A new era of Competitive R&D tax credits?

The Government has long recognised that a competitive R&D tax credit scheme’ is an important driver of its objective for the UK to become a global leader in science and innovation. We know that many Fintech Businesses rely on R&D credits as a valuable funding mechanism for innovation so it is imperative that Fintech Businesses take note and engage with the recently launched government consultation which could bring the biggest reform of R&D credits since the SME scheme was introduced over 2 decades ago.  This is especially important in Scotland where the number of Fintech companies has grown from 26 (2018) to upwards of 155 in 2021. 

This is a once in a lifetime opportunity to bring the R&D regime up to date and ensure it is well targeted and globally competitive.  With over £200m in R&D tax credits claimed by businesses in Scotland, it is important that businesses engage with the consultation and share their insight on how the R&D regimes can be improved to help them invest in innovation.

The consultation is wide-ranging and it is clear that whilst there is no doubt that the government is fully committed to increasing UK R&D spending, in a backdrop of record government borrowing, the R&D regimes must provide value for money and be highly effective at encouraging investment in innovation. The focus of the consultation can be segmented into the following key areas where we’ve shared our initial thoughts on the relevance to Fintech businesses:

• Structure of the R&D regime – particularly whether the SME and large company R&D Expenditure Credit (RDEC) schemes be combined? 

Currently, there are two R&D regimes – the SME regime which offers high cash incentives (up to 33% of spend) and the RDEC regime (10% cash benefit) for those businesses which do not qualify for SME credits. The consultation suggests abolishing the SME scheme and a move to “RDEC for all with the key benefit of the RDEC regime over the SME credit being the ability to account for the credit above the line’ (i.e. improve profits). However, it is likely different rates would still be needed for different-sized businesses. 

Given the government’s commitment to encouraging investment in key high-tech industries, could this consultation also provide an opportunity to implement varying credit rates depending on the sector and activity being undertaken? Clearly, high-tech industries such as Fintech play a fundamental role in Scotland and could benefit from a regime that offers greater incentives for high tech innovation.

• Ensuring the UK R&D credit system is internationally competitive

The government has repeatedly stated its commitment to ensuring the UK is seen as a global leader in Research and Development, with the aim of increasing R&D expenditure to 2.4% of GDP by 2027. The latest consultation clearly demonstrates that the government sees the UK tax credit regime as part of its strategy to help encourage investment in UK innovation and as part of that, understands the importance of the UK R&D tax credit regime being globally competitive when businesses look to locate R&D functions. Scotland is becoming increasingly known for being one of the UK leading Fintech hubs and is routinely considered as a key location for R&D centres. For Scotland to continue to benefit from the positive cascade effect offered by such inbound investment, in an increasingly competitive world, it is important that the UK’s R&D regimes remain globally competitive.

• Review of R&D definition and Scope of eligible costs

The definition of R&D and eligible costs are the cornerstones of the R&D regime and compelling responses on these key areas have the potential to lead to fundamental changes in the R&D regime. This includes potential inclusion of Cloud Computing costs such as SaaS, IaaS, and PaaS as eligible expenditure, in addition to on-prem license costs used for R&D. Currently, the UK R&D regime is one of the most generous regimes in terms of allowing overseas expenditure to qualify under the externally provided worker rules. There has long been a debate about whether the inclusion of such costs really contributes to encouraging investment in UK R&D. However, the eligibility of such costs does mean the UK and Scotland is attractive for global businesses looking for an R&D Hub with its unique ecosystem of academia, technology, science and innovation infrastructure.

• The operational effectiveness of the regimes

Improving the administration of R&D credits including whether it should be part of the tax return filing and the role of agents in assisting R&D claimants is a key part of the consultation. With the significant increase in R&D claims over the last 5 years, it’s not surprising that the administration and review of claims have become a challenge for HMRC. And there are growing concerns within the Government that R&D tax reliefs are open to error and potential abuse. Whilst the more straightforward nature of the documentation requirements and lack of preapproval requirements’ makes the UK regime more vulnerable to abuse, there is a recognition that this approach makes it more attractive when compared to other global R&D regimes with extensive preapproval requirements. So any changes to the administration of the regime needs to be carefully balanced to ensure effective compliance alongside minimising the burden and uncertainty for claimants.

Likelihood of substantial changes to the regime?

The R&D regime is seen as one of the central pillars to the government’s commitment to encourage an increase in R&D spending. Therefore, whilst its existence is likely to remain, this consultation indicates significant changes are on the horizon. It is important that those claimants who rely on the valuable funding provided by the regimes engage with the consultation process. 

