Blockchain’s potential in securing the UK fintech ecosystem
Today we’re looking at a dissertation by Gerald Lee, a student at the University of West England, which presents a compelling examination of blockchain technology’s transformative potential in securing the United Kingdom’s fintech ecosystem.
As the industry confronts a surge in cybersecurity threats, the research timely explores how blockchain can not only mitigate these risks but also fortify trust amongst consumers and stakeholders.
The dissertation adopts a robust mixed-methods framework, combining quantitative surveys of fintech firms across the UK with qualitative insights from industry experts, and illustrative case studies of entities pioneering blockchain integration. This triangulated approach provides a multifaceted view of the blockchain’s impact, capturing its empirical benefits and the practical challenges in adoption.
Key findings reveal that blockchain’s decentralised and immutable ledger could revolutionise cybersecurity measures within fintech, offering resilience against data breaches and fraud. Nevertheless, this research doesn’t shy away from the intricate barriers to blockchain’s widespread adoption, including regulatory uncertainties, integration complexities, and the delicate balance of transparency versus privacy concerns.
With a strategic blend of theory and empirical investigation, the dissertation underscores the urgent need for a coherent strategy among fintech firms, policymakers, and technology developers. The conclusion offers actionable recommendations, positioning strategic blockchain adoption as a cornerstone for a more secure and trustworthy UK fintech landscape.
This research stands as a significant contribution to both academic discourse and industry practice, highlighting the nuanced dynamics between emerging technologies and cybersecurity imperatives in the digital finance realm. Its implications extend beyond the UK, serving as a blueprint for global fintech markets aiming to leverage blockchain as a bulwark against the evolving cyber threatscape.
You can read the full dissertation here.
Photo by Leeloo Thefirst: https://www.pexels.com/photo/smartphone-pen-calendar-and-eyeglasses-on-flat-surface-7887800/
How to manage retirement during a cost of living crisis
Confused about your pension? You are not the only one. “People have an average 11 small pots, they don’t really know what that means for them in terms of what their retirement income is likely to be,” explained Laura Trott, UK’s Minister for Pensions at a recent evidence hearing by the Work and Pensions Committee examining DWP’s plans to introduce Pensions Dashboards.
And it’s not only UK citizens who don’t know what their retirement income is likely to be. The DWP admitted in the same evidence session that there have been underpayments to the tune of £1bn in state pension payouts due to missing information from people’s national insurance records.
Meanwhile, the cost of living in the UK is rising. The latest inflation figures show prices have gone up by 7.9% in June, with food prices increasing by 17.4%, resulting in 57% of households reporting to have struggled to pay for essentials. This state of affairs has dramatically diminished the capability of people to save for their retirement.
During these worrying times of rising prices, people have much more of a need to know what they are likely to have in retirement. Yet at the moment it’s very difficult to determine what that will look like. This is particularly relevant for younger generations. How millennials go about saving for a pension has radically changed from when their grandparents dealt with retirement. There is a concern that Generation Y (millennials) is not informed enough about saving for a pension, especially considering it is likely they will on average hold more than ten jobs before they retire.
A different pension approach is needed.
Introducing the (delayed) Pensions Dashboard
The UK Government is focused on the financial wellbeing of people by equipping them to be more financially informed and make the most of their money and pensions. This is why the UK Government has initiated the implementation of the Pensions Dashboard, enabling individuals to find and view their pensions all in one place, bringing more awareness to how much they will need to save in the long term for retirement.
Although the DWP recognises the importance of the Pensions Dashboard, it nevertheless announced a delay to implementation:
“The pensions dashboard will play a really important role in bringing that all together and also allowing people to see this alongside their state pension to get a full picture of what it’s going to look like for their retirement,” said pensions minister Laura Trott. “[Yet] it was the issue that we had around the connection process, which was needing more work in terms of the industry and there was insufficient testing in terms of the actual architecture itself. We needed more time to ensure that it was robust.”
The DWP is hoping to have the portal up and running “very soon” and the government body will start the process of writing later this year. This timing, however, has not come soon enough for Jonathan Hawkins, Principal Consultant and Pensions Expert at Bravura. Bravura has been collaborating closely with the Pension Dashboards Programme (PDP), regulators and its industry partners to make sure dashboards are delivered successfully for the good of the industry.
Bravura recently completed a collaboration with MoneyHub at this year’s PASA Annual Conference, at which a fully operational front- and back-end pensions dashboard was showcased for the very first time, demonstrating the tech works. Nonetheless, the pension solution provider is waiting for final guidance from the PDP to continue onboarding clients and build on the work the sizable amount of work the industry has already delivered.
