we ensure there is a robust plan to support a pipeline of data science talent now to meet the growing demand for these skills in the future.” Polly Purvis, chief executive at digi-tech trade body ScotlandIS, said: “Fintech continues to grow exponentially and Scotland has a tremendous opportunity to share in this emerging industry. “This is a massive global market offering huge opportunities for Scottish companies with the right blend of capability and ambition.”
Following May’s retail banking report, the Competition & Markets Authority plans to make banks use an open application programming interface (API), allowing customers to share their transaction information with other banks and third parties to shop around for the most-appropriate services. “The introduction of open banking APIs will have a significant impact on the way customers view the role of their bank and will force the banks to reassess how to gain and retain their customers,” explained Ed Molyneux, chief executive of FreeAgent, which provides online accounting software for freelancers, small businesses and accountants. “For many fintech companies, the opening up of this rich data will herald a gold rush of opportunity and some amazing choices for consumers. “Before long we may see your financial health sitting alongside your heart-rate and step count on your Apple watch.” David Ferguson, chief executive at Nucleus, which runs a “wrap” platform allowing financial advisors see clients’ accounts together, said personalisation will be banking’s biggest challenge. “Fintech is going to radically revolutionise banking, which has been quite stubborn with sticking to its traditional ways,” he said. “In ten years, everybody is going to access their banks through apps and so banks will have to adapt their services so each customer can make changes to get a bespoke experience. “A one-size-fits-all approach will quickly perish.”
Ferguson added: “Challenger banks like Monzo and Atom are only the beginning, as offerings like these will become commonplace.” Dr Calum Forsyth, a former scientist turned Risk Consultant with KPMG who now leads Enterprise Solutions at Strathclyde Business School, said the financial pedigree of Scotland’s instiutions placed the country in a strong position.
He said: “Financial institutions have fantastic market insight, can add considerable value to user experience, and understand the incredibly complex world of financial regulation. There are a plethora of approaches financial institutions can take going forward - direct mentorship of startups, building in salaried secondments for corporate staff to partner with a technical cofounder and mock up new products, they could complement their graduate recruitment programmes and offer a 12/24-month residency geared towards attracting STEM graduates with technical skills alongside their traditional grad programme of 4-seats within different areas of the firm.” Consumers aren’t the only ones to benefit – businesses have opportunities too. Robin Knox – chief executive at Intelligent Point of Sale, which developed the UK’s first cloud-based, iPad electronic point of sale app – highlighted how technology links payments and loyalty schemes. “Because analytics are increasingly built into apps – be they for the local takeaway or your bank – it is possible to break down spending habits and translate this information into new and ever better services,” he said. Knox added: “With advances in online identity verification also disrupting the market, the role of the traditional bank is in danger of diminishing. “Who ultimately manages your money need not be the person it always was.”