Leveraging Innovative Technology to Ensure Success for Ireland’s Fintech Sector

By Peter Oakes, founder of Fintech Ireland

The growth of Ireland’s fintech sector has been prolonged and exciting. Back in April 2019, the Government of Ireland launched its Ireland for Finance strategy, with the aim of furthering the development of the international financial services sector in Ireland by 2025. A key target for the initiative is to reach 50,000 people in direct employment in the sector, marking a 14% increase from 2018.

Looking specifically at the fintech sector in the region, in 2018 the Fintech Census compiled by Enterprise Ireland and EY revealed the country’s fintechs employed more than 7,000 people and almost a third were anticipating revenue growth of between 100 per cent and 500 per cent. Nearly a fifth were expecting to receive €5 million or more in their next funding round.

Now, however, the industry is at a turning point. Several factors come into play, including the economic and operational impact of Covid, potential competition from Techfins, the consequences of Brexit, and the increasing importance of compliance and regulation. The emphasis in 2021 must be on embracing a truly data-driven approach, alongside innovative technologies such as AI and machine learning in order to transform operational efficiencies and provide a competitive advantage.

In the short term, however, the pandemic has forced fintechs to regard survival as the immediate priority as normal business is massively disrupted. Although Covid has given a huge boost to contactless payments, consumer spending has dropped off, significantly affecting a fintech sector in Ireland that is dominated by digital payments technologies.

Beyond the reduced consumer appetite for spending, the evidence so far also suggests private equity or venture capital investors are holding back on Series A funding rounds. Support is instead gravitating to those fintechs that already have a track record of successful funding. The current caution among investors has also made them very interested in the personnel at fintechs since success depends so heavily on retention of the most talented and capable individuals.

Aside from the broader impact of the Covid-19 pandemic, there are external threats to fintechs, such as competition from Techfins including Alibaba, Amazon and Facebook. Given their enormous reach and economies of scale, these companies are emerging as serious competitors.

They offer fast, easy access to financial services because they are interested in customer data rather than taking a margin on loans, mortgages, current accounts or payments. They also have the advantage of being less subject to stringent banking regulation.

Brexit, however, is an opportunity, as financial services companies and banks with a big presence in the UK set up in Ireland, seeing it as an English-speaking, common-law foothold in the European Union with a highly educated workforce. Admittedly Ireland must compete with Germany and other countries for this business, but there are bound to be beneficial effects for Irish fintechs. The country also benefits from two energetic organisations, the IDA and Enterprise Ireland, which encourage inward investment that has a multiplier effect in terms of employment and fostering of expertise.

While some of these external factors are not always within organisations’ control, where the fintech sector must now face the future more squarely is in how it approaches data and regulation. This has always been the basis of many fintech successes in Ireland but will become more critical as artificial intelligence (AI) and machine learning (ML) spread into more areas of financial services and commerce around the globe.

Data is essentially what fintechs are about, rather than gold bars or banknotes. AI already enables the larger institutions to monitor traders in capital and equity markets to ensure they are not contravening the regulations. As we move forward, AI will be an utterly necessary technology to optimise all the data fintechs process.

It will provide the automation to analyse data and provide the insights that humans cannot ever hope to obtain manually. To give a simple example, an AI application can monitor payments and remittances to spot early on who is becoming a more regular customer deserving better rates of exchange.

AI and ML are also powering the global regulation technology sector (RegTech). Ireland has had a strong presence in RegTech, but the country’s fintechs must leverage this and ensure they have access to the best technology available. The regulatory requirements for data are increasing by the day. Not only do the fintechs have huge data requests from the Central Bank of Ireland in its supervisory role, the Central Bank faces many challenges given the volume of data it must process as part of the broader EU system of central banks on which stability and the rules-based order of international finance depend.

What all this points to is the critical importance of Irish fintechs ensuring they have the right kind of data that is clean and fit-for-purpose, but also secure and compliant with regulations such as GDPR.  The flows of data required for regulation, for example, are only going to be heavier.

Where fintechs and financial services companies outsource their data storage, processing and analysis, they will need to know they are entrusting it to organisations that are highly advanced in their techniques but also solidly and demonstrably on the right side of all data regulation. This is non-negotiable when data is the lifeblood of all financial organisations, but especially fintechs.

As we look further ahead in the fintech sector, whether it is the use of virtual reality (VR) for consultations or the entry of the Techfins, data quality will be essential. There are some stiff headwinds blowing and Irish innovators need to ensure they have every competitive advantage they can lay their hands on.

To hear more from Peter Oakes and other leading industry experts on the opportunities presented by big data and advanced analytics for financial services firms, register to join the Fintech Ireland & InterSystems webinar on 19th January 2021, 2 pm-3.30 pm.