Fintech in Scotland – Connect, Collaborate, and Cultivate

Over the last few weeks, the FinTech Scotland team has had the pleasure of working with an intern from Portobello High School as part of a Career Ready programme. It provided us with an opportunity to support a young person think about the future of work, but more importantly it helped us see through a young learner’s eyes, the excitement and curiosity fintech generates. The power of those questions from a someone with no industry baggage or background yet, is striking.

His facial expressions and questions ranged from sheer surprise to genuine delight, and with a work focus on planning the FinTech Scotland Festival we were delighted to have another set of eyes, ears and thoughts help develop the plan.

Our new young colleague summarised his experience under four key themes. In his view FinTech enables communication, connection, and collaboration, and together these are helping to cultivate the future of finance. As we look towards the FinTech Scotland Festival these themes really set the tone.

The FinTech Scotland Festival

This year We will connect and reconnect with new and old colleagues across the UK and across the world. We will share, listen, learn and have the privilege of some key messages, communicating on the journey so far and the ambition for more.

We’ll celebrate the growing strength of the fintech community in Scotland, and the brilliant entrepreneurs cultivating the future of finance and achieving record levels of investment.

Across the festival we’ll hear more about their plans and ambitions including Snugg’s plans to enable us all to make our homes more energy efficient through fintech, DirectID’s global growth in helping people get fairer access to necessary lending, and Legado’s continued focus to help us get all of our financial lives more digitally organised as we move away from paper-based experiences to digital ones.

We’ll also see Know-it who are gearing up to help businesses manage credit, and Waracle who are helping so many larger Enterprises embrace the possibility of doing business through mobile. Amiqus, will share plans on driving fairer access to better services for people, while Float will show the future of financial management for businesses through a business unique financial command centre. The list goes on and we’re proud to show the advances and flourishing potential.

We’ll also explore emerging fintech innovations, be curious about next generation finance and discover the art of the possible as we collaborate across FinTech and Space innovation to help the climate agenda.

The Festival lift off is on the 15^th of September with the FinTech Summit. As ever this event and the Digit team set the scene, tone and ambition for the following three weeks where we will explore the world of fintech. We will land on the 6^th of October to celebrate the journey with the Scottish Financial Technology Awards.

I’m really looking forward to it all, meeting people, learning, sharing experience and celebrating success.

And a final note of thanks to Jack, our new intern colleague. While Jack will return to school in the next few weeks, he has left an lasting impression that we’ll not forget.

Fintech driving Scotland’s inward investment success

By Kevin Reynolds, Inward Investment Specialist at Scottish Development International

It has been an excellent past month or so for inward investment in Scotland.

As Scottish Government Business Minister Ivan McKee announced at the World Forum for FDI in Edinburgh in May, Scottish Development International (SDI) statistics revealed that more than 7,500 planned real living wage jobs had been generated by inward investment in FY21/22.

The figures showed that 113 investment projects were supported by SDI, Scottish Enterprise and its partner agencies Highlands and Islands Enterprise, South of Scotland Enterprise and Skills Development Scotland in the past financial year, 39 of which were investors locating in Scotland for the first time.

These excellent results were reinforced by the publication of EY’s latest Annual Attractiveness Survey, which confirmed that Scotland was again the most attractive location for inward investment in the UK outside of London.

EY’s figures showed that Scotland secured 14% more Foreign Direct Investment (FDI) projects in 2021 compared with 2020. This helped ensure that Scotland’s investment destination attractiveness was now at record levels.

And earlier this week, a new Department for International Trade report showed a substantial increase in both the number of projects and jobs created in Scotland due to inward investment in FY21/22, compared to the previous financial year.

So, these reports showed Scotland’s continued ability to attract inward investment is clear, with the country’s software, IT and digital sectors central to this success.

SDI’s results showed that one of the most predominant sectors for inward investment was Software and IT, while EY’s figures revealed that Digital projects in Scotland rose by 73.6% in 2021 compared to 2020.