Survey

We want to make the most of this opportunity to help to shape the design to be internationally competitive and well targeted for the long term.

We are collating your views on the current R&D regime and potential changes to make it more effective as an incentive for businesses to invest in R&D in the UK.

To share your thoughts via our survey, please email me at neil.muir@pwc.com.

Diversity and Inclusion in Tech: It’s Time to Focus on More than the Optics

We’ve just completed some (admittedly superficial) digging into a few of the top tech companies’ adverts. They’re pretty diverse. Over the last couple of years, Apple’s feature 64% BAME actors, by rough calculations. Amazon’s have 78%. And Lenovo’s had a 50/50 split between the sexes. 

By contrast, of Apple’s 11 board members, all are white and one is a woman. Last year, Amazon appointed the first person of colour to its 10-strong board. And Lenovo, well one of their board of 10 is female…  

While big tech spends big money producing high-budget adverts with diverse optics, behind the scenes things are very different. A recent Girls Who Code report pointed out 50% of women leave tech by the age of 35. And the proportion of women working in tech is now smaller, at 32%, than it was in 1984, at 35%.

Tech companies are some of the most competitive and forward-thinking businesses out there. And various studies have shown that companies with above-average diversity perform better than their competitors. What’s the use in being so cutting edge if tech can’t capitalise on these gains?

So rather than focus on how diversity in tech looks to the public, how can we make diversity in tech a real tangible thing that can help businesses grow and thrive? 

Get Better at Attracting Diversity

There are probably a hundred companies paying a similar salary to you. It’s your Value Proposition that sets your business apart from the crowd, particularly in tech. 

With many tech positions in high demand, companies compete through their added benefits: good work culture, progression or mobility opportunities, the ability to learn new skills, and work/life balance. 

But for many, it’s how inclusive and diverse their workplace is. Not something that can be bluffed with a couple of pictures of BAME people on an advert and some nice words. Companies need to BE inclusive to attract inclusive and diverse candidates. As employees talk (and write things online), you need to put measures in place like: 

• a clearly-laid out inclusion plan, 

• a spirit of inclusivity from senior management to the most junior employee,
• Inclusivity committees/groups 

Get Better at Hiring Diversely

Unconscious bias naturally creeps into the recruitment process. A Yale University study found scientists of both sexes, “trained to be objective, were more likely to hire men, and consider them more competent than women, and pay them $4,000 more per year than women.”

A recent piece we wrote on Talent Maturity discussed the importance of a well-developed team. And if that’s beyond a company’s reach, how valuable an external recruiter who can help them reach a mature level can be. 

And combating unconscious bias is one of the things an outside recruiter can help with, using various measures:  

Clearly Laid Out Requirements 

We call this Scoping at Solutions Driven. Sitting down with the hiring manager, figuring out their requirements and what success looks like. Employees are less likely to be hired on “gut feel” (another form of unconscious bias) and the brief is followed by both sides throughout. 

It provides the basis of the candidate scorecard where we set down what’s important and rank each section. Perhaps a degree is desirable but experience is more important? That’s taken into account. 

Blind Shortlisting

It’s difficult to hire blindly when you’re hiring for yourself. Recruitment companies regularly present candidates blindly, allowing businesses to judge them on their skills and experience, rather than their name or where they’re from. 

Companies then get the best talent presented to them to final interview, without any outside factors influencing the decision. 

Psychometric Testing 

One of psychometric testing’s main aims is eliminating unconscious bias. Teams can focus on a candidates’ personality, attributes, and skills, rather than looking for similarities to themselves.

It can also be used on the existing workforce to determine what skills and attributes are needed on teams and help identify the right fit for each role. By saying “we need an analytical thinker” recruiters can add this into their requirements, and hone in on the “perfect match”.

https://www.linkedin.com/posts/gregpsavage_filling-a-job-does-not-start-with-finding-activity-6744007540033642496-J2L-

Hiring the Right Candidates 

All we’ve spoken about until now is getting the right people for your company. But what about if your company is right for the employee? 

As part of our Recruitment Process Intelligence (RPI) at Solutions Driven, we employ the 6F methodology. 

We look at fit, freedom, family, fulfilment, fortune, and family to determine whether an employee and a company will work well together and if reasonable adjustments can be made to get the perfect candidate onboard.

It’s an important part of the hiring process, because unhappy employees don’t stick around. And in tech, where the job market is competitive, you don’t want to waste time hiring someone who’s just going to leave. 

To find out more about how your business could improve on its diversity and inclusion initiatives, and how to hire right, first time, get in touch with Nicki Paterson from Solutions Driven at npaterson@solutionsdriven.com. 

