Door is open for fintech to flourish but innovation needs more support

The last few years have been quite heady for John Duggan of Loanitt, a fintech disrupter that burst on to the traditionally staid lending scene in 2019. He set it up with co-founder Padraig Nolan, both of whom worked in banks and specialised in credit risk.

One of the issues they spotted was the high number of loan applicants who dropped off when the time came to start uploading bank statements as part of the process. The advent of EU open banking legislation, which allows bank customer data to be shared, provided an opportunity to remedy that.

The pair developed an app that goes into the user’s bank account to analyse the data. It then allows users to sign up once but apply for a loan from numerous lenders. Even better, it also matches them with the lender most likely to say yes. It took off.

Loanitt started with on motor finance, quickly becoming the largest car finance intermediary in the country. It has since moved into commercial loans, agri finance and mortgages. It receives more than 6,000 new finance applications a month and, earlier this year, moved into personal lending, partnering with Metamo, a credit union group.

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The company is registered by the Central Bank as an Account Information Service Provider, one of just a handful so designated. And it’s only getting started.

In January it will launch in the UK. “It’s all systems go,” says Duggan.

What surprises him is not Loanitt’s success but the fact that there aren’t more such enterprises surfing the open banking wave. “There are still very few companies with open banking licences in Ireland,” says Duggan.

“Open banking has gained serious traction in the UK and any amount of fintech start-ups have chosen to locate there as a result. In Ireland, we have fallen behind the times,” says Duggan.

Regulation should be proportionate to the level of risk involved in the business, according to Maeve McMahon, CEO of OFX Payments Ireland and president of the company’s EMEA operation. “Ireland has a lot going for it,” she says. “It has a highly educated workforce, is an English language market with a common law legal system. As a listed business we take our regulatory obligations very seriously and the Central Bank of Ireland is known as a strong and strict regulator. However, we need to make sure we don’t stifle innovation with regulation. In a market where we have seen some banks leave there are opportunities for creative fintechs but we have to make sure we don’t kill them with the cost of regulation.”

Playing for real

The Central Bank of Ireland recently launched a consultation which outlines how it intends to evolve and deepen its approach to innovation engagement. The consultation includes enhancements to how its Innovation Hub operates and a significant new proposal to establish an Innovation Sandbox Programme.

The sandbox will provide firms and new entrants with access to regulatory advice and support to develop innovations that promote better outcomes for society and the financial system. The proposed programme will be open to applications from all sectors of the financial system, have a transparent application process, and the Central Bank will share outcomes of all sandbox activity with stakeholders on an annual basis.

The bank’s Innovation Hub already allows fintech firms to engage with it outside of existing formal regulatory processes.

It is designed as a resource to help innovators navigate the regulatory landscape. It also provides a platform for the Central Bank to listen, building its knowledge of developments in the fintech sector. If you are developing or implementing innovations in financial services based on new technologies, it wants to hear from you.

The UK’s Sandbox, run by its Financial Conduct Authority, its regulatory body, allows firms to test innovative propositions in the market with real consumers. It provides innovators, whether in established organisations or new entrants, with access to regulatory expertise. It is open to applications from all sectors of the financial services market and gives them the ability to test products and services in a controlled environment. It helps reduce time to market, and potentially cost. In a dynamic sector, it also provides support in identifying new consumer protection safeguards that can be built into new products and services.

Data developments

Another challenge facing Ireland’s fintech sector has been a lack of hard data. Ibec’s Financial Services Ireland (FSI) group has sought to remedy that with a recent report, Ireland’s Fintech Future, published in September.

The group is keen to see Ireland positioned as an attractive location in which to establish a fintech business, one that is supportive of innovation. Ireland is already known as a jurisdiction with good regulation, points out Patricia Callan, Ibec’s director of FSI.

“People want to get through the regulatory process quickly and efficiently, and go global,” she says.

The FSI report asked businesses to identify the main challenges to digitising their operation over the next three years. The most commonly identified challenge was “regulations governing the financial sector” (73 per cent), followed by “competition for technical talent and staff costs”, at 55 per cent.

Both longer established financial services firms and fintech start-ups alike said there was not enough Government support for growth or innovation in fintech.

Work on a number of fronts, including the activities of the IFS Skillnet and the forthcoming report of the Expert Group on Future Skills will all help strengthen the talent pipeline. Work is also being done to ensure more people understand the quality and diversity of the jobs on offer in the sector. That is difficult given that so many of the players based here don’t sell in Ireland and are therefore not well known as employer brands.

Thriving ecosystem

That said, one of the biggest strengths of the sector here is that very same ecosystem.

“We have 400 of the world’s leading financial services companies here and half the world’s top 50 banks. We are also leaders in global fund administration,” explains Karen Cohalan, manager for fintech, financial and business services at Enterprise Ireland (EI).

EI has a global team working across fintech and around 200 client companies operating in the space, employing in excess of 10,000 people. These range from ideation stage pre-starts to unicorns like Fenergo and TransferMate.

Among the challenges for fintech start-ups is the difficulty inherent in selling into banks, institutions that are conservative by nature.

“There is a long lead time, so any start up needs to be very well funded and have a basket of clients,” says Cohalan.

EI’s research indicates that securing skills is the number one challenge facing fintechs, with the regulatory challenge second. Getting regulatory approval is good for all companies but bigger companies having better resources to achieve it, Cohalan points out.

Not alone are they more likely to already have senior people on their team, and be vetted by the Central Bank, they are more likely to be able to pay market rates for top talent. “It’s weighted in favour of the larger guys,” she says.

For start-ups, Cohalan too can see the value of a sandbox but only if it is properly constituted. “Is it a regulatory sandbox? Is it a data sandbox? We would love to see a sandbox but what kind of sandbox it is needs to be very well thought through,” she says. “The Innovation Hub at the Central Bank is going in the right direction.”

In the meantime, some new entrants are clearing the current hurdles with aplomb. Business payments disrupter NoFrixion, which was set up in 2020, has already scored a double authorisation from the Central Bank, securing both a virtual asset service provider and an e-money licence.

“It’s the first indigenous firm to get this,” says Cohalan. Here’s to many more.