The Scottish Financial Technology Awards are returning after a two-year hiatus on October 6th, celebrating Scotland’s thriving fintech ecosystem.
When the awards were last held in 2019, the world was a different place. For Scotland, its tech sector, and fintech in particular, the environment they are working in is radically different from what it was in 2019.
At the last Scottish Financial Technology Awards, Soar took home both the Social Impact and Rising Star awards in recognition for its work helping the less wealthy.
Ahead of the upcoming event, DIGIT spoke with Soar CEO Andrew Duncan to discuss how Scotland’s fintech sector has changed since 2019, as well as the new challenges and opportunities presented in 2022 and beyond.
Back to 2019
For the most part, the Scottish and UK fintech sectors were strong back in 2019. When the year started, the number of Scotland-based fintech SMEs had grown three-fold over 2018.
This growth continued throughout the year, rising more than 60% from 72 to 119 SMEs.
And for the UK, the second quarter of 2019 also saw the country’s fintechs secure £740 million of investment, a record at the time.
“Fintech was a vibrant and buoyant market in Scotland, as well as the whole of the UK,” Duncan recalls. “There were a lot of people that were very interested in either starting new fintechs or had started and were scaling them.”
That wasn’t to say that there weren’t challenges facing fintech, and the country as a whole, back then.
For example, a key issue fintech was dealing with was the digitization of financial services. While standards like open banking were around, they were still in their infancy. For many organizations, digital transformation plans were still years-long and not priorities.
And for customers, analogue financial solutions such as cash, physical shops and visiting bank branches were still prevalent over mobile apps.
For Soar, one of the broader social challenges it was trying to tackle was the poverty premium, where people with below average earnings were forced to pay more for some financial services.
“Getting access to good savings schemes, helping people save, helping them spend less money on lending through high-cost credit such as payday lenders and loan sharks, was a critical issue we were trying to solve back in 2019,” Duncan notes.
“And that hasn’t changed. In fact, it’s even worse now than it was back then. But it was a huge potential growth market for us.”
The Pandemic Strikes
And then Covid-19 arrived. For all businesses, not just fintechs, the pandemic threw plans into disarray and new challenges presented themselves, almost overnight.
But in other ways, these challenges presented opportunities.
A prime example of this is the digital transformation. Covid-19 forced many companies to accelerate their digitization plans. In a matter of weeks, organizations across the world had to adapt or die.
And for the UK’s fintech companies, many of them hold the solutions needed to keep businesses running smoothly.
“The reality was that in tech and fintech, it was a great opportunity,” Duncan says.
“We had a whole host of clients that weren’t fully digital. But the pandemic focused their minds and a week or two after the pandemic started, everybody wanted to be able to answer phones from home, access their core systems remotely, or get apps out to their customers.”
However, even for well-positioned companies, the pandemic raised challenges. For fintechs, and finance in general, the uncertainties surrounding Covid, especially in the earlier days, were a major issue.
“Quite a few of our customers or prospects just stopped their business altogether,” Duncan notes.
“They put everything on hold because they couldn’t guarantee that the decisions they made on people applying for loans would be accurate and representative of the post-pandemic scenario.”
This was not unique for the finance sector. Despite the solutions offered by tech platforms, ambitions dropped and plans were put on hold in preference to treading water. For companies offering fresh products and solutions, it made the pandemic years a difficult environment to sell in.
“A lot of businesses ultimately went into basic survival mode just to deliver their core service and make sure that their customers were being served,” Duncan noted. “They weren’t necessarily looking to grow their business at that time.
“Nobody wanted to be sold a new thing.”
Fintech beyond the Pandemic
As the world emerged from the pandemic, old challenges led to new ones. 2022 has seen sluggish economic growth and the cost-of-living crisis, creating a difficult operating environment in economies around the world.
“Some businesses in a pandemic will not have done well as it just put a pause on things,” Duncan says. “They couldn’t get the traction they needed.
“I know fintechs that have not survived the last couple of years.”
For the most part, fintech has defied many of the challenges facing the UK and Scottish economies to continue growing.
Although slower than the growth seen in 2019, 2021 saw a 27% increase in Scottish fintech firms, hitting 190 firms.
And investment has also been strong post-pandemic – for the UK as a whole, 2021 smashed the record set for 2019 when it brought in $11.6 billion (£8.5bn) in 2021. Not only was this more than double the £3.3bn brought in across 2019, it was 217% more than 2020.
And 2022 seems set to continue that trend. For the first half of this year, fintech investment in the UK rose 24% compared to the first half of 2021, hitting $9.1bn.
“Moving on from the pandemic, the positive out of it is that all the businesses that have survived the pandemic so far have all adopted some form of digitization through the pandemic,” Duncan notes.
“The pandemic has really enabled businesses like Soar to start preaching to the converted rather than trying to convert them. I think every business we talked to already knows they have to do something like improve the way they enable customers to access their accounts online.
“And that’s where fintech has definitely won.”
However, there is still work to be done to take advantage of these new opportunities.
“The problem that we have in Scotland is more that we have a relatively small pool of investors to ask for money to help us grow our businesses,” Duncan warns.
“We have some fintechs who want to try and sell their services directly into tier one and tier two banks. Procurement is often something that gets in the way there. You can have the best idea in the world, but if you can’t get it into the hands of the people who can use it, your idea’s worthless.”
But despite these challenges, there are still fresh opportunities for fintech companies to seize in 2022 and beyond.
“Financial services have an absolute tonne of data,” Duncan observes. “And they’re not amazingly good at using them to innovate and come up with the next thing for their customers.
“Fintech is evolving into doing better things with the data that it carries and providing insight and analysis back to the market to either create new markets or enable businesses to make better use of the data that they have.”
He adds: “There’s an opportunity for fintech to step in and offer extra services to make businesses more proactive.”
Fintech Summit 2022
Our next conference is the Fintech Summit, held live and in-person at Edinburgh’s Dynamic Earth on September 15th.
Now in its ninth year, the Fintech Summit is Scotland’s largest annual gathering for financial technology professionals, providing an opportunity to reconnect with industry peers, build new relationships and explore the latest developments across the sector.
To secure your free place at the Summit, please visit: www.fintech-summit.co.uk