In the past financial year, SDI supported many fintech firms choose Scotland for global growth. For example, Hong Kong cyber security company PolyDigi Tech continued to expand its presence in Edinburgh. PolyDigi Tech has been involved in several programmes designed to support innovative start-ups, including EIE (Engage Invest Exploit), and was chosen as one of the Rising Stars 4.0 Scotland regional winners, an early-stage tech scaleup competition organised by Tech Nation.

And the good news keeps coming. In May, Embark announced plans to hire more than 50 people in Dundee over the next few months as it continues to develop its presence in the city.

Meanwhile, digital finance company ClearScore recently announced that it intends to create an Open Banking Centre of Excellence in Edinburgh, creating up to 100 jobs over the next few years. SDI has been pleased to engage with both companies regarding their plans for growth in Scotland.

Looking ahead, our dedicated specialists based here and in more than 30 locations around the world – alongside our prestigious international networks such as GlobalScot – will continue to promote Scotland as a perfect place for companies to locate.

Using the Scottish Government’s Inward Investment Plan as our North Star, we will focus our activities on delivering projects in opportunity areas where Scotland is a genuine world leader. One of these sectors is undoubtedly Digital Financial Services.

Scottish Enterprise has developed a national programme on the digital economy, demonstrating our own commitment to digital scale-up. Scottish Enterprise also provides investment to the wider tech sector. For example, Scottish Enterprise last year invested more than £30m into companies in the sector via our co-investment funds, investing alongside local, national and international investors from seed through to series A and beyond.

But we know this will be a partnership effort. Our Team Scotland’ approach, which sees public bodies, academia and industry working together to promote the very best Scotland has to offer, makes us stand out from the crowd. Businesses have told us that this joined-up approach is a key reason why they choose Scotland.

For example, both Scottish Enterprise and the Scottish Government have endorsed FinTech Scotland’s recently published ten-year Research & Innovation roadmap, which outlines a bold and ambitious commitment to fintech innovation in Scotland, playing on our key strengths in regulation, payments, climate finance, etc.

By bringing together start-ups, entrepreneurs, businesses and universities, we can create, co-develop and share knowledge, leading to more innovation that will help unlock Scotland’s economic potential.

Scotland’s financial services sector is rightly regarded as one of the leading finance centres in Europe. Our universities are world-renowned and the innovative technology scene in our towns and cities is second to none. When you combine these factors with our skilled workforce, Scotland is an irresistible proposition for fintech growth and development.

Scottish Enterprise is fully focused on transforming Scotland’s economy, as well as our journey towards a net zero future. Crucial to achieving this will be innovative sectors such as fintech. We look forward to continuing to work with partners across the public and private sectors, including FinTech Scotland, to ensure all our communities and regions benefit from the economic opportunities arising from fintech.

Fintech Innovation – the need for collaboration

Season 2, episode 2

Listen to the full episode here.

Whilst the fintech movement often makes headlines with those firms that are trying to replace traditional financial institutions, there are many more fintech firms out there trying to work, collaborate or sell to those incumbents to help them deliver better outcomes to their customers.

In this podcast we discuss the opportunities for increased collaboration and some of the challenges? Has the pandemic changed the state of play and what are the solutions to accelerate fintech adoption by historical brands?

This podcast will also be an opportunity to announce the launch of the fintech innovation forum at Phoenix.

Guests:

Josif Grace – CEO at Legado

Kevin Spence – Director Financial Services, Scotland & Client Partner

Andy Young – Group Head of Digital & UX at Phoenix Group

Mars mission technology can improve team meetings for introverts

Recruiting a cognitively diverse workforce is essential for productivity, creativity and innovation. People who think differently, however, also prefer to communicate differently in the workplace, too. Introverts, for example, typically prefer to take time to think before contributing. Introverts think to talk whereas extroverts talk to think. So in a normal meeting, whether virtual or face to face, the microphone will tend to be dominated by the more extroverted team members and most of the good ideas from the more introverted team members will be lost.

