The Future of Finance is Fintech: An Interview with Charlotte Crosswell

Martino Tramontin •

This interview is part of prepaid business card provider Soldo’s Fintech Founder series, which highlights the individuals doing great things in the financial technology space.

Interview with Charlotte Crosswell, CEO of Innovate Finance

Charlotte Crosswell is CEO of Innovate Finance. She has spent most of her financial services career in market infrastructure roles. Most recently she was CEO at Nasdaq NLX (“NLX”), a London-based startup derivatives market, and sat on the board of LCH Ltd. She has held a number of management positions at Nasdaq and the London Stock Exchange. In addition to her current work with Innovate Finance, Charlotte advises and sits on the boards of several technology and fintech startups and has for many years appeared on the list of ‘Top 100 Women in Finance’.

What’s the State of the Nation for fintech? What’s the investment temperature? 

I did a speech recently for three major banks and I talked to them about how we’ve seen an exceptional acceleration of change.  Paper money arrived in 806AD and 1000 years later we moved from paper to plastic. But what’s happened in the last 50 years is quite incredible. There are a lot of sceptics around fintech questioning whether it’s really changing the world we live in, but the millennials love it and it really is going to change the way we live and work. 

I lived through the tech scene in the ‘90s and I think we’re going to look back on what’s happening now and decide that it’s just the end of phase one. Phase one is disruption and fragmentation; niche solutions which can do one thing really well. That has led to around 14% of banking revenues moving over to fintech. And although it’s still a small bubble, a wider audience is beginning to understand what fintech is. It’s still quite London centric, but we’re now seeing a shift as fintech businesses start scaling to more national reach with advertising on TV, buses etc.

Investment is at an all-time high. Everyone thought that Brexit would have an impact; and if you’d asked me a year ago, I would’ve probably told you that the reason we were having such a bumper quarter was down to people getting deals done before Brexit.  

But I don’t think that the delays to Brexit are the only reason we’ve continued to see those cheques being written in Q1, Q2 and Q3/19. We’re seeing a drop in the number of startups being incorporated and raising capital in favour of bigger solutions achieving larger capital raises. This shows the maturity of the sector.  It’s what you would expect as we go from niche product into globalisation, taking products overseas and going out to a wider market: the scale-up phase.  

For the first time in the past three or four months, we’re seeing fintechs shutting the doors, and it occurred to me that we could look at this either as ‘Peak Fintech’ or as ‘Rational Fintech’ – where some folks are going to fall by the wayside, and the stronger propositions are going to fly…

Yes. I lived through the 90s, before Google, and everyone was trying to work out which search engine they were going to use. Because you didn’t really trust one, you ended up using six of them to see if the answer was the same on all six!

We didn’t trust emails either, so you would send an email internally and then walk over to make sure the person had got it. Where we are now is very similar to those battles in the 90s, in my view.  Companies are working it out and it’ll be a case of survival of the fittest: those who can raise capital, who have a vision and who are prepared to push the boundaries aggressively.  

You could take away every Fintech company now, and you’d still see bank innovation. What we’ve seen – and this is very specific to the UK, which is why we continue to be great thought leaders across the world – is that the banks are embracing it.

You referenced the 90s – does that mean we’re due a bubble too?

There’s a lot of discussion over current valuation levels because people are excited about the potential impact of fintech. But in the 90s, people were putting their pensions and savings into tech. We haven’t seen that gold-rush in fintech, so if it is a bubble, retail investors won’t be so affected.  

Then there’s the question of protection for account holders: will people get burned if a company shuts down? There’s always a risk, but financial services is a regulated activity; it’s as protected as it’s possible to be. In fact, I get quite frustrated when people ask what happens if a fintech with an e-money license (and therefore no FSCS protection) shuts down. Who was there protecting the same retail investors when they were buying up stocks in the 90s?  Nobody!

Loads of people lost money on tech investments back then, so we have to put today into context.  We will no doubt see companies fall by the wayside, and hopefully it won’t have a huge impact on the retail investor.  But many of the companies that have gone to scale-up and then high-growth status are not far from profitability; and that’s going to open up lots of opportunities.  

So there’s no doubt about it. We’re either going to see a slight drop in investment or it will suddenly be concentrated among the high-growth ventures.  Then, just as with Uber, there’ll be others that follow along with improved propositions and the tools and path to get there more rapidly.

You have said that “the future of finance is Fintech”. What did you mean by that?