“We are concerned that any further delays in connecting to the CDA will likely eat into the time pensions providers and schemes have to deliver, so it is important the programme comes back online sooner rather than later,” explained Hawkins. “Although June’s announcement played a useful role in tidying up the regulations and legislation around the PDP, we are roughly four months on from the programme reset and we’re still waiting on key guidance on connections and staging deadlines.
“When the guidance is received (which we hope to be over the next few months) there is, of course, a worry that guidance differs in gravity from legislation. It will ultimately be up to the industry to lead by example and to the regulators to ensure appropriate measures are in place to meet the updated timelines.”
In the meantime prices are likely to continue to rise, which puts people more at risk of not putting enough aside for retirement. The Pensions Dashboard is expected to help many, especially the younger generation, in planning for their retirement income in the future. Once it’s ready.
Photo by Breakingpic: https://www.pexels.com/photo/gold-colored-coins-near-calculator-3305/
“The Future is Unwritten”: Stephen Ingledew OBE on the Promise of FinTech
Stephen Ingledew OBE, Chair of FinTech Scotland, likens fintech to the new punk rock scene of the 1970s. “What punk rock did was allow anyone who wanted to form a band, play an instrument, and just get up there and be part of it. It allowed more women, for example, into music than any other genre,” he explained. “Fintech is similarly challenging the traditional ways in which innovation is done.”
We took the opportunity to interview Stephen Ingledew on the occasion of him being awarded an OBE for services to the UK fintech sector and asked him the following questions:
Congratulations on your OBE! Can you briefly describe your FinTech journey and the innovations that led to this recognition?
I suppose innovation has been in my blood for just under 40 years. I decided to come into the financial world to change it for the better because, for me, innovation is a means to improve the state of affairs for people, including financial wellness. From 2018, I was asked to set up and lead Fintech Scotland as a new organisation. This allowed me to use my experience of working in big companies, like Barclays, as well as small, innovative financial companies, and bring all these experts together to develop a cluster focused on genuine innovation using new technologies – which is precisely what Fintech is. And while fintech itself is not new, what has changed in the last 10 years or so is, firstly, an acceleration of the type of technology that can be applied, and secondly, the mindset of focusing on technology as a way of bringing about better outcomes for individuals, businesses and communities.
What makes fintech in Scotland stand out?
At FinTech Scotland, we are focused on the actual impact of the outcomes of innovation on consumers, whether that’s around issues like financial inclusion, financial crime or operational improvements for large financial firms. The FinTech Scotland cluster is about bringing people together who would not naturally do so, to drive better outcomes. Diversity is the key ingredient here. Scotland, albeit small, has a heritage of innovation, and brings together major players, bigger and smaller enterprises, and great universities. What’s crucial to our success is, rather than a narrow focus on Scotland, we see ourselves as part of the broader UK ecosystem. I happen to be one of the founders of the UK FinTech national network and believe strongly, therefore, in the value of working in collaboration with our other regional fintech groups, rather than in competition.
What emerging trends and technologies do you think will have the most significant impact on the financial sector, both in Scotland and beyond?
What’s most exciting is the way that the cluster approach allows us to cut through the financial world into horizontal sectors of other parts of the economy. So, for example, fintech can work with SpaceTech, HealthTech and ClimateTech. I have a little saying, that fintech is far too important to leave up to the financial services industry on its own. After 40 years in the industry, I can say that we’ve not always got things right. To improve on this we need more diverse minds around the table, for instance, consumer groups impacted by the innovation. We need to listen to the users themselves, not those who think they know what’s best.
Winning an OBE is a significant achievement. How do you plan to leverage this recognition to inspire and contribute to the fintech community in Scotland?
Hopefully it will encourage more people who wouldn’t normally have thought of fintech to actually reach out and get involved. Of course, I’m very humbled by the recognition, but it wouldn’t have happened if it wasn’t for the enablement of the three Teams’: the wonderful team at FinTech Scotland; the Scottish fintech cluster team (comprised of entrepreneurs, established industry players, academics, economic agencies like Scottish Enterprise, and investor and consumer groups); and the UK team including industry, regional fintech associations, Innovate UK, the FCA, the Centre for Finance Innovation and Technology (CFIT) and Innovate Finance amongst others. This is a great example of the whole being greater than the parts. By joining up with the UK as a whole we can recognise bigger ambitions and achieve more success for the Scottish cluster as a whole.