Our approach to this problem has been to create a workplace collaboration tool for remote meetings using technology developed for astronauts in future deep space exploration missions, successfully tested with NASA and the UK space agency.

Mars is always at least 150 times further away than the Moon and sometimes over 1,000 times further away. The distances are so vast that the radio waves or lasers which will carry the signals will take many minutes to cross the void. The delay will vary with distance but for a crew on Mars it will always be over 3 minutes one-way delay and sometimes over 20 minutes.

The delay cannot be reduced – that is set by the laws of physics – but by splitting dialog into different threads, or braids, and presenting them in a novel way we can make it feel to spaceflight crew and mission control that they are communicating normally.

Using the novel structure and rhythm required for effective remote communication in deep space also produces the opportunity for a new way of interacting during team meetings on Earth. Every participant has an exactly equal chance to contribute to the discussion. Lessons learned from developing human deep space communication technology have the potential to redesign workplace practices to be more inclusive for introverts and other groups, delivering better, more effective, meetings, benefitting the whole team and broader organisation.

For more information, please visit braided.space

Why is the FinTech Research & Innovation Roadmap so important?

Article written by Julian Wells, Director at Whitecap Consulting

FinTech Scotland, the cluster management body, recently published its 10 year Research & Innovation Roadmap. Whitecap worked in partnership with the FinTech Scotland team to support the development of this roadmap, and in the first in a series of blogs we discuss the fundamentals behind this important document.

FinTech is driving change in one of the most important parts of our economy. It presents a significant disruptive force in financial services, and will shape the future of the digital economy. It has the potential to radically change the way people and businesses engage with money, and to create a new financial system that is more effective and resilient.

FinTech Scotland’s Research & Innovation Roadmap is a 10 year plan which has been developed as an industry-led and action-focused tool to increase the positive impact of FinTech innovation across Scotland and the UK. It 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.

The roadmap builds on foundations that were 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. It was published on the anniversary of the HM Treasury commissioned Review of Fintech led by Ron Kalifa OBE which set out a number of recommendations, including the opportunity for research and innovation to accelerate the development of cluster excellence.

Why do we need a Research & Innovation Roadmap for FinTech?

The financial services industry contributes £132 billion to the UK economy ”“ almost 7% of total economic output. It is an essential part of the full UK economy that enables prosperous outcomes for businesses and people across the UK. Its significance was highlighted by the Chancellor of the Exchequer in the recent HM Treasury report A new chapter for Financial Services’. Working with others across the economy, his vision is for “an agile and dynamic approach, one which enables those in the financial services industry to evolve and thrive as they embrace the new opportunities of the future.”

Research and innovation play a key role in the vision for the future of financial services in the UK and beyond. However, financial services and FinTech have, compared to other industries, generally not been aligned with the academic research communities. Recent analysis highlighted that research funding into these fields is as low as 3% of total UK funding1 for research and innovation.

In addition, there is a general acknowledgement in financial services, FinTech, and the academic community that current engagement has had a relatively narrow focus. The result is limited exploration of research and innovation, which means an important part of the economy is not fulfilling its full potential.

There is an opportunity to close the gap between the economic productivity of UK financial services and the current scale of UKRI investment in FinTech and financial services R&I. This can be achieved via more strategic and systematic collaboration, which can help develop the necessary FinTech innovation between the range of stakeholders. Importantly, this should be driven by a true desire for effective change, and by an industry-first real-world’ approach to the challenges ahead.

This work also supports the strategic HM Treasury Review of UK Fintech led by Ron Kalifa OBE. It recognises the value of collaboration, and the leadership that is needed to create the right conditions for FinTech to innovate, accelerate and grow.

How will the Roadmap be implemented?

The priority themes form the building blocks of the Roadmap are: Open Finance data, Climate Finance, Payments and transactions, and Financial regulation. In subsequent blogs in this series we will focus on each of these four themes individually.

