Paul Haydock, CEO at alternative finance provider, DueCourse, discusses the key trends and events that have characterised 2016, and looks ahead to what 2017 has in store for the fintech and SME sectors.
Throughout Britain and beyond, the ricochets of a tempestuous 2016 are being felt; in every industry and every business, leaders are reflecting – could we have predicted the Brexit vote, how ready are we for the changes it might bring, and do we have the skills and resources to ride an era of digital disruption.
At November’s CBI Conference, Theresa May launched a new Industrial Strategy, aimed at delivering jobs and economic growth, and increasing productivity levels to other G7 nation standards. She confidently told us that she’s ambitious for Britain – the Government wants Britain to become the global go-to place for innovators and tech investors. As such, the Prime Minister promised to invest an extra £2bn a year by the end of this parliament, to help put post-Brexit Britain at the cutting edge of science and technology.
Start-ups and scale-ups were also on the agenda. The PM voiced concern that, while the UK ranks third in the OECD for the number of start-ups we create, we are only thirteenth for the number that go on to become scale-up businesses. Her vision – to turn bright start-ups into successful scale-ups by backing them for the long term. To do this, she has announced a new Patient Capital Review, led by the Treasury; this will examine how the obstacles to securing long term investment can be broken down.
Understanding the importance of SMEs to the UK’s economy, Theresa May announced a review of the Small Business Research Initiative to explore how they can increase impact and give more innovators their first break while driving innovative procurement.
This was quickly followed by Philip Hammond’s first, and indeed last, Autumn statement. The main area of interest here was the announcement that £400m will be invested in growing innovative firms through the British Business Bank. These funds will be invested in innovative small businesses with potential for growth, to provide the finance they need to expand. It is claimed this will support up to £1bn of new investment.
Everything points to the importance Government places on the small business community, with tech and innovation at the forefront of these policies. So how does this reflect 2016 and does it offer any insight into the next 12-18 months?
Key digital and SME trends and events that have defined the roadmap for 2016 include:
Health Tech, or digital health, is one of the world’s fastest growing sectors, partly because it is a necessary evolution of an inherently traditional industry. From wearables to mobiles, we’ve seen a wealth of products hit the sector this year, with no signs of slowing down. For example, a health initiative supported by Apple has seen a series of deeply integrated apps to be made available via iPhone, iPad and Apple Watch that will help consumers manage their health and improve their health outcomes. It is hoped these apps will tackle everything, from medication adherence to improved messaging with healthcare professionals.
As a well-established sector, Fintech has continued to gain momentum this year, however, somewhat surprisingly, Europe fintech funding is on pace to drop below 2015 levels. This could be due in part to a reduction in confidence following the shock EU referendum vote, but I certainly don’t believe it reflects a lack of interest amongst investors who still see Fintech as an unrivalled opportunity.
2016 promised to be the year of Insurance Tech, with industry experts predicting significant growth. However, against a backdrop of turbulent change and uncertainty, it hasn’t materialised to the levels expected. There has been movement, but tentative at best.
In response to a reduction in licensing restrictions and a booming Fintech start-up scene, we’ve seen a new breed of digital-first, mobile-only banks starting to increase market share in the UK. Thanks to their digitally-disruptive nature, they are appealing to modern ‘millennials’ who are looking for a transparent, digital banking experience.
No surprises here; Brexit has played a major part in the turbulence businesses have felt this year. However, when the goalposts seem to change on an almost weekly basis, and the future at this stage remaining largely unwritten, uncertainty amongst leaders is inevitable. Investment in UK funds suffered £5.7bn outflows following the referendum; only when there is a clear exit strategy in action, is it likely for markets and confidence to fully stabilise.
The picture of 2017
An entrepreneur’s world
Investors will continue to seek alternative investment opportunities, as banks fail to provide the return-on-investment expected. With programs available such as the Seed Enterprise Investment Scheme (SEIS), which has been designed specifically to help small, early-stage companies raise equity finance, investors can put their money in high-growth start-ups. When combined with the Government promise to support investment in scale-up and innovative businesses, this is great news for entrepreneurs and will likely result in a plethora of exciting new ventures and investments.
On Cloud nine
Cloud computing services will soon become the biggest revenue generator for software firms, with annual global spending on cloud services expected to increase by a 19.4 per cent Compound Annual Growth Rate (CAGR) by 2019. As a cloud-based invoice financing service, we have been witnessing first hand the rapid growth and acceleration in the adoption of this technology, and it’s by no means done growing. The industry will continue to boom in 2017, building more momentum as people and businesses increasingly see the value and benefit of adopting cloud technologies. In short, there’s only one way this is going – it’s going to take over.
SMEs and start-up Britain
Irrespective of the announcements made in the Chancellor’s Autumn statement, the outlook for SMEs seeking investment is promising. As long as investors don’t get the ROI they want or expect from banks, and I don’t see this changing in the short-term, there will be more money available from private individuals looking to invest in small businesses – so now is a great time to be an SME.
Turning to new businesses; despite the promises made by the Prime Minister to support start-up and scale-up businesses, the truth is, it’s never been tougher to find that breakthrough idea. The pace of innovation has really stepped up, and with significant investment announced by the Chancellor in this area, the likelihood is, the pace will only get faster. Therefore, I expect to see lots of innovative ideas brought forward and tech companies established in 2017, taking the digital landscape in the UK to unprecedented levels.
With exchange rates still feeling the bite from the Brexit vote, and the pound taking the hit, investors from Europe and the US will look to the UK where they can buy 40-50 per cent cheaper than before as well as invest in innovative start-ups. The result? A lot more money will be entering Britain in 2017.
The adoption of telematics and usage-based insurance as well as the replacing of traditional insurance platforms with more innovative options such as cloud software and portals were two predicted trends for 2016 that didn’t quite make the appearance we were expecting. However, once the Brexit roadmap is clearer and confidence in the UK has stabilised, I expect to see these two trends make their way onto the market, and for the sector to reach the peaks it was hoping for in 2016.
Fintech and digital business transformation
Momentum within Fintech will continue to build, however, a customer-centric approach will begin to overtake the need for exciting new technologies. Digital business transformation means changing minds and attitudes, and I expect 2017 to see much more focus on improving customer experiences in order to achieve true transformation. Leaders in the space are likely to seek collaborative relationships with banks and other financial institutions to deliver holistic, customer-focused, digital-first services.
Barriers to growth and prosperity
Conservatism post-Brexit remains a major barrier to growth for many businesses, as they await the longer-term consequences of this historical vote. But as the dust settles and a resolution is achieved, 2017 should see a re-emergence of confidence, and a new-found appetite for growth.
At a time of significant disruption, there remains for some a reluctance to embrace change. As we’ve said, digital disruption means changing your mindset and your approach, as well as your resources. While 2016 set the scene, and for many, unnerved them, 2017 should see a natural evolution of digital transformation, whereby disruption is increasingly seen as an opportunity rather than threat.