It is routinely stated that fintech is disruptive for banks. The accountancy profession, however, sees mainly positive developments in the ideas reshaping finance.

Fintech disruption is vexatious for banks but a new added-value force for accountancy, a global body says.

Fintech companies are seen in some quarters as direct rivals of traditional banks but the international group representing accountants, the Association of Chartered Certified Accountants (ACCA), says the future is bright for its profession.

Although there is little doubt that fintech has revolutionised and will continue to heavily affect how retail customers’ financial needs are served - such as the array of services encompassing lending, foreign currency, international money transfer, credit reports, fraud protection, payments/e-commerce, financial advice and insurance - questions remain on how fast these changes will unfold, whether traditional bank business models will survive, and how the regulatory bodies and accountants will adapt.

“Fintech frees us to do better things,” Bivek Sharma, head of small business accounting at KPMG, said. “We are now in the data analytics sphere. We are in software procurement. We can help clients with cash flows, with funding. We are now free to become consultants and financial directors."

Market disruption
When it comes to assessing the extent of the market disruption the new contenders are causing, numbers seem to speak for themselves: growth exhibited is exponential.  

ACCA has picked up on some astonishing figures provided by such companies as Chinese peer-to-peer lender Lufax, set up in 2012. The start-up finished its first year of business having lent $24 million, a figure which grew over 200 per cent from the year it was founded to $538 million, and reached $2.3 billion in loans in its third year of business - one hundred times its first year’s performance. As of January this year the company was valued at $18.5 billion.

The level of flexibility and inclusiveness of the recent platforms in the banking area are startling. Fidor Bank, a German-grown online-only bank, consists of a set of application protocol interfaces that allow software developers to become partners and build services and tools that feed into the Fidor platform. This allows Fidor to offer crowdfunding services, peer-to-peer lending and crypto-currency services on top of a bank account.

Launched in 2009, the online bank counts 100,000 customers and was bought out recently by the French firm BPCE.

This kind of start-up is not a rarity in London, says the report, where Metro Bank, the first online bank, is now rivalled by Atom Bank, Mondo, Starling, Tandem and Secco.

Another example of the innovative, consensual nature of these online banking services is the newly-formed Tandem retail bank.

With its 5,000 co-founders, it aims to provide its customers a personalised banking experience, enabling them to identify money-saving opportunities. Its co-founders all contribute their perception of an ideal banking service and push far beyond what has gone before.

Attesting to the concept’s popularity, the company raised £850,000 ($1.01 million) within ten seconds of its launch through a crowdfunding campaign.

One of the key changes which the tech revolution has brought about is the availability of financial information to end-clients on where and how their money is being invested.

The transparency offered by such companies as Wealthfront or Betterment, which have billions of assets under management, also offer low-cost advice for retail investors thanks to robotised portfolio management services.
 
According to the report, cost is another key factor when it comes to outdoing competition. Nutmeg, a UK "robo" investment platform, offers fees below 1 per cent and the flexibility to withdraw investments at any time at a minimal charge, as well as readily accessible data on performance and fees.

Blockchain changes the game
Blockchain, the underlying distributed ledger technology that underpins Bitcoin - a peer-to-peer currency generated, or "mined", by computers solving mathematical puzzles - is the crux of the revolution, argues the ACCA report.

The distributed ledger is a database of assets or transactions that is shared with a network so that all parties have their own identical copy of the ledger. With every new transaction the ledger is changed as well as all of its copies across the network.

The revolutionary aspects for the customer are several: the level of transparency, accuracy, instantaneity - with simultaneous and live updates of all signatories of the ledger - not to mention the egalitarianism between customers which the technology provides are disruptive in a sector renown for its opacity.

The algorithms behind the technology are already taking over processes such as share trading, payment processing, title verifications and registrations. Blockchain is predicted to affect the back-office world of banks also, and soon.

Green shoots everywhere
ACCA notes that California is not the only fintech hub any longer; it gives figures on investment levels in the industry globally. Last year, China and India invested $4.2 billion in the sector to challenge the US’s $7.3 billion annual investment, and Singapore is joining the ranks of rising powers, aiming to become a regional base for global fintech firms and for national start-ups.

In Europe, three financial hubs seem to be competing, namely, Berlin, London and Amsterdam. London, currently hiring 66,000 people in fintech, a third of whom are Europeans, may have to relinquish its leading place, says the report.

A survey carried out by Innovative Finance, a UK trade group, showed that 47 per cent of respondents agreed they were considering relocating jobs and expanding primarily outside the UK, due to a combination of regulatory complications after it leaves the European Union and increasingly unsustainable living costs.

Yet, the UK benefits from a long-established supportive regulatory environment favourable to innovation, argue the authors of the report, which should allow it to remain ahead of the game for quite some time.

Banks on the defence
Banks are spending considerable sums on fintech spending to cope with potential or actual threats; a trend that is suggestive is how firms are supporting "innovation labs" as incubators of ideas.

Meanwhile, fintech companies face regulatory hurdles. The US’s Title III of the 2012 Jumpstart Our Business Startup (JOBS) Act, passed in Congress this year, which aims to give retail equity crowdfunding a broader base, has been deemed to fall short of expectations.

To tackle the risks associated with launching fintech platforms, however, the UK’s Financial Conduct Authority and the Monetary Authority of Singapore have created and are supervising innovation hubs where entrepreneurs can simulate product and service launches to lessen costs of failing at first go.
 
These regulatory bodies are themselves trying out new technologies to achieve their goals with more automation, and an increased capacity to digest large amounts of data to secure more efficient risk management.

Opportunities
The report stresses a wealth of opportunities for accountants in maturing fintech companies seeking banking licences.

“The shift [in technology] is enhancing the value that the profession can create, particularly for start-ups and SMEs,” it said.

For online trading combined with outsourcing of stock holding and logistics, this means that sale, payment and provisioning can take place at the same time, greatly simplifying the administration of sales purchase accounting processes.

This will translate into a greater focus on updating valuation techniques to be applied to the “five intangible elements” that characterise the new industry: brand, intellectual property, data assets, client numbers and recurring income.

Another focus should be the integration of new data-driven areas such as carbon accounting, crypto-currencies and associates growing volumes of data, alongside consequent increased reporting obligations and regulatory requirements, said Steve Bailey, founder of UK-based energy management solutions provider Carbon Architecture.

Anne-Sophie Briant-Vaghela is a writer based in Hong Kong.