The roadmap will be led and facilitated by FinTech Scotland. However, wider stakeholder participation is required to implement the R&I actions set out in this Roadmap.

Actions will be progressed through two key types of activity:

Unleashing Innovation: A series of Open Innovation Calls, using technologies and data to develop new and improved financial products and models.

A rollout plan will be developed to implement a programme of innovation calls. This will include developing a sponsorship proposition to maintain the commitment for an industry-led programme.

The initial steps for the Roadmap innovation calls include:

Work with the Smart Data Foundry to start the implementation of the priority innovation calls identified in the Roadmap.
Continue the work with industry stakeholders to refine a series of problem statements for each theme, ensuring industry value in the future solutions.
Market the innovation calls across UK and international FinTech clusters, raising the profile of FinTech innovation in Scotland.

Actionable Research: Research, using technologies and data to create actionable insights that can be applied commercially using FinTech.

FinTech Scotland will engage with academic community in respect of the research topics proposed. FinTech Scotland will also engage with research funding organisations such as UKRI / Innovate UK to ensure this roadmap is fed into future funding calls.

The initial steps for research topic actions include:

Work with university leaders to generate research briefs that directly respond to the actions identified in the roadmap.
Establish relevant steering groups demonstrating collaboration across industry and the research community.
Monitor and review progression (including a KPI scorecard).

Twice a year, the FinTech Scotland Cluster Management Board will measure and review the Roadmap’s progress of the Roadmap. This will be reported publicly to stakeholders in Scotland and the UK.

What will the impact of the Roadmap be?

In this blog we have outlined the requirement and benefits to bringing industry-led approach to research and innovation, but describing the impact the Roadmap can have on the Scottish and UK economy is perhaps the most compelling way to explain why this is such a vital document.

The overarching economic ambition for the Roadmap is to do two things:

Create up to 30,000 extra jobs in Scotland.
Increase economic value (GVA) by more than 330% ”“ from £598 million to more than £2 billion ”“ over ten years.

Taking a broader perspective, the impact of the Roadmap will be:

To tangibly help improve lives for citizens, by tackling inclusion and health- related issues.
To further develop Scotland as part of the UK in being a global engine room’ for FinTech and a desirable location for international FinTech companies.
To drive innovation, supported by a world-leading reputation in regulation and compliance.
To use Scotland’s and the UK’s natural strengths, making them a global enabler of greener’ FinTech.

A blueprint for the future

FinTech Scotland’s Research & Innovation Roadmap outlines actionable research and innovation activities that can help develop economic, environmental, and societal value for Scotland and the UK through FinTech. Successful implementation will require the engagement and co-operation of key stakeholders within the FinTech Scotland cluster, and stakeholders from across the UK and internationally. The Roadmap is the first of its kind in the UK, but the aspiration is that it has created a framework that other countries, regions or indeed FinTech sectors can learn from and adapt.

More information about FinTech Scotland’s Research & Innovation Roadmap can be found here, where the full Roadmap can also be downloaded.

FinTech research and Innovation ”“ the future of finance

This month we published our FinTech Research and Innovation Roadmap. We know more research and innovation in financial services and fintech will set us on a course to shape the future of finance.

It’s been in the works over recent months, and it’s allowed us an opportunity to hear industry, consumer academic, and innovators views on what the future of finance and fintech could be. Leading the way!

It’s a genuine privilege to hear the ambition and determination across the fintech and finance industry for a future that means less friction in financial services, enables more inclusion using technology and data, and drives climate change enabling greener investments.

The tone from all was clear, fintech will drive better financial outcomes for people, businesses, our society, and the environment. The desire for change and energy for innovation and collaboration is truly inspiring.

The report gives us a framework for focused collaboration. It identifies 4 priority themes and outlines the primary actions that will enable us all to learn, advance, and most importantly, build the right collaborations to drive and lead future fintech innovation. It was published during the first anniversary of the Kalifa review of UK Fintech where more R&D was a specific recommendation.