Can you share a memorable success story or milestone in your fintech career that you’re proud of and exemplifies your contributions to fintech?
FinTech Scotland winning the silver cluster excellent accreditation from the European Secretariat for Cluster Accreditation was an important recognition that we’re on the right track to what we are trying to achieve. Alongside that, we’re hosting the third annual UK FinTech Symposium this November, which engages the whole of the UK ecosystem, including UK government ministers, the FCA, the City of London, as well as all of the regional fintech groups, to share examples of best practice and how to build on that as a family
Personally, my motivation has come from meeting so many brilliant entrepreneurs who are inspired about improving some aspects of the financial world, whether that’s in terms of how people manage their money, through to payments mechanisms or handling new regulations. With the right mindset and the right technology, I believe things can be made better.
Joe Strummer, lead singer of the Clash, once said, “The future is unwritten”, because it is up to each one of us to break out and write our own future. Ultimately, there will always be room for improvement and, therefore, always room for innovation – and that will always be fintech, even if it is called punk rock.
Scotland FinTech Festival Wrap-Up: Unlocking answers through comprehensive understanding
Following the conclusion of this year’s successful Scotland Fintech Festival, we spoke to Nicola Anderson, CEO of FinTech Scotland, to find out what her key takeaways of the festival were, and how she sees it demonstrating the importance of the FinTech Research and Innovation Roadmap’ in guiding the industry’s priorities.
Nicola Anderson, CEO of FinTech Scotland, is of the firm view that fintech is supremely poised to solve some of the most pressing challenges we have in society today, from driving change on the climate agenda, to embracing the opportunity that fintech can provide for women and financial inclusion in general. “The breadth and quality of contributions across the full range of festival events has been amazing,” Anderson comments. “The purpose of the Scotland Fintech Festival has always been about definitively showing the vibrancy, connection, collaboration, and the inclusion that we see fintech presenting as an opportunity for the economy in Scotland and across the UK – and I think the festival has demonstrated that.”
Anderson is encouraged that the festival has promoted the interests of fintechs based in Scotland by helping reignite relationships and networks, allowing participants to hear different perspectives and views. “If you look at some of the speakers and across the events, they are from both UK-wide and global institutions. This shows how connected the Scottish fintech cluster continues to be across the world, and how interested people are in coming to hear what we have to say,” she points out. The festival aims to shine a light on fintech innovation and the opportunity that fintech presents for Scotland’s economy. This sentiment was further strengthened by the launch of a new £150 million Investment Fund for Scotland by the British Business Bank to help unlock additional funding to help smaller businesses to prosper and thrive.
“We’ve experienced purposeful action plans coming from the meetings and discussions across the Fintech Festival,” says Anderson. She provides a couple of examples, including the Scottish government’s drive behind an action plan that will enable fintech for exports. In addition, the focus of discussions on the impact of data and AI on the future of finance and climate. This demonstrates that the FinTech Research and Innovation Roadmap’ is the right vehicle to advance innovation in the financial services sector. It calls on the importance of data, AI and technologies to drive change and innovation.
Anderson also feels that the UK is starting to realise the benefits from some of the recommendations outlined in the Kalifa Review. This is shown through the relationships FinTech Scotland has created with the Centre for Finance, Innovation and Technology (CFIT) around work on finance data, as well as the team behind the UK FinTech Growth Fund involved and participating at the Festival showcasing investment opportunities. “It emphasises how important it is to connect the regions as per the Kalifa Review,” she notes.
What should the Scottish FinTech sector focus on next? “We have an opportunity to drive growth by focusing on those fintechs that are starting to scale,” she underlines. “We also need to focus on continuing to build relationships across the financial services ecosystem and cluster towards an inclusive environment that allows participation and collaboration between big and small entities, as well as connecting internal experts and inviting international perspectives to help us develop and grow.” In fact, there was great international representation across the festival involving delegations from China, as well as sessions focusing on the markets in the US.
“This year’s festival was a great success, and it underlines why I continue to be inspired to work at FinTech Scotland,” she concluded. “It’s about business growth, problem solving, collaboration, and innovation with purposeful intent. And most importantly, it’s about driving responsible change and outcomes that will serve society, and the future economy.”
