As CEO of Innovate Finance, Charlotte Crosswell is Britain’s leading champion of innovative technologies in banking and finance.
On behalf of the the not-for-profit group, which was founded in 2014 and supported by the City of London, she works closely with the Bank of England and the Treasury to support fintech solutions and pushes the rollout of technology within the City’s financial services space.
In a wide-ranging, exclusive interview with City A.M.‘s Michiel Willems, Crosswell zooms in on Brexit, the pandemic, diversity within the sector, non-banking lenders and a range of other issues.
Brexit is just weeks away, how has this impacted the fintech and startup space?
Brexit will have a significant impact on the UK fintech sector. 2020 has been a tough year for all businesses and this includes fintech companies who are currently in a state of flux. The uncertainty created by the Covid-19 pandemic has meant many fintechs are not as prepared as they would like to be when it comes to the UK leaving the EU. Many early stage fintechs have had to dig deep into the cash reserves to survive the Covid crisis, and have been impacted by a drop in investment in the sector, as they have adapted in the wake of the pandemic, at the same time as preparing for Brexit.
“Brexit has left many fintechs questioning their future in both the UK and Europe, leaving companies to ponder whether it would be wiser to take their offerings to other markets that have a clearer future direction in place.”
Which elements of Brexit hit them the most?
Fintechs have stressed that passporting, cross-border transactions and the future servicing of EU clients, in addition to retaining and attracting new talent have been impacted the most. The pandemic has distracted FinTechs from preparing for this, particularly for our smaller organisations. There is a real concern that these compounding factors risks damaging the long-term growth of a sector that has performed so strongly over the past decade. We need to do all we can to protect Fintech, one of the crown jewels of our tech sector. Fintech brought in $4.9bn in investment last year alone.
Diversity and equality are increasingly on the radar of investors and other City firms. Do you feel most fintech players have a serious strategy in place or is it merely hollow talk? For example, look at the existing pay gaps, they are huge.
Research from InChorus, a platform that anonymously measures and resolves incidents of bias within organisations, has spotlighted how the fintech sector is not a fair and inclusive place for employees. They recently undertook a survey that revealed high levels of workplace harassment – of which 85 per cent is gender based. More shockingly, it uncovered that 84 per cent of victims were harassed more than once.
“It’s no secret that the world of fintech, and tech more broadly, still has a long way to go in establishing a more inclusive environment.“
That being said, I believe this is starting to change and the launch of initiatives like the FinTech for All charter that we supported, highlights the desire from organisations within the sector for long term tangible change. The call for action reflects the growing influence of the industry, with the FCA mandating for a focus on non-financial misconduct and encouraging speak-up cultures. This will hopefully make our sector a more enjoyable place to work as well as encourage innovation.
How do you see the role of non-bank lenders? They have played a key role in providing capital in recent months as banks have been reluctant to do so.
Covid-19 has highlighted that many SMEs across the country already use non-bank lenders, which have brought in more choice and competition since the last financial crisis. They have provided alternative sources of support for small businesses, which has been particularly important in a critical time like a global pandemic. With many businesses forced to close yet again [during the second lockdown], we will no doubt continue to see an increasing demand for loans to make it through the long winter.
Should fintech and other non-banking firms be subject to the same regulation as traditional banks?
The fintech sector has filled a gap that in many cases traditional banks were unable to service. While it is important that we don’t hamper progress, we need to seek the balance between enabling innovation and safeguarding consumers. No industry is immune to facing operational challenges, and the past few months have shown that fintech is no exception.
What makes you say that?
There are clear lessons to be taken from recent events, particularly what transpired with Wirecard, and it’s an important reminder of the growing complexity of our interconnected digital systems, and the challenges this can bring for consumers and businesses. As adoption of digital services continues to grow, it may now be time to review the regulations governing payments and ensure that they are fit for future needs.
“There are clear lessons to be taken from recent events, particularly what transpired with Wirecard.”
I read recent research that your organisation and the Scale Up Institute carried out, highlighting a growing £15bn gap in the amount of growth capital available for UK scaleups. How should the industry close this gap?
We set out five practical recommendations to tackle the long-standing, structural problem of the lack of growth capital for scaling companies. We also need to undertake work to unlock institutional and corporate funding. This can only be achieved through changes in legislation that crowds in the existing significant private sector capital gap required to make inroads into closing our growth capital gap. The recommendation was also made to expand and build upon our existing British Business Bank. We need to strengthen the regional presence of the BBB to enable more localised and empowered decision making. In order for this to take place, it needs to develop along with Scottish Investment Bank, Development Bank of Wales and Invest NI.
Your efforts seem to be paying off.
It is positive that we are starting to see the government take our suggestions on board. Only a few weeks ago, the Bank of England and the FCA announced an industry working group to facilitate investment in productive finance. This is a much needed first step, in order to ensure that we are able to support businesses at all stages of growth with the capital they require.
Has this been exacerbated by Covid-19?
In short, yes. We estimated the growth capital gap had doubled during the crisis. The pandemic has sent seismic waves through our economy, and society at large. It has shone a spotlight on the structural inequalities that already exist.
“Covid-19 has provided us with a chance to hit the refresh button and as we reset our economy.”
It’s important to foster a culture that promotes long term investment into our scaling businesses. To achieve this, we need to close the growth capital gap and ensure businesses have the resources they need on a longer-term scale to succeed.
Finally, you are a big champion of financial education, as you said in the past it is important with the number of Universal Credit Claimants increasing rapidly. Can you explain this ?
With the OECD predicting the UK’s GDP could decline by 11.5 per cent as a result of the virus, fintech must take additional steps to help the financially vulnerable. The pandemic has resulted in a spike in the number of individuals signing up to Universal Credit, and as the recession starts to hit, the number of unemployed individuals will only continue to rise. This is of great concern and we need to do all we can to help the British public.
Looking ahead at 2021, what are your main financial predictions for next year?
My guess is 2021 will be a year of partnerships and mergers. M&A is a natural evolution of a maturing market. I think we’re going to see some of the more-established fintech players and banks buying smaller, early stage businesses to plug into their platform. And I expect we will see fintech being acquired by larger, more traditional financial services competitors who are accelerating their digital transformation. With lots of people moving their banking online, many industry incumbents are realising they are going struggle to compete with the more technically advanced challenger banks unless they move quickly or find partnerships.