The first of those priority themes in Open Finance Data ”“ already an area of strength in Scotland! FinTech businesses such as DirectID, Visible Capital, Inbest, AirFunders, and One Bank all use Open Finance Data in their businesses. This experience along with the investment in the Global Open Finance Centre of Excellence, now known as the Smart Data Foundry sets us on a course to explore how Open Finance Data can change the way we do finance in the UK and across the world.

Climate Finance is another key priority ”“ a growing area of strength and focus for Scotland. FinTech businesses such as Snugg, Coastr, Pulse, Iceni Earth, Trade in Space, and Space Intelligence are all focused on using data and technology to help people and businesses make the changes needed to achieve change in the interests of the planet. These businesses are enabling a different future. The same can be said for the research community in Scotland with centres such as The Centre for Sustainable Developmentand the Edinburgh Climate Change Institute leading research and providing deeper and focused insights on climate impact. From this place of understanding more will change.

Payments and transactions’, as well as Financial Regulation’ complete the 4 priority themes. Again, both assets for Scotland, where the depth of fintech innovation, skills and expertise stand Scotland’s FinTech Cluster in great stead. More on both these themes in the coming weeks and months.

For now, we’re gearing up for UK FinTech next week. There’s a host of events in plan where we’ll have an opportunity to share the wonderful work happening across FinTech Scotland.

I’m signing off with a note of thanks and a special note of thanks to everyone who contributed to the FinTech Research and Innovation Roadmap.

The Roadmap is a true demonstration of Scotland’s FinTech Cluster at its best. It highlights the breadth of contribution to the cluster that allows us to learn, collaborate and inspire each other for development and growth. It shows how our commitment to action for positive change, and it is ambitious, challenging us to think ten years ahead so we can lead the future of finance.

I’m looking forward to seeing this advance and working with the inspiring leaders, innovators, entrepreneurs, and educators as we build and teach the future!

Thank you

Nicola

Transforming the Everyday Life of People and Business Through Pioneering FinTech Innovation in Banking

Fintech Scotland announces new strategic partnership with NCR Corporation

FinTech Scotland, the cluster management body, has announced a new strategic partnership with NCR Corporation, a leading enterprise technology provider to further advance innovation for financial institutions.

The partnership builds on NCR’s strong innovation track record as a software and services provider with a long-established heritage of applying new technology developed through its Dundee Discovery Centre.

The announcement follows the recent release of FinTech Scotland’s ground-breaking Research and Innovation (R&I) Roadmap which, developed in conjunction with key players in the financial industry, includes a key focus on the future of payments and transactions and financial regulation.

Spanning more than 130 years, NCR has a rich history of delivering innovative solutions for consumers and businesses. With expertise in payments, transactions, digital banking and strategic advisory services, NCR will join FinTech Scotland and its other thirty strategic partners, including fourteen of the largest financial services firms, to drive forward a customer- and digital-led financial innovation transforming how people, communities and businesses engage with money and finance.

FinTech Scotland, the cluster management body for strategic partnerships within the country, will work closely with NCR, a major employer in Dundee, and its 600-strong financial experts in the region to develop innovation opportunities with fintech firms and financial institutions, plus the wider cluster stakeholders such as universities and innovation centres.

Nicola Anderson, Chief Executive, FinTech Scotland, said,

“We are hugely excited to about the strategic partnership with NCR and their dynamics and pioneering approach to developing technology will further accelerate innovation with fintech SMEs and large financial firms in the cluster. Our industry-driven, action-orientated R&I Roadmap will provide the ideal framework to advance new financial services innovations with NCR and we look forward to the collaboration with the NCR team in Dundee as well as the USA and across the globe”.