Navigating the Future: The UK’s Competitive Edge in Fintech Regulation and Innovation
“The UK has a strong competitive advantage in areas like cybersecurity, privacy and, increasingly, artificial intelligence. A lot of work, however, remains to be done. This is not an automatic process by any means,” outlines Dr Devraj Basu, Senior Lecturer in Finance in the Accounting and Finance department at the Strathclyde Business School. Basu helped set up the RegTech Forum which brings together industry, academia and government to help understand the fast moving RegTech landscape and how Scotland and the UK can position themselves to become leading global players.
“While the UK has well established strengths, it needs to pull together all these very different areas by creating an ecosystem solution,” he continues. Basu feels that if the UK provides a proper regulatory framework in the context of technology it will provide a greater impetus in unlocking innovation. A stable regulatory framework is also needed to adapt to technological change to ensure it’s fit for consumers – AI being a prime example. But the UK needs to simultaneously join up with international best practice as well. “These elements require a deep understanding of all the issues, as well as an aspect of agility to bring together all the different stakeholders,” he says.
Regarding the appetite of UK regulators towards the development of overarching digital public infrastructures (such as the so-called India Stack’ built on Aadhaar, India’s digital ID system), Basu believes that the UK can learn from establishing digital identities, preferably through the creation of an overarching framework for privacy regulations. However, the parallels stop there. This is because the UK would, unlike India, have to tackle its legacy technology issues. Further, the UK’s Financial Conduct Authority (FCA) can only play a limited role in transforming legacy infrastructure because rather than dishing out prescriptive directions to industry, the FCA is a principles-based regulator which can only outline overarching maxims.
In terms of innovating financial regulation itself, Basu feels that the UK has done the right thing by introducing regulatory sandboxes. Moreover, he feels strongly that the FCA should start looking at the costs that regulations impose on businesses and how they can be minimised. This could be achieved by implementing a by design’ philosophy by providing either high-level roadmaps that minimise cost or interactive processes that lead to better regulation. “One way of being innovative is if the regulator could convince organisations that the adoption of new regulations would actually improve products or sales. One thing that’s come out of our RegTech Forum is this notion of the by design’ philosophy, which takes a proactive view on regulation, which in turn encourages innovation,” Basu explains. “Ideally a regulator should be a body that guides businesses through a process and helps them get better.”
A £250 Billion Opportunity: How fintechs can lead the charge in greening UK homes for Net Zero
One of the newer startups of the Scottish fintech ecosystem, Snugg, is dedicated to making energy efficient homes simple and affordable for everyone. Co-founder Robin Peters spoke to us about his concept of climate finance and challenges, as well as his recommendations for fintech companies entering the space.
In the UK, homes make up a fifth of total carbon emissions, and it is estimated £250 billion pounds of investment is needed to make homes energy efficient if we’re to hit our net zero objective by 2045. To get there, the private sector will have to play a significant role in support of that. While investment in large infrastructure projects, such as wind farms, are supported by quite mature financial vehicles, there has been very little progress in innovative finance solutions for homeowners.
“One of the key challenges is that investment related to decarbonising homes is generally quite expensive and intrusive. And frankly, the investment case often isn’t very attractive to people,” points out Peters. “So it’s quite a difficult nut to crack, but also extremely important.”
Climate finance plays an important role in tackling this challenge because it brings together different elements of the private sector to underpin finance initiatives to help the world achieve its net zero ambition. The goal is to not only direct investment into getting projects off the ground, but it’s also about helping financial services customers to invest in climate-positive activities.
Yet there are a number of barriers that need to be overcome, including the need for more consistent government policy around green incentives, and the fact that general consumers have got to want this more. Further, there needs to be more integration across the supply chain. “People need things to be made simple for better take-up of the pro-climate incentives that are on offer,” explained Peters. “There should be a deeper alignment amongst the different providers across the supply chain, for example, between a trusted installer, the financial provider, manufacturers and the government.”
The financial sector now also has an opportunity to pave the way more seamlessly. Firstly, they can put all their data to more intelligent use by targeting personalised initiatives and engaging with customers in a more meaningful way. Secondly, there is scope for innovation in green financial products, such as pay-as-you-go (where people can repay loans based on savings they have achieved from making their homes more energy efficient) or property-linked finance (where a loan is linked to a house rather than a person). Peters notes a slight degree of reluctance in the financial sector at present, yet he is optimistic that in the future there will be better auditing of banks to assess whether financial products are truly delivering.