What we’re saying is that you could take away every Fintech company now, and you’d still see bank innovation. What we’ve seen – and this is very specific to the UK, which is why we continue to be great thought leaders across the world – is that the banks are embracing it.

At first there was suspicion; they tried to keep it away.  If a bank was going to bond with a fintech, it was probably to kill the project. Then you had acceptance, where banks realised that they had to work out how to operate alongside fintech.  As one very senior person at a bank said to me: “we spent years keeping fintech at bay, but meanwhile we put AWS in every part of our bank and gave away every piece of data that we had!” 

But now UK banks are not just incubating fintechs that they want to keep an eye on, it’s a true partnership.  They want to use technology to be able to deliver on their consumer experience. The partnerships are increasing because traditional banks recognise that fintechs can not only show them a quicker way, but also building from scratch is quite slow. The bigger firms see their fintech partnerships as both a way to learn and to deliver better products to the end consumer.

And is this happening internationally as well – it seems that, irrespective of Brexit, London fintech is increasingly outward facing. And that fragmentation whereby tech is developed in- and out-of-house is rewriting the rules of the model so that other banks across the world can be outsourcing the production of their apps and experiences into the UK.

Absolutely; and this is where the UK has a significant opportunity. Considering we’ve had over three years since the Brexit vote without being particularly strategic at a national level, we continue to successfully evolve the fintech agenda. 

People say that there are more US banks here in London than in New York! From where I am in Liverpool Street, you’re within 20 minutes of every single US bank and fintech company. Around 90% of investments in fintech are centred around here. Every regulator – Bank of England and FCA – and every government minister and department are less than 20 minutes away. That allows us to bring those people together and look at the industry from a more macro, strategic approach. For example, you might have regulators sit as observers on my advisory board so they can not only respond, but they can learn.  You don’t see that elsewhere around the world. It also helps that we have a government and regulators who truly want to see more competition and the democratisation of finance. They want to see these products get out to a wider audience. 

All this puts me us good stead compared to the rest of the world. In the US, cheque innovation and investments are on the West Coast, banks on the East Coast and Chicago, and some of the regulators down in DC. Then you’ve got to contend with State regulators as well. It’s very difficult to advance the sector as a whole. The UK is quite unique in that, because we’ve embraced the innovation agenda, we’ve got everyone who can contribute to it in the same place.

What do you find yourself lobbying for at the moment? What is the industry clamouring for?

We have work streams on understanding international markets and financial inclusion. But above all, we’re now looking at the future of regulation and working with the Bank of England on the “Future of Finance” Report.  It particularly looks at our next Sandbox [the FCA’s fintech innovation architecture], how we grow and scale it into a global initiative, and what impact that might have on regulation. 

Elsewhere, the brakes on growth will be skills and talent.  It’s a global problem. There are too few data scientists and engineers in the world because the same people are in demand from engineering firms, the financial services industry, the large financial services institutions, even GCHQ! The UK education system hasn’t really changed to support these skill sets in the UK, so we’re very much still reliant on getting talent from overseas. The industry needs to get smarter over the coming five to ten years. It can’t wait for the government to change the curriculum in schools to feed its talent pipeline; the industry must work with academia to bring that change forward. It’s the biggest issue that any fintech or bank is talking about because they’re all after the same talent. It would be great if we could nurture that expertise here in the UK. 

On the back of that, we obviously need to look at immigration policy. The Government is looking at a points-based system, but it’s still taking a long time to get talent through the door in the UK.  We have to accelerate this and it’s going to need support from the very top of government.

But it’s not just coding skills that are missing; Think entrepreneurship and innovation. And financial wellbeing – a big issue for kids that I’m amazed we don’t teach in schools. The latest statistic is that 70% of millennial women say they’ve never had financial training, against just 42% of men.  It’s not just about women’s ability to get into digital careers, it’s also about their financial health. Maybe it’s because I’m so frustrated with the lack of progress on anything other than Brexit, but I strongly believe that industry has a very important role to play there.

We’ve therefore launched a fintech for schools campaign, where we don’t just talk about fintech careers, but also about what fintech is, how students might use it and re-finance their debt through it.  If that then stops them using a payday lender, we’re doing our job properly and achieving something fundamental.