Colin Payne, corporate vice president, NCR Professional Services said

“In my experience the value of regional fintech powerhouses is undeniable, bringing raw talent and passion into the space and guiding the development of next-generation financial businesses. In Scotland, this is particularly true given the rich engineering heritage, innovative mindset and history of outstanding customer-focused financial services ”“ this unique combination brings us a new generation of powerful fintechs. We are delighted to partner with Fintech Scotland to support the scaling of these amazing new solutions.“

Rise, created by Barclays, launches new Insights report, ”˜Making data count with AI’

Rise Insights report lead, Grace Batchelor, Rise London FinTech Platform Manager shares highlights on one focus area in the report ”“ ethics in AI.

The latest edition of the Rise Insights report, Making data count with AI’, surveys the data revolution that’s taking place, the role of AI and the opportunities it presents to financial services, including fintechs. In this article, we summarise the drivers of the revolution, and focus on the practicalities of what might sound like a theoretical subject ”“ ethics in AI.

As Ben George, Distinguished Engineer for Data in Barclays Chief Technology Office writes in the report’s foreword:

“Raw data is rocket fuel, highly powerful but also highly dangerous.”

For individuals, the loss of direct control can be alarming when every click or swipe sees their personal data scattered into a huge number of anonymous corporate data silos around the globe. They must rely on trust alone ”“ trust in those corporations to store, process and share the data properly ”“ when they have only a tenuous relationship with the companies.

Could there be a more transparent protocol of data sharing? At Rise, created by Barclays, we like to think so. Imagine people being able to choose their own data policies from an app, setting time limits on data availability and even fixing a price to sell their data. Several things will bring about this data revolution:

A combination of technologies, including AI, that underpin the data-sharing vision on a global scale
Savvy fintechs with innovative solutions in the data space
Large financial services and technology organisations committed to the new vision
Modern regulation designed for this new world

Importantly, all parties will also need an appreciation of the importance of ethics in AI, and they’ll need to actively adopt it. Read more about these subjects in the report.

Do no harm: The role of ethics

From customers’ perspective, trust will remain critical. But how do companies do the right thing’ with data to establish trust (and adhere to regulations)? It’s a question that’s in sharp focus given the commercialisation potential of data and new AI technologies.

Katryna Dow is Founder and CEO of Meeco, and contributes an article to the report with practical advice on getting started in the data revolution. She’s confident that “a more citizen-centric approach based on a more equitable and ethical considerations to data is entirely possible given today’s technology.”

In a Q&A section of the report on the ethics of AI, David Bholat, Barclays UK Chief Data Scientist, tells me why we should be rational about AI: “Cancer diagnosis is a high-stakes situation. Although less critical, credit allocation can be scary too. It’s understandable that these make us fear taking the wrong decision. But I think we should distinguish between the scariness intrinsic to those situations, and the application of AI in them. Credit decisions and cancer diagnoses need to be made. We should be pragmatic, and use the best tools at our disposal to make them.” When several studies show that computer vision techniques outperform clinical experts in tumour detection and machine learning can outperform simpler statistical models in underwriting, an objective approach to AI is a sound starting point.

Also in the report, Michael Payne, Barclays UK Data & Analytics MD, shares the five tenets that banks will be held to:

Transparency: A willingness to explain clearly what they’re doing with their customers’ data
Control: Giving customers clear rights and easy ways to govern how their data is used
Beneficiaries: Line of sight on who is benefiting from data usage and what consumers get from this
Accountability: Checks are in place to ensure AI systems are performing reliably and safely
C-level focus: Fostering company board discussions on ethics, especially around edge use cases

The Q&A section also covers other ethical topics including some important aspects of data cleansing, how a type of deep learning, Generative Adversarial Networks, can alleviate privacy concerns and why AI and data commercialisation is shaping new data products and services.