His top three recommendations to Scotland’s fintechs wanting to incorporate climate concerns into offering?:
- Focus on the data: There’s a lot of data out there that can be improved and interrogated for better insights
- See the opportunity: A perception shift is needed to see that this is an opportunity for real innovation. There’s a huge investment opportunity for financial services, yet patience is needed as banks can be particularly slow in adopting truly new innovations
- Collaborate: It’s an incredibly dynamic market which literally needs to grow by a factor of ten in the next 4-5 years. There’s also an enormous amount of innovation, and sharing different ideas with emerging players and other participants will help come up with the best solutions for the market.
Defining Climate Finance
Kirsteen Harrison, the Environment & Sustainability Advisor at the digital-assets platform, Zumo, is a stubborn optimist with a fierce conviction that businesses should be a force for good. As such, she works with leaders to facilitate the mindset shift required for businesses to thrive in a net zero future.
She notes that the term climate finance’ is a multifaceted concept, which in her view, may be used as an all-encompassing term and often gets confused with green or sustainable finance. “Climate finance has been specifically defined by the United Nations Framework Convention on Climate Change (UNFCCC) as finance for climate mitigation, adaptation or resilience,” Harrison explains. “To me it also includes generally enabling and delivering flows of climate finance to the parts of the world where it’s needed most.”
To support the flow of climate finance, financial institutions are having to establish transition plans that show not only how they will meet their own net zero targets, but to ensure financial flows actually shift towards supporting decarbonisation. This requirement has not quite yet filtered down to most fintechs. Harrison cautions that the requirement for fintechs to consider the financed emissions they are facilitating will arrive sooner than they think, and that the pace towards transition will move extremely quickly and not in a linear fashion. “I think as businesses, we tend to look at past events and timelines as a way to predict what might happen in the future. And with climate change we cannot do that, that is actually quite a dangerous thing to do,” cautions Harrison. “In terms of evolution, I think it is going to be much faster than we are used to seeing. Not only is that needed, it’s to be encouraged.”
Harrison also believes that improvements to ESG investing need to be made. She acknowledges that while this is a fast-evolving landscape and there is rightly a fear of greenwashing, there is nevertheless a much higher burden put on ESG investing. “ESG investments rightly need to prove that they meet certain criteria through data, whereas non-ESG investment does not.”
She has confidence, however, that blockchain technology will be a true enabler for delivering climate finance. Because blockchain provides an immutable ledger, it can ensure that finance is delivered to the points it actually needs to be delivered to, which is especially important for jurisdictions lacking in good governance structures. Blockchain can also play an important role in supporting the role of quality carbon credits and renewable energy certificates (RECs) by avoiding legacy issues such as double counting.
Harrison has three main pieces of advice for fintechs wanting to incorporate climate finance into their offerings:
- Do it authentically: Rather than simply launching a green product, sustainability principles need to be embedded in your business alongside credible net zero commitments.
- Stay two steps ahead: Because we’re working within such a rapidly changing landscape, planning needs to determine what might be needed in three, five or seven years’ time, or risk quickly becoming out of date.
- Be mindful of financed emissions: A big part of the carbon footprint of the financial industry is financed emissions’, which are the greenhouse gas emissions linked to investment and lending activities. Fintechs need to very carefully consider how their work might be impacting financed emissions, and, if necessary, pivot and support climate-friendly choices and investments instead.
Awareness is key. Ultimately, fintechs need to take responsibility for the impact that investment decisions can have on harming the environment, as well as the impact that they as technology providers might have on affecting the system as a whole for the greater good. In doing so, they will attract and retain new talent, increase trust in their brand and prepare themselves for the fast-evolving sustainability disclosures landscape.
Why UK fintechs should consider expanding into Latin America
For many UK companies Latin America is most likely not the first port of call for international expansion. Yet this booming sector has shaken up local markets and boosted competition and inclusion.[1] Whilst many FinTechs in Europe and North America have focused on decentralising protocols and Web 3. FinTechs in Latin America (LATAM) have focused on three basic areas: digital payments, fintech as a service such as broadening banking options for the unbanked and access to credit.[2] Furthermore, the GSMA asserts that in 2023 80% of people in LATAM have a smartphone with 65% having access to mobile internet[3] and The World Bank data states that 68% of the population in Latin America and The Caribbean (442 million) is between 15-64 years old, growing from 62% in 2000.[4] This significant and young segment of the population can be characterised as having an openness to changing tech and with a proficiency for using apps. Together these factors make the principal markets of Brazil, Mexico, Colombia, Argentina and Chile ripe for Scottish FinTech development and growth.
At the Department for Business and Trade (DBT), complementing the work of Scottish Development International (SDI), we are keen to highlight to FinTech Scotland members the landscape and possibilities in three markets: Brazil, Mexico and Argentina.
