Meeting PRA proposals and driving FinTech growth with sustainable business software

The FinTech50 list was unveiled yesterday evening and we wanted to congratulate every innovator in the FinTech space who made this year’s list, but we’re so excited that our customer Onfido has taken the number one spot for the second year. What an achievement! We have been so proud to partner with The Fintech50 throughout 2020…. and yes, we admit, it’s been a little bit of a strange year but the true capabilities of FinTech in helping the post-Covid economic recovery are being brought to light. As we all move to a new way of working and operating, paired with the recently published Prudential Regulation Authority (PRA) FinTech proposals, we thought it was a great time to reflect on the progress and potential for this rapidly evolving sector.

The new proposals set out in the recently released consultation paper from the PRA requires new or growing banks to plan a path to profitability, strengthen governance and invest in risk control. This also presents a great opportunity for non-system banks to review their processes to help them overcome pandemic-induced challenges. Embracing these proposals as a driver of growth through better planning will help businesses in this sector capitalise on the many opportunities that lie ahead; understanding more about financials, opportunities and weaknesses, alongside a strong plan for profitability and global regulation compliance. Opportunities include accelerated digital adoption and driving the economy by helping pandemic affected businesses rebuild their finances, bridging the gap left open by risk-averse banks.

Achieving greater clarity on the path to profitability

This is one of the key requirements of the new PRA proposals, to ensure that FinTech firms have a robust plan in place to absorb losses that could otherwise undermine their stability and sustainability. An effective approach would be to invest in business software that can help a firm achieve a 360-degree view of the business. Having access to real-time business data with reports and dashboards showing summary and in-depth information is key. Automating financial and accounting processes can help mitigate risks and provide efficiencies that aid cost savings. Choosing a best-in-class cloud-based system not only helps achieve this, but it also means the business is always running on the latest version, software updates are automatic and bi-annual, and no large upfront investment in equipment is needed for implementation.

The PRA has noted a trend in FinTech firms outgrowing their control systems and then having to invest retrospectively in better software, by which time operations have spiralled into certain inefficiency. A solution like Oracle NetSuite offers firms the opportunity to integrate early, before challenges arise, as it is designed with complete scalability in mind, providing the perfect platform for multi-subsidiary growth. As the PRA has also stipulated an expectation of FinTech firms to invest significantly in risk management and controls, and have a mature control environment typically by five years after authorisation, NetSuite is the ideal growth-readied, robust foundation for any judicious business. Read what some of our clients in this space say, including digital asset custody holder Koine, and payments platform provider OpenPayd.

Catering for growing governance and control as FinTech firms mature
The PRA proposals are recognising that the governance and controls in place at authorisation stage are not usually adequate or appropriate as a firm grows; this highlights even further of the importance of implementing a system that can grow with the business, and not one that the business can outgrow. Ever.

The FinTech sector is laden with obstacles, from global regulatory compliance and cyber security to multi-currency transactions, so having a solution that naturally navigates these is invaluable at all stages of growth for FinTech firms; streamlining and automating processes that take up time and present risk of human error if executed manually are the first areas to be addressed. With limited access to funds cited as one of the biggest issues facing FinTech founders in the wake of Covid-19 – according to a recent survey by the Digital Finance Forum (DFF) – being able to demonstrate long-term profitability through better planning and financials will help in the quest to secure funding opportunities. The recent news that six UK FinTechs scooped a total of £20m funding from the Banking Competition Remedies Board to help the SME market, which had been taken back from previous mainstream awardees including NatWest, is testament to the opportunity potential available at present. One of those firms receiving £5 million is our customer and FT50 number one, Onfido.

A McKinsey report of January 2018 claimed that around $60 trillion worth of economic activity will be conducted in digital ecosystems by 2025, whether this be through B2B or direct-to-consumer platforms. The post-Covid landscape is surely to have likely inflated that, for example, the embedding of financial services into mass-market consumer platforms. FinTech offerings are certainly making their way into many aspects of life and the sector is set to be a big contributor in lifting the whole economy out of a recession. Firms need to be poised to capitalise on the many opportunities and investing in the right technology sooner rather than later will not only support growth, it will help to drive growth.

If you work for a FinTech firm and you’d like us to help solve the challenges presented by the PRA proposals and issues that will be generated as the company grows, contact us and speak to one of our financial sector experts.