Fintechs featured in the report

In realising new commercial opportunities, banks and other financial services institutions can follow the lead of agile and innovative fintechs and smaller tech ventures. The report includes contributions from the following:

AlphaStream: End-to-end hyper-personalised user experiences for financial services
EntropikTech: The world’s leading Emotion AI platform that reads human emotions and helps brands redefine their offerings and experiences
Flybits: Empowering banks to engage an audience of one, at scale
GV (formerly Google Ventures): Backing founders who transform industries and create new ones
Maven Securities: Building new trading technology to ensure fast, efficient and transparent market access
Harbr: Delivering refined customer experiences, high-value products and new revenue streams
HolisticAI: Software solutions for AI risk management and auditing
Illuminate Financial: A thesis-driven venture capital firm dedicated to enterprise fintech and B2B software companies
Level E Research: Edinburgh-based startup creating autonomous machine learning investment solutions scaled for the platform economy
Meeco: The infrastructure for trusted personal data ecosystems
PolyAI: Building enterprise voice assistants that carry on natural conversations with customers to solve their problems
ProGrad: Credit risk assessment platform connecting financial institutions with third-level students
Quantexa: Creating a new generation of decision intelligence built on context
vPhrase: Lets enterprises create highly personalized language-based reports at scale, at machine speed

Get involved

We’re all central to the debate on how individuals harness the value of their own data.

“Think about ethics now and AI can empower rather than oppress us.[1]” ”“ Sir Nigel Shadbolt, Principal of Jesus College, Oxford and Professor of Computing Science, Department of Computer Science

Download the Rise Insights report to learn more about how AI adds value to data
Register for an Ethics in AI event that Rise is running in conjunction with our colleagues at Barclays Eagle Labs
Contact the Rise team in London or New York to meet any of the companies featured in the report or in the Rise ecosystem of over 100 FinTech startups

[1] University of Oxford

Existing insurers and disruptors are utilizing Artificial Intelligence to create new business models

We can see that Artificial Intelligence (AI) is transforming many parts of our lives, but do we know where this journey is taking us? Insurers need some certainty on what their future will looks like. Some new insurers are trying new business models enthusiastically and then changing direction sharply, like a speedboat swerving to avoid a collision. The larger insurers, however, are like large cruise ships; they need to be able to see far ahead before they plot their course, and they don’t want to keep changing direction.

This research tried to identify the viable AI driven business models to help give some clarity. Some traditional insurers are just trying to be more effective with AI, while others reinvent themselves to fully utilize the new capabilities available. Tech-savvy companies from outside the sector like Tesla, are entering and disrupting it. Would these diverging paths continue, or would they converge in the future towards one, ideal, business model? This research focused on one example of a traditional insurer and one new tech-savvy disruptor and evaluated whether their models are converging.

AI is changing the insurance value chain, as illustrated in figure 1. Most new insurers, like Tesla, offer fully automated simple services. The traditional insurers offer some of their simpler services in this way. The more complex services are supported with AI, but a human makes the final decision. An example of this are audits for fraud, where the AI identifies unusual patters and cases for an expert to evaluate.

There are signs of convergence between the models of traditional and new insurers. First, there is convergence in technologies, such as the use of chatbots utilizing AI. Second, there is a convergence in processes, for example, the interaction with the consumer. Third, there is convergence in the strategy on costs and pricing.

However, there are two areas where there seems to be a limit on convergence, which seems to suggest the business models of the incumbent and the disruptor will remain distinct. These are: (1) evaluating risk and (2) the cost of attracting the user and profitability.

Despite some convergence, certain differences are likely to remain even after this transitionary period. This is because the two models have distinct competitive advantages. Traditional insurers no longer monopolize the capability of providing insurance, but they still have the existing user base and utilize it to evaluate risk. Technology-savvy companies that now offer insurance, have their own forms of engagement with their consumers, use different methods to evaluate risk due to their access to real time data, and do not prioritize generating revenue but instead utilize insurance to increase their user base, overcome barriers, and reduce the overall cost of their products and services.

Therefore, when insurers are thinking about how to utilize AI and plot their course through the turbulent, unpredictable times ahead, they should stay true to what they are. This is their comparative advantage.