Brazil
In Brazil, the Fintech industry experienced rapid growth in recent years, driven by a large unbanked population, a complex traditional banking system and a strong entrepreneurial spirit. Payment solutions played a significant role in the early stages of the Brazilian FinTech landscape. Companies like PagSeguro offered digital payment alternatives, enabling small business and individuals to accept payments efficiently. Brazilian FinTechs expended their offerings to include digital banking, lending platforms and investment solutions. Nubank, one of Brazil’s most successful FinTechs revolutionised the banking industry with its mobile-centric approach and user-friendly experience. The company is now the fourth largest bank in Brazil with 85million customers.[5]
The Brazilian government has taken steps to foster FinTech growth. Initiatives like PIX, an instant payment system, has created a more favourable environment for FinTech innovation and competition. The Central Bank of Brazil has also introduced regulations to facilitate FinTech operations while maintaining consumer protection and financial stability.
Open Banking/Finance in Brazil:
The successful adoption of Open Banking in UK led to other jurisdictions around the world to examine its potential and possibilities for localisation. In Brazil, the Central Bank opened a public consultation in 2019 to hear proposals from associations, financial institutions and other entities on the regulation of Brazilian Open Banking. After receiving more than 500 suggestions, in 2020, the Central Bank published Joint Resolution No. 1. In 2021, the implementation of Open Banking in Brazil, now called Open Finance for its broader approach, began in four phases. They are:
- Phase 1: sharing public data from participating institutions;
- Phase 2: sharing of information by customers, such as transactional and registration data;
- Phase 3: sharing services, such as offering credit and initiating payments;
- Phase 4: sharing other data, such as insurance, pensions, and investments.
Currently, there are already possibilities to initiate payments through PIX, since Phase 3 started in October 2021. The challenge for 2023 is Phase 4. Specialists expect that Brazil can overtake the UK in its implementation, as the largest Latin American country it has a much bigger scope for data than the British counterpart. The approach of Open Finance, instead of the original Open Banking that started in the UK, brings more possibilities such as credit card data and other services that can place Brazil as a world leader for this technology.
Brazil’s political and regulatory context:
Since starting his presidency in January 2023; Lula has made climate a major focus and understands that serious action on climate can increase Brazil’s influence on the world stage and bring international investment. This is well aligned with some of the UK’s regulators priorities, such as the LSEG initiative to fund innovative projects related to carbon, and the FCA starting a sandbox related to Green Finance. It is also worth mentioning that FCA is yet to decide about carbon assets, but the Brazilian FCA equivalent (CVM- Comissão de Valores MobilÃarios) has already regulated for the trade of carbon tokens when used in a security market. Altogether, this makes Brazil a sophisticated and receptive market for Scottish FinTechs.
Mexico
The second largest country in LATAM with one of the world’s largest populations and a high urban density. According to the IDB[6], 21% of LATAM FinTechs are based in Mexico, and unlike Brazil where most FinTechs are concentrated in São Paulo, Mexico has the benefit of three main tech hubs- Mexico City; Guadalajara and Monterrey. These hubs offer a closer proximity to the North American market, as well as a base for a huge domestic market, a talented, well educated, young (and often cheaper) workforce than its northern neighbour or other LATAM countries. The same IDB report counts 27 digital banks in Mexico, demonstrating appetite for FinTechs- primarily with a consumer audience (often with payment or remittances requirements). Furthermore, Mexico is one of the largest LATAM markets of under and unbanked populations such as women or those in rural areas. Initiatives like Jefa: a Mexican start-up aiming to empower women by creating banking solutions for women by women have great potential. If Scottish companies can contribute to closing these financial gaps they stand an advantage within the regulatory environment as well as competitively.
Mexican FinTech Law and a Sandbox Model
Back in 2018, the Mexican Congress was one of the first LATAM countries to enact legislation to regulate FinTechs (Ley para Regular las Instituciones de TecnologÃa Financiera). This law is known informally as the “Fintech Law”. To summarise, the Fintech Law regulates: crowdfunding; e-wallets; cryptocurrencies; Open Banking. However, five years in tech terms is an age and the Law requires some updates. In particular, regulations regarding cybersecurity and Open Banking are expected to be published in the mid-term. Interestingly, the current legislation allows for a regulatory sandbox.