Photo by Tim Mossholder from Pexels

Key insurable risks facing FinTech businesses

With the FinTech industry continuing to boom in the UK the insurance market has responded to the demand for focussed operational risk insurance solutions.

FinTech businesses have a unique combination of exposures that are not catered for by traditional insurance solutions, however the insurance market is innovating and creating bespoke solutions. The following are examples of key

operational risks facing businesses today:

Professional liability

Negligent advice, errors & omissions in the client services arena are common risks for any company providing financial services. This risk is potentially heightened for FinTechs who offer new products through new distribution models. FinTechs may also potentially assume additional liability where there is a reliance on third-party contractors.

Regulatory risk

New technology, new products and new distribution brings a wealth of opportunities, but also new regulatory exposures. FinTech companies will need to ensure they keep on top of the implementation of suitable and satisfactory risk management systems. As this market evolves, so will the regulatory environment.

Keeping pace with regulatory change and the need to consider differing regulations in multiple territories will be challenging.

Theft of funds

FinTechs may deal with a high frequency of funds movement. High volumes of payments, transactions and customer accounts can leave you vulnerable to theft. These thefts could be by an employee or external party.

Cyber events

Given the nature of your operations, FinTech companies are prime targets for cyber criminals. Network security, data breaches, ransomware or even a denial-of service attack – as well as damage and rectification costs following these incidents – should be a major concern for FinTech companies.

Technology failures

Innovative technology is essential for FinTech companies – it is how you have disrupted traditional financial services – but this heavy reliance on technology infrastructure means firms can be vulnerable. Technology failure can mean customers are unable to access services resulting in lost income or lost customers.

Directors & Officers liability

The personal assets of directors and non-executive directors can be at risk where they are held liable for legal costs and claim awards from third party claimants arising out of alleged or actual wrongful acts committed in their capacity as managers of the company. Whilst the business will normally indemnify the individual directors and officers, in some instances they may not be willing or able to indemnify (e.g. due to insolvency) and therefore having access to an insurance solution should be at the forefront your of considerations.

The insurance industry will continue to innovate and try to keep pace with the new risks that will emerge as the sector continues to grow in the UK and around the world.

For more information please contact garry.hill@pib-insurance.com or visit www.pib-insurance.com

Photo by Gladson Xavier from Pexels

Tech women: essential to economic growth

Scotland has a thriving technology sector but there’s still a huge amount of untapped potential that could further elevate its success and bolster our economy. Women, who remain significantly underrepresented within the sector, have a major part to play in making this happen.

The Scottish Technology Ecosystem Review by Mark Logan, published earlier this year, set out how Scotland’s technology sector can contribute to the post-pandemic recovery. The review identified three key areas which were essential in supporting and nurturing Scottish tech businesses, from the early start-up phase through to full scale maturity. These include education and talent, from school to all levels of further learning, infrastructure, and funding.

Logan’s initial point on education is where we need to start in addressing the current lack of women within the sector.

According to the UK organisation Women in Tech, females account for under 17% of technology roles at present with only one in ten women in IT leadership positions. With little progress being made on these figures over the last decade, it’s clear that we need to make a concentrated effort to encourage more girls to pursue STEM subjects which can provide a solid foundation for pursuing a career in technology. We must also support initiatives to keep women interested and active in technology as well as other STEM-related industries beyond their school years.

Here in Scotland there are a number of other bodies already seeking to do this including the Royal Society of Edinburgh (RSE), an internationally renowned science-focused organisation currently run by a female CEO which has significantly increased its number of female Fellows over recent years.  The Scottish Government also set up a taskforce earlier this year to tackle gender stereotyping in schools which aims to drive bold and far-reaching’ actions including ensuring greater gender equality in key professions.

Organisations like ours are also seeking to affect positive change. Through our annual AccelerateHER Awards programme for female company founders, we have now introduced four STEM-focused categories, including FinTech, Data Science and Cyber Security, which is specifically aimed at female technology business founders.

Women leading these types of companies not only demonstrate the potential to thrive in these sectors, they also play an important role as inspirational mentors to younger girls who with a talent for technology.

Encouraging more established businesswomen to become investors is also important in presenting technology as a more attractive sector for female entrepreneurs. We’ve seen this phenomena in the US where females now account for more than 25% of its business angel investment community. This has created a ripple effect where a corresponding percentage of angel-backed companies are those led by a woman.

As the Logan Review has reported, technology in now essential to our economic future as it’s a sector that is most likely to create jobs and develop new, world class companies. Women in Tech has also estimated the UK economy would benefit from an extra £2.6 billion each year if we increased the number of women working in technology to fill the prevalent IT skills shortage.