Dr Alex Zarifis is a lecturer at the University of Nicosia in Cyprus.

This article is adapted from his paper, “Evaluating the New AI and Data Driven Insurance Business Models for Incumbents and Disruptors: Is there Convergence?” available from https://doi.org/10.52825/bis.v1i.58.

The future of automation for UK asset managers

The last 18 months have been amongst the most disruptive that the financial services industry has ever experienced, forcing many sectors to reconsider business models.

Asset managers in particular have undergone a substantial transition as video conferencing has replaced client-facing interactions. To better understand how these firms have responded to market disruption, we surveyed 100 Heads of Operations across UK asset management firms to learn about their operational challenges, automation objectives and plans for regulatory compliance in 2022.

From this study, three lessons stood out for their relevance to the wider fintech industry:

1. Operational challenges and tech improvements are company-specific

We asked asset managers what does and doesn’t present a challenge to their daily operational processes.

While the availability of automated systems and adequately skilled staff were highlighted by two-thirds of respondents as the most significant challenge, firms also pointed to many others including the functionality of manual resources, process complexity and a changing regulatory burden.

Although nearly 8 in 10 acknowledge that the capabilities of current systems are hindering operational growth, firms have identified a range of priorities to improve these systems from seamless data flow, AI-assisted dashboards and dynamic data management through to enhanced risk management and talent acquisition.

The variety of responses tells us that no two firms face the same operational challenges and, consequently, that technology infrastructure improvements for 2022 will be equally varied in their application to the asset management industry.

2. Manual reconciliations continue to challenge asset managers

Reconciliation is an essential process for keeping accounts and financial records accurate. In recent years, more firms have been automating reconciliation procedures to eliminate risk of error and improve accuracy.

Despite this, our survey reveals that:

60% of asset managers worry that manual reconciliations are the greatest risk to their organisation
75% say that the number and volume of manual processes is an immediate operational challenge
Only 7% say that manual processes present no challenge to their firm

Data preparation was also highlighted amongst the most time-consuming tasks for businesses, which further highlights how the complexity of data management continues to grow year on year. This is consistent with our work across other sectors, where we find that manual processing is really the core issue underlying poor reconciliation disciplines.

With half of UK asset management firms allocating budgets between £0.5 and £10m to address manual inefficiencies, we can expect automation to become more deeply embedded in the industry throughout this year.

3. Regulation is accelerating the trend towards automation

Although manual processing has been steadily declining for years in favour of automation, our findings show that a growing regulatory burden is definitely a factor in this transition.

Just 2% of asset management firms in the UK have no plans to invest in automation to achieve regulatory compliance. For the majority that did, top focus areas include operational resilience, prudential regulation, MiFID II and CASS. A further 7 in 10 felt that automation will be instrumental in achieving compliance with the IFPR regulation, which came into effect on 1^st Jan 2022.

These findings tell us that UK firms are actively pursuing automation as a convenient and cost-effective way to fortify against regulatory breaches. Nevertheless, with 42% still pointing to new or changing requirements as the biggest threat to their company, such solutions need to be flexible as requirements continue to grow in scope and complexity.

What does this mean for software providers?

The results of our survey clearly demonstrate that automation in finance will become ubiquitous in the medium to long-term. However, the variety of responses and priorities outlined also shows that firms do not want an off-the-shelf solution; instead, they want a reconciliation platform which:

Is configurable to specific operational needs
Eliminates manual intervention through end-to-end automation
Is purpose-built around specific regulatory requirements
Is flexible to accommodate for multiple iterations of regulations

Of course, these are welcome findings at AutoRek, where we have spent over two decades working with financial firms to build bespoke solutions for unique reconciliation, operational and regulatory requirements.

In the short-term, it is clear that asset managers recognise how automated reconciliation disciplines do and will continue to form the cornerstone of an effective business model in today’s post-pandemic environment. It will be interesting to see how this plays out across the wider financial industry over the next 12 months.