London Continues To Set The Pace For Financial Services Innovation

London is now one of the best connected cities in the world, employing over half a million digitally and technology-focussed staff. Its reputation for being both a creator and an early adopter of new technology is sky rocketing.

And the impact of innovative technology on business is rising up the political agenda. In July’s Budget statement, Chancellor of the Exchequer, George Osborne, announced the appointment of a special envoy for fintech and a £23m investment in six Next Generation Digital Economy Centres around the UK.

And more recently, the UK Prime Minister David Cameron, officially backed the UK FinTech 2020 manifesto.  Created by FinTech trade body Innovate Finance, this aims to make the UK a world leader in financial technology and innovation by 2020.  There is no doubt that the UK — and especially London — is an exciting place to be from a technology perspective.

Further evidence of London’s prominence in fintech will be seen next week at Fintech Week 2015. Billed as the world’s largest fintech-focused expo, investors, consultants, multi-nationals and start-ups will descend on East London to share ideas, network and do business.

So as the great and good of fintech gather in our capital city, let’s pause and take some time to reflect on the 2015 trends so far – are they heating up or starting to cool down? Can we match the Chancellor’s six Next Generation Digital Economy Centres with six key financial services trends?

In no particular order:

Digitisation: everything in the city is going digital. For example, we’re seeing the increased use of smart consumer devices, banks interrogating and interpreting data in different ways such as using visual analytics to spot abnormal behaviour, identify threats and interact more intelligently. We’re also seeing the emergence of ‘digital identities’ – a kind of ‘cyberspace passport’ for people or devices that helps address challenges such as remembering multiple passwords and security reporting.

And in the payment world, we’re seeing phones and even smart watches being used as digital wallets.  Then we have digital currencies (or cryptocurrencies as they are sometimes called) creating a world of virtual internet-based payments. And not forgetting blockchain, which we can think of as a virtual version of an old fashioned ledger, recording transactions and ownerships of those digital currencies.

This is all great news for the Square Mile because not only will accelerated digitisation change the way markets interact, operate and transact, it will drive economic growth, stimulate innovation and help the city to continue to set itself apart.

Fintech: London has housed a latent FinTech scene for many years but it can now lay claim to being the FinTech capital of the world. It was recently named home to nearly half of all the start-ups on February’s FinTech50 list, something almost unimaginable in the aftermath of the dotcom collapse more than a decade ago.

This Lazarus-style re-emergence is an example of how a strong city can grow and flourish thanks to supportive government policy (as seen in the recent UK Budget announcement) important input from academia and an abundance of effective corporate initiatives.

What’s more, London also has the FinTech expertise and intellectual capital to keep it in pole position for years to come.

But this fintech boom is not without its challenges.  Start-ups in London and elsewhere still face many challenges when dealing with much larger businesses. Their small size can create hurdles when it comes to market adoption of their solutions, delivery and meeting the stringent contractual or compliance expectations of big institutions.

One solution might be for smart start-ups to join an established specialist, secure financial cloud community.  This will offer them scalability and speed to market for their solutions and a ready-to-exploit market reach.  Indeed, this in itself is a trend to keep an eye on in the future.

Cloud: so my third macro trend is the (not yet ubiquitous) cloud. I firmly believe cloud will fundamentally change everything – location, economics, security, dynamism, opportunity and immediacy.

Compliance, transparency and standardisation: areas that are snowballing in importance. Much of what defined trading over the last decade was its complexity and opaqueness.  But as we move into a new regulatory climate and trading technology regime it’s all beginning to change. For example, high frequency trading, something that was previously a bit of a mystical black art, is now a much better understood and broadly accepted technology model (even if it remains an emotive subject).

IT transformation: we will observe more and more financial institutions recognising the need to invest in IT transformation. Banks in particular are struggling to manage ageing technology platforms and are increasingly looking to outsource from more agile vendors, particularly those who can help them manage and integrate cloud environments from the data-centre to the user.

Having the ability to bring their old IT estates and systems up to scratch, so that financial firms are fit to compete in a modern market will become a boardroom issue for many – if it hasn’t already.

Cyber-security: there’s an increased sense that a perfect storm is brewing around cyber security

The bored, the disgruntled and the criminal are all using increasingly sophisticated technologies to further their grudges. In fact, research BT recently carried out found that almost half of IT decision makers admitted their organisation had been hit by a DDoS (Distributed Denial of Service) attack in the past year.

To get ahead of the threat curve, all of us in the industry need to continuously rethink the risks to our organisations, making sure we’re spending the right amount of time, effort and money preparing for, and neutralising cyber security threats. And we can assume our regulators and technology partners will be on hand to help and guide us in this endeavour.

So, all in all, we need to get set for a prolonged period which the eyes of the world remain focused on London as it continues to set the pace for financial services innovation.

Michael Cooper is CTO of global banking & financial markets, BT

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