By Joseph Moss, International Banker
It was in March 2022 when FinTech Scotland, a non-profit cluster organisation that was set up in January 2018 as a joint initiative by the University of Edinburgh, Lloyds Banking Group, HSBC and Scottish Enterprise, published its definitive “FinTech Research & Innovation Roadmap 2021-31”, detailing its plan to accelerate the development of Scotland’s fintech (financial technology) sector over the coming 10 years. And with stellar growth metrics being reported across virtually the entire Scottish fintech ecosystem in the months since the roadmap’s launch, it would appear that the United Kingdom’s northernmost constituent region has gotten off to a flying start in realising its ambitions of becoming a leading global fintech hub.
The roadmap was developed in consultation with fintech entrepreneurs, the financial-services sector, academic scholars, regulators, government bodies and consumer groups. “The University of Edinburgh is fully committed to the role R&D [research and development] plays in developing fintech economic opportunities in Scotland and across the UK,” Catherine Martin, vice principal of corporate services at the University of Edinburgh, a founding partner of FinTech Scotland, recently said of the roadmap. “Our experience and academic excellence in both disruptive technologies and other sectors ha[ve] shown how strategic and purposeful partnerships can shape the future direction of vital industries and sectors in our economy and society. We’re committed to playing our role as a leader and as a collaborator in fintech and financial services innovation, pushing forward the FinTech Research and Innovation Roadmap priorities.”
Those “priorities” are centred on four strategic themes, as laid out in the roadmap: open-finance data, climate finance, payments and transactions, and financial regulation. The ultimate goal of the initiative is to expand employment opportunities significantly across Scotland to the tune of an additional 20,000-plus fintech sector jobs as well as boost the economic gross value added (GVA) that fintech innovation can deliver to both Scotland and the United Kingdom from £598 million currently to £2 billion by 2031. The roadmap “creates a framework and an environment to drive greater collaboration, and to build the connections that will enable responsible innovation for the future of finance”. It also “builds on the R&I [research and innovation] foundations that are already established through the FinTech Scotland cluster, and sets out the cross-sectoral strategic priorities that—through collective and collaborative action—will shape the future of financial services, and enable Scotland and the UK to further advance FinTech innovation”.
Indeed, despite the roadmap going online only just over a year ago, tangible results have already been achieved across all four strategic themes, an especially laudable feat when accounting for the sharp decline in funding that the global fintech sector has experienced during the same period. And yet Scottish fintech attracted £305 million during 2022, which was a whopping 200 percent more than in the previous year. FinTech Scotland was awarded additional funding by the UK Government in March of this year to further boost fintech innovations. Last year also saw the overall number of Scottish fintech SME (small and medium-sized enterprise) companies grow by 13 percent, with international and domestic firms establishing their presences.
“I am continuously inspired by the progress achieved by fintech entrepreneurs who continue to accelerate innovation, change and growth across the cluster. The record levels of investment in 2022, reinforces the value of FinTech innovation, and propels us to continue driving cluster excellence, build on the recognition th[at] we achieved in 2022, and the role we play in contributing to the growing wider UK fintech ecosystem,” FinTech Scotland’s chief executive officer (CEO), Nicola Anderson, said in January 2022, a bumper year. “As we enter 2023, I am excited to be developing the opportunities with entrepreneurs, industry and academic partners, Scottish Enterprise, Innovate UK, Financial Conduct Authority along with other clusters across the UK as we execute our ground-breaking Research and Innovation Roadmap.”
“The growth of Scotland’s fintech sector demonstrates what can be achieved when all partners work collaboratively to create an ecosystem that is attractive to companies and investors,” explained Adrian Gillespie, chief executive of the governmental business-development agency Scottish Enterprise. “FinTech Scotland has made an enormous contribution to developing our country’s FinTech sector since its inception. We look forward to continuing to work in partnership with FinTech Scotland and all other stakeholders to deliver even more economic opportunities in this vibrant sector over the coming year.”
Perhaps Scotland’s single most significant accomplishment in 2022 was the 100-percent growth in the number of climate-focused fintech companies. This doubling underscores the success that Scottish green fintech projects have achieved, largely through accelerated fintech partnerships and fintech adoption via new innovation labs launched in cooperation with Lloyds Banking Group and TSB Bank that have been helping customers realise material gains in carbon efficiency. Cross-sector collaboration with the Scottish space-sector gateway Space Scotland is also enabling growth in climate finance as well as accelerating innovations in ESG (environmental, social and governance) using data from satellite sources.
On the open-finance-data front, meanwhile, a 26-percent rise in fintech enterprises developing innovative solutions using open banking has been recorded. Another notable achievement under this particular priority theme is the accelerated fintech adoption and creation of commercial opportunities, especially through the launch of an innovation forum by the UK’s largest long-term savings and retirement business, Phoenix Group, in May 2022. This innovation forum has helped boost customers’ engagement and support their financial well-being, thus driving greater levels of financial inclusion. And the Smart Data Foundry’s research on vulnerability in the pension market, the impact of late payments on the SME market and the net-zero agenda were all enabled through leveraging open-finance data during the year.
As for payments and transactions, 19 percent more fintech enterprises in Scotland developed payment solutions during the year, while a substantial £94 million was invested in fintech enterprises focused on payment innovation during the 12-month period. Developments of crypto-finance, blockchain and distributed ledger courses were also expanded at several leading Scottish universities.
And, finally, the financial-regulation theme was given a major boost when it was announced that a 13-percent increase was registered in the number of fintech enterprises specialising in financial-regulation innovation. Investment of £83 million was also poured into such fintechs during the 12-month period, while further government and industry support to accelerate innovation in financial regulation has been confirmed and will be used to create a new Financial Regulation Innovation Lab in collaboration with industry partners as well as the University of Strathclyde and the University of Glasgow. The lab will focus on leveraging new technologies to accelerate efficiencies and “revolutionise the future of financial regulation and risk-management through technology and data”, according to Anderson.
Such undeniably positive results point to a thriving fintech ecosystem that not only raises Scotland’s international profile as a vibrant hub for the sector but also bodes well for Scotland to realise its future ambitions. “We can see how the FinTech Research and Innovation Roadmap is already making a real difference—helping businesses to build economic growth, create jobs, work through climate finance to enable a future net zero economy, and helping to alleviate the cost-of-living crisis,” Anderson recently acknowledged. “The roadmap demonstrates how collaboration and innovation can change people’s lives, driving positive outcomes for both business and citizens both in Scotland and across the UK.”
“The roadmap highlights the power and potential of that ecosystem and the transformative impact that collaboration in this sector can have across society,” Damian Nussbaum, executive director of innovation and growth at the City of London Corporation, added. “It’s encouraging to see that in just one year, the FinTech Research and Innovation Roadmap has enabled more of that important R&D collaboration and aligns with our approach at CFIT.”
And Charlotte Crosswell, chairperson of the CFIT (Centre for Finance, Innovation and Technology), said, “We have significant potential across the UK to drive fintech innovation and realise our full fintech potential. Drawing on our regional strengths and bringing experts across the finance and technology ecosystem is key. We’re delighted to support FinTech Scotland as it continues to demonstrate its impact, identifying opportunities for fintech growth and working in collaboration to drive the Innovation Acceleration across the UK.”