As we have witnessed through our AccelerateHER Awards programme, female tech business founders are breaking through. Previous award winners including Rachel Jones of SnapDragon Monitoring, Elaine Galston of Tubular Sciences and Sheila Hogan of Biscuit Tin Planning are great examples of successful, Scottish-based technology business founders who are growing their companies and contributing to Scotland’s overall economic growth.

I would invite any female tech business founders, even those whose businesses are in the very early stages of growth, to put themselves forward and apply for next year’s awards ”“ the deadline for entries closes this Friday (11 December).

Meanwhile, educators, governments and business must continue to ensure they keep the focus on attracting more females into the tech sector. This will not only deliver greater equality in a field where there are still far too few women, it will also help pave the way for a strong economic recovery which will be essential as we emerge from the global pandemic.

Jackie Waring, CEO at Investing Women

More details on the 2021 AccelerateHER awards can be found here

Is artificial intelligence the key to better access to funding for business and consumers alike?

Although the UK ranks third in the world for numbers of new business start-ups, it sits at a less impressive 13th place in the number of successful business scale ups^[1].   Access to finance is widely argued to be a contributing factor with traditional banks having become more risk averse in recent years, and focussed heavily on security rather than a borrower’s ability to pay.    Consumers, too, know first-hand how frustrating this can be, especially those held back by the seemingly inflexible approach taken by credit ratings agencies.

Change, however, is coming

Financial disintermediation, or more direct links between providers of capital and borrowers, has been a major feature of the financial landscape for the past two decades.   Digital advances have seen this trend accelerate and the proliferation of non-bank lenders continues to increase.   In fact, according to recapitalnews.com, 18 of Europe’s 40 largest real estate lenders are non longer banks.

And whilst some might argue that it really doesn’t matter where borrowers gain access to the funding they need to grow, there are increasing signs that both sides of the lending equation are benefitting significantly from new, highly advanced, technology solutions being deployed in the sector.

Elsewhere, comparison websites, taxi or ride-hailing apps and online supermarkets have all helped to show us the convenience of going digital.   We feel more in control of our choices, and have the information we need at our fingertips.   We have become used to instant gratification, and processes that are simple to use (even if they are massively complex to run).   So too, we are starting to see this in the world of FinTech – where finance and technology collide to produce new and innovative activities in the sector.

Houston we Have is one such company that has developed an innovative solution that produces the strangely non-binary, or win-win, situation where a lender risk and operating costs are reduced and borrower convenience and access to funding is actually enhanced.

Based on the company’s proprietary prescriptive intelligence software platform, Houston we Have developed a credit risk assessment model for a Sydney-based SME lending platform that combines leading automation, the best of human expertise (without bias) and more than 70 information variables to produce an online application tool that’s easy to use, and fast to run.

Prior to the implementation of Houston we Have’s solution, the credit risk decision support system in place at the business was manual, resource intensive, reliant on third party providers and exposed to flawed systems.  Typically a fast decision would take several hours.  Today, the business can produce a decision within seconds.

Risk has also been reduced with a far better understanding of a borrower’s ability to pay and the removal of human bias in the decision making.  Delinquent loans have been an astonishing zero since the system was introduced.   And as for changes in legislation, lending frameworks or appetite for risk; these can be easily factored into system updates, as can revised versions for the regulatory environments in different countries and jurisdictions.

All this points to a more efficient industry that benefits lenders and borrowers alike.

Houston we Have is a boutique technology business that combines data science, software and artificial intelligence to deliver the kind of information that allows their clients to make better decisions and thrive.  Their proprietary software was initially developed for military intelligence agencies, an environment where it is still very much in use.   Gartner has identified the company as a Cool Vendor describing the value proposition as “unlike that of any vendor we have seen.”

^[1] www.smallbusiness.co.uk, June, 2018

Photo by Markus Spiske from Pexels

Making FinTech more diverse and representative

Rise, Barclays’ FinTech ecosystem, is spearheading diversity and inclusion in the sector. This wide-ranging topic is the subject of the latest edition of Rise FinTech Insights, a regular publication from the bank.

This blog was written by Clare Whitehead, FinTech Platform Lead, Rise London

Building a more diverse future for FinTech

Working towards a more equitable future starts with addressing the wealth gap created by unequal access to resources by underepresented communities. Bridging the gap starts in the very early years from focusing on STEM eduction to the later years by providing FinTech resources for the baby boomer population.