Chambers and Partners in their online guide deftly describes the sandbox model as,
“The Fintech Law provides for an authorisation process under a “sandbox model” for companies seeking to engage in new and innovative technological activities or otherwise rendering services that differ from the ones that are already regulated. In particular, the Fintech Law defines an “innovative model” as a model which uses tools or technological means to provide financial services and which has different modalities to those of others in the existing market. In this context, companies ”“ or other financial or regulated entities ”“ may request temporary authorisation to carry out, through an innovative model, an activity otherwise requiring fully fledged authorisation under the FinTech Law. This works as an exemption that allows companies to test out new models and alternatives to provide financial services in a controlled environment.”[7]
Two sandbox challenges have previously taken place, both of which The British Embassy in Mexico City has supported and sponsored. DBT in Mexico works closely with the Mexican regulator to facilitate dialogue and to represent UK interest – including supporting UK companies to secure licences and to better understand policy changes and how these will affect them. Mexico’s regulatory environment as well as the country’s demographic and geographic position make it an excellent market to consider for novel and experimental products and services.
Argentina
Argentina on the surface appears to be closed market: notoriously protectionist and with sensational headlines of over 100% inflation in recent times. This seems like a hostile environment for disruptive tech yet in reality this is where solutions are needed and the basis of why FinTech has been one of the main sectors of economic growth. According to a recent Argentinian press article 60% of the money circulating in the formal economy uses a FinTech account as the origin or destination of the financial transaction. [8] The same article states that credit awarded by FinTech platforms grew 62% in 2022 with a total number of 4.5million of approved credit transactions illustrating the proclivity and demand for this service.
Globally, Argentina is one of the leaders in Crypto Assets in their usage and in the number of accounts. As the country has a restrictive FX system, people and companies use cryptocurrencies as an alternative means to acquire foreign currency and transfer it abroad.
Furthermore, Argentina has a strong history of talent and innovation. It is the home of LATAM’s first unicorn MercadoLibre, followed by ten other companies: Globant, Despegar, OLX, Uala, Tiendanube, Bitfarms, AuthO, Vercel, Mural and Satellogic. According to the Argentinian FinTech Association https://camarafintech.org/ [in Spanish only] the industry has created more than 30,000 jobs domestically (up to 2023) and the Association prides itself on facilitating a robust trading environment of which DBT Argentina is a key contributor. Working closely with 240 of 330 FinTechs established locally as well as the country’s main regulators: Central Bank (BCRA), National Stock Exchange (CNV) and Financial Information Entity (UIF).
Take your next step
These three different and dynamic markets provide opportunities for ambitious and aligned Scottish FinTechs. Hopefully these snapshots have whetted your appetite for learning more and enabled you to appreciate the vast opportunity in LATAM. Local DBT support can help better understand local nuances, keep updated on regulation changes as well as making vital introductions to regional associations and partners. Reach out to the DBT Latin America and The Caribbean, International Market Team: exportsupport.latac@fcdo.gov.uk to help support your company’s next step into LATAM.
[1] The Rise and Impact of Fintech in Latin America, IMF, Published March 2023. Accessed 21/08/2023 https://www.imf.org/en/Publications/fintech-notes/Issues/2023/03/28/The-Rise-and-Impact-of-Fintech-in-Latin-America-531055
[2] Latin America FinTechs: We Have Lift Off. Findexable. Published May 2022. Accessed 21/08/23. https://findexable.com/2022-latin-america-fintech-rankings-report/
[3] GSMA The Mobile Economy Latin America 2022. Published 29 November 2022. Accessed 21/08/23 https://www.gsma.com/latinamerica/resources/the-mobile-economy-latin-america-2021-2/
[4] https://data.worldbank.org/indicator/SP.POP.1564.TO.ZS?end=2022&locations=ZJ&start=1960&view=chart accessed 21/08/2023
[5] https://blog.nubank.com.br/resultados-nubank-2o-trimestre-2023/ Published August 2023. Accessed 21/08/2023
[6] FinTech in Latin America and The Caribbean: A Consolidated Ecosystem for Recovery, IDB & Finnovista, Published July 2022. Accessed 18/07/23
[7] Fintech 2023: Mexico. Chambers and Partners. Published March 2023 https://practiceguides.chambers.com/practice-guides/fintech-2023/mexico/trends-and-developments Accessed 21/08/23
[8] https://www.ambito.com/finanzas/oficial-el-60-las-transferencias-son-realizadas-traves-una-cuenta-fintech-n5783377 ámbito. Published July 2023. Accessed 21/08/2023
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The Evolution from Open Banking to Open Finance
Bryn Coulthard is the Chief Product and Technology Officer at Smart Data Foundry, coming originally from a background in banking technology and product. The goal of the Smart Data Foundry is to safely unlock the power of financial data to provide huge benefits to society and inspire innovation by delivering economic, social and environmental benefits for everyone.​
As the UK’s journey progresses from Open Banking to Open Finance, Coulthard stands by the need for the development and evolution of standards. Whilst the UK mandated that providers deliver against API standards, Europe’s PSD2 approach decreed that banks needed to provide APIs but did not prescribe what these should look like. Today, as a result, we can see the level of adoption of Open Banking in the UK is much higher as opposed to Europe, due to the EU’s large array of differing standards. Such a myriad of standards means both fintechs and aggregators have to now build and develop complicated solutions to handle these multiple APIs.
