I just saw an infographic which suggests there are 282 Fintechs in Scotland, with 69 in Edinburgh alone. I’ve heard this kind of number bandied about with increasing frequency – with people claiming there are hundreds of Fintechs in Scotland. And I think it’s all becoming a bit misleading.

One of the best parts of my job is getting to sit down with experts from right across the business and technology landscape. Recently, I’ve been helping lead the development of the conference programme for this year’s Fintech summit and have been speaking with a lot of people from around the Financial Services sector. It’s safe to say there is a bit of frustration building around this kind of vague, over-inflated, misrepresentation of the number of Fintechs in Scotland. So I’d be quite keen to establish some consensus on this point.

Now let’s be clear, I think that an inclusive remit is crucial; a siloed approach is divisive and acts as a barrier to collaboration and development. As we work to stimulate this area of economic importance and develop the Fintech ecosystem, there are benefits in ensuring that participation is broad. Indeed, for many Fintechs, success is predicated on the ability to access the supply chain of large, established FS organisations. To this end, collaboration and inclusion is a fundamental enabler of the success of this sector.

However, there is an inherent danger that if we broaden the definition of Fintech so widely that it encompasses practically everything, then it dilutes the meaning of the term and undermines any value it holds as an identifier. Over the last couple of years, the term appears to have been extended beyond comprehension, being applied to everyone from banks and building societies to security companies and app designers. This is why I cringe when I hear people saying that there are over 250 Fintechs in Scotland.

This is an important point because in many hubs across the world, Fintechs are booming. It is an area of enormous growth potential and thus huge socio-economic importance. But if we plan to pull economic and policy levers to catalyse the ecosystem and capitalise on this potential, then we need to retain clarity on the target area if this is to be applied effectively.

To illustrate this specific area of growth potential, it is worth taking a look at a few overarching trends:

• Digital technology has enabled customer contact and routes to market at a much lower cost than was previously possible.
• A lower cost of entry and increasing role of technology has created opportunities for tech-savvy entrants to establish a strong foothold in the financial services market.
• These small, tech-orientated organisations are typically more agile and responsive, with lower overheads than traditional FS incumbents.
• The FS market is growing increasingly diverse & disintermediated with Fintechs actively targeting the most profitable service areas.
• This combination of opportunity and agility uniquely positions these new entrants for rapid growth.

Whilst this represents an over-simplified summary, it highlights the key point that there is specific market opportunity for new tech-orientated entrants focussed on financial services.

So what is ‘a Fintech?’ – some clarity on the definition.

Just because you play football at the weekend doesn’t make you a Footballer… Indeed for someone to tell you that they were a Footballer, it would likely need to be a defining characteristic i.e. their primary profession.

Similarly, while a shop that only bakes & sells bread is a bakery – a shop which sells a bunch of other stuff as well is not a bakery – it is a supermarket.

To this end, just because an organisation has technology which can be applied in a Financial Services context doesn’t make it a Fintech. Yes Fintech can be broadly applied to define financial technology, but this is distinct from its specific application in this context as a noun.

As a noun, the term Fintech relates to the new technology-centric entrants in the FS market. This term distinguishes them from traditional FS incumbents, and also from other tech companies that work across a wide number of industry fields outwith financial services.

Distinctions are important

These distinctions are important because terminology helps us break things down, compartmentalise, analyse and understand. Reverting back to the policy context and socio-economic levers; there is a specific market opportunity for these tech-centric, FS-focussed organisations, and there is clear socio-economic value in directing support specifically to this group. So it really does matter.

That is not to suggest there is no value in supporting other areas across the broader financial technology landscape, or indeed that these organisations should not receive strategic assistance as well. It’s just about capitalising on the opportunity in this specific area of potential. That is where these distinctions need to be clear, especially for policy makers and public support mechanisms – so they can target resources most effectively.

This emphasis on distinction is not to sow seeds of division, merely to ensure that we understand the different components of the ecosystem properly. Only then can we determine how they can best fit together and complement each other as a collective. This collaborative aspect is becoming increasingly important and the hubs which are getting this right are the ones that are stealing a march on the rest of the pack.

The importance of a collaborative national ecosystem

If you go back a few years, a lot of the rhetoric on the global Fintech scene was quite oppositional: a closed-off ‘us and them’ mentality between start-ups and incumbents. Case in point, at a Fintech Conference I attended in 2015 a representative from one of the Fintechs candidly advised a speaker from one of the banks that “you are the problem that Fintech is here to solve”.

But if you take a look at the landscape now, the tier-one organisations have opened their doors and many of the key start-up accelerators are organised and supported by the banks. And judging by the conversations I’ve been having recently, the collaboration extends beyond free office space for positive PR; there seems to be a genuine appetite to learn from one another and recognise how their respective strengths can be harnessed to mutual benefit.

If we look to the immediate future, this ability to collaborate effectively will be a core component in determining who will succeed and who will fail. This goes both for individual organisations and national ecosystems. Chris Skinner recently wrote an excellent piece around the API ecosystem which made an interesting prediction based on a very solid assumption. It outlined that even though there were going to be thousands of different Apps and APIs that were useful to the customer, the customer did not want to interact with thousands of different entities. To this end, he sees a natural role for the banks as a single point of contact, a curator and aggregator of all these different services.

There are signs that the millennial generation are more willing to switch services than their predecessors. However, this has not yet transpired into a seismic swing away from traditional market incumbents: they still hold the vast majority of customers and if this continues then the primary point of contact will continue to be the established players. If this proves to be the case then the success of individual Fintechs will be heavily determined by how effectively they engage with the incumbents.

In this regard, it is fundamental that we create a collaborative Scottish Fintech ecosystem that promotes this engagement and plays to our wider strengths. We have the benefits of established traditional FS firms, academic expertise and a growing start-up community centred on technological innovation. The future will be data-driven, and in this field we are already establishing global recognition for our expertise. But in bringing these various components together, we cannot place enough emphasis on the value of co-operation and co-ordination.

The future is bright – but…

There is real scope for large players and Fintechs to collaborate and benefit from their respective strengths. There are also real benefits to the customer in service improvements which will be driven from a collective approach. The future genuinely does look really positive for the sector.

But what we need to make this vision a reality is clarity. Our Scottish Fintech ecosystem is immature, we have been slow out of the blocks and slow to organise. Yes Scotland has made some good headway recently in laying the foundations for a successful Fintech community and this should be applauded. But we don’t have hundreds of Fintechs – yet. And we probably won’t do ourselves any favours from a self-promotion standpoint if we don’t appear to have a proper understanding of our own community. So while I do think that any meaningful research into the Scottish business technology landscape is really valuable. When it comes to Fintech, we need to reign-in the vague figures and retain some perspective.

So how many Fintechs really are there in Scotland?

“wisest is he who knows he does not know”…But if you’re going to push me I’ll say divide that 282 by 10… then half it!