This engagement with schools really matters. Take Belfast. Companies are opening offices in Belfast because they’ve managed to crack how to work with universities to educate them on what type of people they’re looking to hire.  Those same universities are then going out with industry into schools to evangelise about which courses are most attractive if students want to stay in Belfast and work. Imagine replicating that pipeline of talent through schools and universities around the country! These careers aren’t going to go away: 90% of new careers starting today will require digital skills. 

It is rare that your customer base will be 70%, white, middle-aged and male!  Therefore, banks must build out diverse teams and diverse thinking, looking at social mobility, social values and purpose.  To reach out to a wider set of customers, you’ve got to have diverse thinking.  

You mentioned gender equality. It seems that “bro culture” has never been more prevalent than in finance and tech.  And from Gamergate and the toxic culture that appeared at Revolut, there’s never been a greater need for equality and representation of minorities. You are not only a poster person for diversity, but it’s something that’s embedded within Innovate Finance. What can we all be doing to usefully further the position of women in tech?

As I often say to bank boards, it is rare that your customer base will be 70%, white, middle-aged and male!  Therefore, they must build out diverse teams and diverse thinking, looking at social mobility, social values and purpose.  To reach out to a wider set of customers, you’ve got to have diverse thinking. And that’s not just about gender, because you could argue that after spending 25 years in one square mile, I probably think relatively similarly to my white, male counterparts! We look at talent gaps, we look at neurodiversity –people on the spectrum are rapidly becoming respected in data science roles, for example. 

It’s not just around recruitment, either. If you’re going to develop data-led financial product solutions, then you need a very wide set of data. I was commenting on the Apple card [Apple’s new credit card] algorithms recently: shockingly, the algorithms dictate that women get lower credit limits than men. Apple looks at every site you’ve viewed. Every time you accept a cookie, beware because the data footprint you’ve left behind will at some point be used against you.  And when it comes to financial services that’s quite impactful – and not in a good way.

The problem is this. Apple bases its credit score on past data, where men are higher earners and women more likely to stay at home.  They’re looking at the past, not the future. You need diverse thinking to say that those are outdated archetypes – but that’s not data-led. There is therefore a certain amount of quantitative versus qualitative impact. You’ve got to have diversity around your boardroom table and just as importantly through what I like to call the ‘permafrost’ of the bank to consistently challenge this retrospective approach. 

And then there’s age. Somebody recently said to me that some 20% of the current population was born between 1945 and 1958.  We’re about to see the biggest wealth transfer in human history – to an awful lot of people that banks wouldn’t necessarily assume are their future customers. Banks must start to think about these future customers, not their existing customers. They need the right culture and diversity to be able to challenge the status quo. 

Looking forward, we’re facing Brexit, there’s technological excellence across Asian countries, South Asia in particular.  What’s going to power onward investment in fintech in the UK and keep us at the top of the tree?

We’ve got to continue to advance the thought leadership around UK fintech.  I will get shot down for saying this, but you could argue that the biggest impact of Brexit has already happened: what I do to promote Fintech globally and which used to be done by government is now being done by industry. 

We’ve managed to survive this far. Many fintech companies are not going into Europe at the moment because they don’t know what that will look like. They’re more likely to head to the US and Asia, because at least they know what they’re dealing with.  So when we have a resolution on Brexit, we could see some immediate expansion plans.  

I think we need to be ambitious in the UK. We need to be looking at the immigration policy. We need to understand where our talent gap is; and make plans around that. We’ve seen some minor changes: the post-study work visa finally got extended from four months to two years, a change which we had lobbied hard for. There’s also a startup innovator visa.  We’ve also lobbied for fast-tracking visas for companies who want to expand here. After all, why would we not want to make it easy to hire people in well-paid jobs contributing to the UK exchequer in taxes? Revolut, for example is quite public about wanting to hire 3500 people – that’s about 200 per month! We need smart data scientists and engineers in the UK, so we must look at the fast track visa.  

We also have to look at patient capital into the sector – companies who have gone down the EIS/FCIS route. We’re now seeing late-stage VC and potentially private equity funding coming in. The question is: how do we get patient capital into this sector so we don’t follow the traditional tech playbook whereby companies ended up either listing in the US or executing a trade sale because they couldn’t raise the capital to go global. We have an opportunity for the UK to continue to lead in fintech, but it will need serious investment working with cities around the country to spark innovation entrepreneurship and talent. It’s been a long time since a UK sector really led the way globally.  In tech, we never got there: we compete, but we’re always trying to catch up with the US. In fintech, the US – and the rest of the world – looks to the UK for leadership.