Published on the 09/05/2017 | Written by Donovan Jackson
How the Global Financial Crisis provided impetus to launch fintech industry…
‘Unprecedented change’ and ‘the pace of change’ are regular refrains from the tech industry, a tried and tested sales routine along with the familiar fear, uncertainty and doubt tactics employed by many a vendor representative. But what happens when some proper ‘unprecedented change’ happens – say, for example, in the centre of the financial world, London? When the global financial crisis hit, it was bad, of course. But it wasn’t all bad.
That’s according to Michael Cooper, CTO of UK-based services company BT Radianz. “You had circa 60,000 people lose their jobs in London in the immediate aftermath of the GFC. In 6 months, the FTSE 350 index lost more than half its value from where it stood April 2008 – wiping almost £120Bn from the market cap of UK banks. Of course, that is bad. But these were very smart people who knew what the banks needed to do [in an era of changing customer expectations] and how they could help them to do it.”
That was arguably the birth of the ‘fintech’ industry. Out of the patently ‘bad’ has arisen, Phoenix-like, a perhaps truly unprecedented level of innovation and creation emerged.
There is a little more to it, too, explained Cooper, which rests in the structural makeup of the City. London has multiple features which distinguish it from other conurbations or markets. It combines, in a compact area, local and national government, it is the headquarters for a great many retail banks (“In fact,” noted Cooper, “There are more American banks in London than in New York City”), it has all the major insurance companies, academia, the legal profession, accounting and more, in one place. “This is enormously powerful and a level of scale which can perhaps only be approached by Singapore.”
But even that scale, he added, isn’t enough to ‘scale’ in terms of product or service reach – and that drives the global agenda.
While Cooper is presenting at the CIO Summit with the topic of ‘London: Winning in a changing world’, he pointed out that this was the title of a report produced in 2008 at the behest of then-mayor Boris Johnson. “London had ridden 20 years to become a global financial centre of significance, but before the crisis – around 2006 – several people within the city felt the leadership position was ebbing away.”
Johnson came in as mayor, set up working group to see what was happening in and to London and how to re-energise it. Within months, the GFC struck, and as Cooper puts it, all bets were off. “But one of the things that that report and reaction did was to lay out how to stimulate the economy at a high level, and the City in financial services and markets at a lower level. The logic was that we had all this going on, with all these features of London which no other place has, so something could be done about it.”
Something indeed. Well—resourced people (the 60,000 laid off), combined with favourable environments created by local and national government, with incentivised leadership, willing to drive through the changes necessary and pop, fintech emerged. “Leadership – and here I am thinking the city leadership, HM treasury and the government, the regulators and supervisory folks – is one of the hallmarks of successful innovation.”
“The point is that the financial crisis pushed these people out, and by 2009, the immediacy of government, the legal policy to enable innovation, the availability of incubators and accelerators meant there was more sizzle in the city than you could shake a stick at,” Cooper added.
These are features which might well be observed in the New Zealand market (or Sydney, for that matter, said Cooper). There are plenty of incubators and accelerators available, NZTech has a focused fintech group, government (both local and national) makes available various forms of grants and other corporate welfare, and there doesn’t seem to be any shortage of great ideas coming out from the tech industry (including the ideas which resulted in Latipay and PushPay).
And Cooper has a cautionary word, too. While there is always a tendency to dream big, it is often a better bet to focus on the niches which are underserved – which is precisely what both examples above have done. “When it first came out, there was a huge amount of naïve thinking, that fintech was going to replace banks, disintermediate X and Y. But the really successful ones have found a genuine niche which wasn’t occupied, and scaled into that.”
While, with a few exceptions, nearly all the major banks – even the Royal Bank of Scotland – at the eye of the GFC storm, continue trading merrily today.
To hear more insights from Michael Cooper on how London weathered the GFC storm and produced the fintech industry, catch him at the CIO Summit, taking place in Auckland on 14 and 15 June.