Originally published in FinTech Finance on 20 April 2017.
The UK’s fintech sector is growing rapidly as new regulations encourage innovation and open up the banking and financial services sector to new competition. But are these fast-moving businesses ready to take control of their financial futures?
Investment in UK Fintech sector
Speaking recently at the International Fintech Conference in London, Chancellor Philip Hammond commented that the UK’s thriving fintech sector contributes $7bn to the economy each year and investment in the sector doubled last year. In fact, London’s fintech sector is growing faster than other global tech innovation hubs, including Silicon Valley.
In this rapidly-expanding marketplace, businesses preparing to bring new apps and other fintech services to market must take extra care to ensure their accounting and capital management systems are robust, whilst staying abreast of changes in the regulatory environment.
Access Capital Investment
To facilitate phased investment, it is important that fintech businesses choose the right corporate structure from the start. By creating a holding company for example, it is possible for business owners to sell shares to investors over time – either in the holding company itself or in one of its subsidiaries. This flexible structure is ideally suited to innovation-led businesses that have a number of ideas under development at any one time.
Securing funding upfront can help a new fintech business to get noticed by the right people, in the right places. It is important to attend conferences and other events in the sector and seek exposure on influential channels, including podcasts and media websites.
Manage your capital investment
It is also important to ensure accounts are presented in the best way possible to support the interests of the business as it evolves. For example, the peer-to-peer money transfer service, Transferwise, launched a service that was cheaper and quicker than a traditional bank transfer in 2011. More recently, the company has introduced an innovative borderless accounts service to assist businesses that want to receive or make payments in more than one currency. In this scenario, it would be wise to supplement statutory accounts with information about the company’s growth story to date and what it hopes to achieve in the future.
Comply with the Regulations
The planned introduction of General Data Protection Regulation (GDPR) in the UK on 26 May 2018 raises a specific compliance issue for some businesses, in particular PSD2 businesses. In many cases, the business models of these firms are based on gaining access to and leveraging bank customer data. However, it remains to be seen whether growing consumer mistrust of data sharing will make it harder for them to establish their businesses without big brand support. To prepare for this possibility, businesses should take extra care with their cash management and financial reporting, and consider a structure based on minimising risk and maximising profits.
Mike Ayres is a member of Menzies Business Services sector team specialising in the financial services sector. For more information on your future business capital or to discuss your FinTech business, contact Mike Ayres by phone on 01252 894911 or by email at MAyres@menzies.co.uk.