Archive for the ‘Fin.Tech’ Category
Regulators encourage competition in UK banking and payments sectors
Hot on the heels of last week’s fin.tech-themed Digital Sizzle, two important (and welcome) pieces of news from the regulators regarding the UK financial services.
Firstly, the FSA and the Bank of England have released their review of the barriers to entry into the UK banking sector. The key changes being introduced as a result of that review are a relaxation of the capital and liquidity requirements for new banks, and a reduction in the timetable for achieving authorisation, to six months.
As I wrote last week, the lack of innovation in the UK banking sector is the result of a lack of competition. Making it easier for new entrants to achieve the authorisation they need to start offering banking services should lead to greater competition and, indirectly, to more innovation, as the new entrants create service offerings that have a better product/market fit than the incumbent banks. For example, there’s a clear opportunity here for the creation of a new “branch-less” bank targeting SMEs who don’t need to handle physical cash or cheques. Once you remove the physical component from a bank’s business model, the cost structure changes drastically.
Secondly, HM Treasury has launched a consultation on “Opening up UK payments“, soliciting feedback on the government’s proposals for a “new competition-focused, utility-style regulator for retail payment systems”.
The brass ring for payments would be the introduction of a regulatory regime that makes it significantly easier for new payments schemes to plug directly into the UK payments infrastructure (i.e. Bacs, Faster Payments, the LINK ATM network), in the same way that the regulations supporting liberalisation of the telecoms market in the 1990s required that BT interconnect with new telcos, thereby attracting a slew of new entrants and spurring both competition and the development of new business models (e.g. Freeserve’s dispensation of the tradition subscription-based model for dial-up Internet access in favour of a model based on interconnect revenue). Such a move would create opportunities for companies like Transferwise and Droplet to reduce the friction caused by the “air-gap” between their services and their customers’ bank accounts.
These are significant steps forward for the UK and should ignite even more interest in the fin.tech space.
London’s Fin.Tech Opportunity
This article first appeared on the 3 Beards’ blog ahead of Digital Sizzle 8.
Finance and technology have been inextricably linked – and entrepreneurs have been exploiting that link – since the introduction of the telegraph in the 19th century. Until 1851, news was carried between England and the Continent by ships. That year, however, a telegraph cable was laid across the English channel. A German-born entrepreneur named Paul Reuter (who had previously used homing pigeons to bridge a hundred-mile gap in the telegraph links between Paris and Berlin) opened a “Submarine Telegraph” office in London and negotiated a deal with the London Stock Exchange to provide stock prices from European exchanges, in return for access to the London prices, which he then sold to stockbrokers in Paris. Over the next 150 years, London grew to become one of the world’s top financial centres and the company Reuter founded grew along with it. By the time it was acquired by Canada’s Thomson Group in 2008, the Reuters Group was worth $17.6bn.
For decades, the phrase “financial technology” referred to the institutional finance sector that deals with the capital markets – broker-dealing, sales and trading of shares, bonds and derivatives. Many large, established companies started out as fin.tech startups.
In 1981, Michael Bloomberg (now the mayor of New York) was made redundant from the investment bank Salomon Brothers. He used his severance package to found a company called Innovative Market Systems to provide market information to Treasury bond dealers. In 1986, it was renamed Bloomberg LLP and by 2008 it was worth over $20bn. Also in 1981, a company called Intercom Data Systems was founded in London. It later changed its name to Fidessa and by 2008, 70% of equity trades in London were being processed through trading systems built on Fidessa software. Today, Fidessa is listed on the London Stock Exchange, with a market capitalisation of over £700m.
By the late ’90s, investment banks were embracing Internet technologies and incubating startups. Tradeweb, an online platform for trading government bonds, was founded in 1996 by a group of dealer-brokers, led by Credit Suisse First Boston. It was acquired in 2004 by Thomson Financial (now Thomson Reuters) for $385m in cash, plus an earn-out of up to $150m. Three years later, a group of investment banks reinvested in a deal that valued the company at over $1bn. MarketAxess, a platform for trading corporate bonds, was incubated by JP Morgan and spun out as an independent company in 2000. It went public in 2004 and is worth $1.5bn today.
Both those companies are based in New York but over the past few years, London has emerged as a prime location for a new generation of financial technology startups like OpenGamma and Kurtosys.
jackgavigan.com 