InvestmentsNov 22 2016

The FCA's sandbox: Is it back to the future for fintech?

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The FCA's sandbox: Is it back to the future for fintech?

This column isn’t an anti-Trump polemic, although if he carries through on some of his policies then there will be some impacts. Instead, I want to return to a topic we’ve covered here before – the FCA’s regulatory sandbox and what’s in it.

Oh, OK then, just quickly. Trump has suggested he’ll make it harder for big US companies to bring in coders from abroad on visas. Ex-car workers from the rust belt states will, presumably, become ninja-level .Net coders and take on these positions.

He’s also suggested that he may force US companies to manufacture in the US or face tariffs. This would have a profound impact on Apple, Microsoft, Dell, Amazon, Google and many others. Specifically, it’ll push prices up, and you can be sure those prices will be going up internationally. We all get to share.

He’s also suggested radically beefing up the US’s snooping capabilities, which are already pretty good. It doesn’t take a catastrophic to spot that if you, as advisers, are using cloud-based services that take advantage of EU safe harbour rules, then you may have to readdress some of your processes. And of course if we’re not in the EU, then Lord only knows where you’ll be allowed to keep your clients’ data. I’m thinking about offering my garden shed. Only £1m per GB of storage, OK?

Back to it. The FCA has announced the first 24 companies that are allowed into its sandbox, from a total of 69 entries. When I had a sandbox, no more than three or four of us were allowed in it at a time, to stop the sand going everywhere, and the FCA’s approach looks pretty similar.

We’ll see further cohorts entering the programme next year, and the FCA has been pretty open in saying it’s kicked out a few propositions who it felt weren’t ready for market.

I’ve written here before about the fact that the fintech companies who are really attracting the big investments from VC and private equity funds aren’t, in the main, in the long-term savings and investments space. They’re in things that make money in less than a decade. Therefore money transfer services are of interest. Challenger banks are. Loan providers are, and never mind the ethics.

Much the same is true of the sandbox. Our very understandable and natural self-confirmation bias drives us to think that the sandbox will be stuffed full of robo-advisers, D2C platforms and so on. It’s not. Nearly half the list is made up of – you guessed it – money transfer services and relatively vanilla propositions that use distributed ledger or blockchain technology underneath. In fact, if there’s one winner in the sandbox, it’s blockchain.

In terms of what’s in, here’s a list of a few which might be of interest (you can find the rest on the FCA’s website):

Billon

An e-money platform based on distributed ledger technology that facilitates the secure transfer and holding of funds using a phone-based app.

BitX

A cross-border money transfer service powered by digital currencies/blockchain technology.

Bud

An online platform and app that allows users to manage their financial products, with personalised insights, on a single dashboard. Bud’s marketplace introduces relevant services that users can interact with through application programming interface integrations.

Citizens Advice Bureau

A semi-automated advice tool that allows debt advisers and clients to compare the key features of available debt solutions.

Epiphyte

A payments service provider that aims to provide cross-border payments using blockchain technology.

Lloyds Banking Group

An approach that aims to improve the experience for branch customers, which is aligned with the online and over the phone experience.

Nextday Property

An internet-based property company that will provide an interest free loan for a guaranteed amount to customers if they are unable to sell their property within 90 days.

Oval

An app that helps users to build up savings by putting aside small amounts of money. These savings can then be used to pay off existing loans early. Oval will be working with Oakam, a consumer credit firm, and a number of their customers during the test period.

SETL

A smart-card enabled retail payment system based on their OpenCSD distributed ledger.

Tradle

An app and web-based service that creates personal or commercial identity and verifiable documents on a distributed ledger. In partnership with Aviva, it will provide a system for automated customer authentication.

Swave

A micro-savings app that provides an across-account view; enables a round-up service every time a user spends money and calculates an affordable savings amount based on the user’s spending behaviour.

So what do you know? No robos, no new investing services, one aggregator and one micro-payments system which look remarkably like Sammedia’s Moneyinfo and Moneybox in turn, and a bunch of blockchain stuff that – let’s be honest – none of us understands.

It’s also noticeable that there are some big names on the list. The Citizens Advice Bureau gets on with a debt advice solution that would never be allowed in Trumpland, and Lloyds and Aviva sneak on, although the latter is via Tradle, which actually looks really cool. 

This is all by way of saying that, to my mind at least, the first wave of what we thought of as innovators in investing are now passing their shelf life. Platforms are a part of the landscape, but are clearly the next to be disrupted. Too many CRM and back office providers are looking to integrate up and down the technology world – for example, by providing client reporting suites, capital gains tax tools and the ability to fire trades through to a custodian or provider – for it to be just a fad.

Robo-advisers have been fascinating to many, but have yet to take off commercially. The public’s appetite to trust new brands with their hard-earned cash is not huge. And waiting in the wings we have the second wave of big-brand online investment services. 

Santander and Vanguard will be in the, er, vanguard. Santander is in the market already, albeit quietly. Vanguard is coming soon. These guys have the reach and the customer base already. 

It all makes you wonder if, given the way things are going, what we’re seeing is a world where disruption means going back to through-the-line brand-led propositions. Total vertical integration; pick the brand you like. In this world big wins, and distribution is owned.

I doubt Trump knows about the sandbox (it might mess up his hair). But if he studied up on how our part of the financial services world is shaping itself for the future, it isn’t hard to imagine him smiling in recognition. And if that doesn’t scare you, nothing will.

Mark Polson is principal of platform and specialist consultancy the lang cat