Bubbles & the future of banks: EPA talks hype versus reality in payments

The UK is already touted as the best place to build financial tech in Europe, if not the world, but there are still challenges facing companies in the industry. Speaking in an interview during Money 20/20 Europe as part of The Bancorp’s Finetics™ Studio series, Tony Craddock, director general of the Emerging Payments Association, talks Brexit, bubbles and the future of banks.   

What needs to happen to sustain momentum of fintech in Europe?

The first thing is harmonization of regulation across Europe. We have the concept of a directive, whereby European countries are directed to adopt the regulation, but there is also the ability to interpret and adapt directives for the local market within certain boundaries. Replicate that across 29 countries and you don’t have a directive – you have a platform for a whole range of possible regulatory environments. It’s hard enough in the US where you have 50 different states.

Another thing we need is to have continued investment, to be able to import talent, a to provide education for important stakeholders like retailers, government agencies, traditional settlement banks and regulators.

What do you make of the approach to success and failure in Europe?

There will be some debris on the journey to change the world. What we need to learn is to celebrate failure and help those who experienced it learn how to shake off the experience and move on. There are some provisos to that. In the US, investors are less risk averse and the companies they are backing are normally much better at failing fast, adapting and learning – we are not as good at that on a philosophical level in Europe.

That said, you have to, as an investor, prepare to be responsible for the behavior of the entrepreneur. One particular example has left a bad taste in the mouth of many fintech investors and that is Powa Technologies, which just went bust in the UK. They raised more than $200 million and spent it without generating meaningful revenue. The problem was that due diligence in the initial investment was not there, money was spent on the wrong things, and the team running it believed their own PR – those are three big problems. We will move on and learn from it but I would rather not have had that happen.


What can you tell me about levels of investment in paytech firms?

We have just pubished a report called, ‘Investments in paytech’, which analysed the investment lifecycles of 113 paytech companies founded or operating in key western markets (France, Germany, Italy, Spain, UK and US) between 2010 and 2015. It found that UK and US companies dominate the market almost completely, with 90% of start-ups originating in these countries.

But while the US has more paytech companies overall, the UK punches well above its weight. In 2010, 13% of paytech start-ups were based in the UK compared to 58% in the US. By 2015, the US had remained nearly static with 61% of start-ups based there, while the UK had more than doubled its share to 28%. Seed funding growth reinforces this view.

I think this is a reflection of the powerful cocktail of an enabling regulator, hungry entrepreneurs, talented technologists and experienced investors that exists in the UK.

What do you make of talk of a bubble in fintech?

Newspapers only succeed if they are spreading bad news – they are trying to create fear and accentuate risk. It is a very different situation than during the dotcom boom, where there was too much money – and not smart money – coming into an industry that was not well understood. There was a desire to solve problems consumers did not realize they had. The fintech industry is much better at finding problems that have to do with things like speed or security or efficiency.

My prediction is there will be more mergers and failures. And that is simply because there is more activity. If you grow the pie by 100% then you will double the number of mergers and failures. That isn’t unhealthy – at worst you will make some investors unhappy and, at best, the whole ecosystem learns from things that did not work.

Where will banks fit into future of finance?

There is a shift of power taking place. At a very senior level in governments across Europe they have decided they do not want to be as exposed to the power of large financial institutions like they were in 2008. They cannot risk being as exposed to the small number of institutions they had to bail out. So what they’re doing is making it possible for banks to be competed with – not forcing, but enabling.

Read the full interview and more insights from some of the sharpest minds in payments and financial technologies on The Bancorp’s Finetics™ blog.


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