With ever-increasing complexity in the global Open Finance standards landscape, Smart Data Foundry maintains a Standards Library to help financial institutions and innovators quickly and easily assess technical standards adopted by a geography or financial system. “We look at Open Banking and Open Finance standards across the globe, and we maintain and update those standards as they evolve,” explains Coulthard.
Coulthard is firmly of the view that standards need to be enhanced to be much more prescriptive about how APIs perform in terms of performance and availability. While in the past the UK was certainly a leader in this space, we’re now starting to see other countries learning from and building upon what’s been achieved in the UK. For example, Australia is more advanced in driving wider value through their core Consumer Data Right standards, Brazil has begun to really embrace Open Finance, and some Middle Eastern countries are beginning to push some quite strong Open Banking standards. “What we’re seeing internationally is that people have gone beyond the UK’s position and are now looking at ways to build on what we did and bring things to the next level. We need to learn from that as well,” he emphasises.
Coulthard strongly believes that Open Finance provides an opportunity to help people through their journey by demystifying finance so that people will make better informed decisions. It can help people retire, build new debt management, provide SMEs with better access to finance, or gig economy workers with savings or pensions programmes. “Open Banking has been around for the past six years, and it has been a real success. I just think it took time to get going,” he says. He warns against people getting too excited, however, about Open Banking or Open Finance as they are simply a means to an end. People should actually get excited about the value that increases the type of propositions and offerings.”
Opening Data Responsibly
Kent Mackenzie leads Deloitte’s Risk Analytics practice and has spent over 12 years in a range of financial services roles. With a passion for FinTech, data and advanced analytics, Kent has worked with local, national and international clients to develop tech and data solutions to manage financial crime, regulatory compliance, credit risk, and collections & recoveries.
“Data, quite frankly, should be considered as the lifeblood of any form of innovation and technological development,” says Mackenzie. “It’s very pertinent in our industry, financial services, that all products and advice for consumers require a hefty analysis of data; either on a personal level based on likes, preferences, hopes, dreams and desires, or with an overlay on those products of the broader population’s needs.”
In Mackenzie’s mind, having open access to data is what really helps innovation advance quickly, specifically in financial services, because it helps provide specific information on the types of products and services that can be offered. “If we can democratise data in this space, we can open up financial services to a variety of communities that perhaps haven’t in the past had the privilege of a financial product or service,” he explains. “It can help us to educate those that perhaps need a bit more help in understanding financial products.”
Before we get to this point, however, we need to rectify the opposing forces between the desire and ambition from organisations, regulators and innovators, to democratise data and create an open playing field, versus an anxiety around data privacy, respect of data and regulatory access to data. Mackenzie maintains that while we recognise the need to provide access, we need to do so respectfully and within the confines of respecting privacy, data integrity and bias. Over the past five years, he believes regulators within the UK have been doing a great job of opening up safe sandboxes, and credits the open data movements that have created anonymised data that is meaningful and can be accessed safely. He underscores that all this needs to be done in a non-competitive manner. “There’s a higher calling here to create these types of safe spaces to play,” says Mackenzie.
He believes the next incarnation of open data is eventually about providing a complete life-view of how one’s finances may be structured and how people could be guided and remain financially literate along their journey. This chain of events will prompt major innovations within the traditional financial services sphere. For example, real estate businesses can provide a number of add-on services around things such as affordability, insurance and tax standing.
The most important guiding principle of open finance, Mackenzie maintains, is the huge opportunity to level the playing field. “Fundamentally, financial services are a basic human right, and there are some staggering facts whereby large parts of the population do not have access to that basic human right,” he emphasises. “Also, I think that the ability to blend finance into our everyday lives is really exciting. It will create a really good opportunity to have financial services writ large.”