The next generation is very evidently making great strides in FinTech when you watch Stemettes in action. Dr Anne-Marie Imafidon MBE and her remarkable organisation allows girls and young women to get creative with technology and see the opportunities available to them in joining one of the fastest-growing (but still male dominated) UK sectors.Pre-lockdown, Stemettes, their siblings and their parents would regularly take over our Rise London building to work on Future of FinTech’ hackathons. Based on the energy and enthusiasm of that crowd, we should be seeing more women in our sector in the years to come.

Rise community leading the way

We call the Rise ecosystem the #HomeofFinTech because it fosters such great technology and talent. The latter includes several diverse pioneers, and they deserve a shout-out. To name just three from our sites around the world:

• Kevin Barrow is a Black founder in our community and CEO of Mark Labs, a London-based FinTech company that shows how money can be used as an instrument for creating positive social and environmental change at scale.
• Nadia Sood is the female founder and CEO of CreditEnable, a Mumbai-based credit insights and technology company that applies proprietary data analytics, and AI to build solutions to the world’s biggest financial challenges.
• David Beatty is a co-founder of Gaingels, a New York-based company focusing on co-investing with leading venture funds in companies that embrace LGBT leadership.

Building and maintaining a diverse and inclusive environment are at the heart of Barclays’ values: Respect, Integrity, Service, Excellence and Stewardship. The global corporate and investment bank is a better, stronger and more successful organisation as a result of it.

As Jes Staley, Group Chief Executive Officer, Barclays said recently: “We are deeply committed to empowering the next generation of leaders, providing access to enterprise, employability and financial skills.”

A call to action

Personal empowerment is perhaps the main driving force in any diversity initiative, and these leaders demonstrate how effective it can be. Empowerment of a different kind can come when underrepresented communities come together to effect change in a system ”“ like the Latinx community in banking. Ramona Ortega, Founder of My Money My Future, argues the case with a FinTech call to action to create a more diverse FinTech sector. Speaking for that community, she calls on us to:

1. Help more FinTech founders of colour get funded. Get to know them and open up your network to them.
2. Partner, support or even acquire small diverse companies and, as a result, add value by reaching new markets (because existing products doesn’t fit the market for people of colour).
3. Give Black and Latinx folks a seat at the table. If you’re launching a diversity campaign or coalition, make sure to have them involved.

And, if you’re a FinTech VC, take the time to research the opportunity and make a pledge to fund a Black or Latinx founder.

In case you were wondering, supporting the Black and Latinx community in these ways makes great business sense because the future will be even more diverse than it is now, with 2020 being the year when more than half of all Americans under seventeen years old are from a minority background[1] and with Latinos making up 35% of Gen Z[2].

AI ”“ the part diversity plays

Does technology have a part to play in making FinTech more diverse and representative of our societies? It certainly does. A great example is how we can use technology to design out bias in the many AI algorithms at the heart of so much data analysis and business decision-making. The way that financial decisions the algos make can be intrinsically unfair, and this bias is now seen as the biggest risk in data-driven technology[3]. Bias can creep in at any point in the development process, but technology and regulation both play a part in mitigating it. But a number of tools can measure bias and the trustworthiness of algorithms. Some are open source, some commercial. Furthermore, there are considerable efforts across academia to enhance these tools and provide improved algorithmic transparency and explainability’.

However, technology alone is not enough. As Ana Perales, AI Horizontal and Conception X Lead at Barclays Ventures, explains in the Rise FinTech Insights report, other factors are key to minimising bias. These include design and regulation. Designing ethics into algorithms requires, among other things, the very teams (of data scientists and developers) that create the code to be diverse. Additionally, developing a culture of frequent testing to collect data in an unbiased and systematic way should be part of any design.

Tracking changes to government regulation is key. Regulatory consultations and frameworks for AI highlight the close link between fairness and bias, on the one hand, and transparency and explainability on the other. For example, the European Commission, the Monetary Authority of Singapore, the Financial Conduct Authority and the Information Commissioner’s Office have all issued guidance that includes principles of fairness, bias, explainability and accountability. Check out Rise FinTech Insights for examples of how bias can creep into AI and of startups that specialise in analysing and reducing bias.

The distribution of AI companies across the Rise ecosystem

Download all editions of Rise FinTech Insights here.

[1] https://www.npr.org/sections/thetwo-way/2015/03/04/390672196/for-u-s-children-minorities-will-be-the-majority-by-2020-census-says?t=1598894550932&t=1602514826391

[1] https://tribecamarketinggroup.com/tribecatrending/get-to-know-hispanic-generation-z/

[1] Report: AI Barometer by the Centre of Data Ethics and Innovation