The financial technology, or fintech, sector has experienced rapid growth during the pandemic, as a range of existing trends have accelerated by restrictions.
Rising demand for contactless payments, soaring levels of cyber crime, increased interest in online trading platforms during lockdowns, and improvements in mobile banking systems - as more people work from home - have all been capitalised upon by the tech firms looking to disrupt incumbent institutions.
Last year’s UK Government-initiated Review of Fintech by Worldpay chief executive Ron Kalifa outlined the sector’s progress, while making recommendations on better policy, regulation, skills and investment.
The report recognised the momentum of Scotland’s cluster of fintech firms, which included growing expertise in open finance, payments and regulatory innovation.
Figures from industry body FinTech Scotland showed that the community has grown from 119 in March 2020 to 181 such companies in September.
However, while the coronavirus crisis has offered opportunities, when combined with Brexit, it has also led to shortages in staff with the right skills, who are in increasing demand for those looking to scale-up and expand.
The skills gap
Recent research by specialist recruiter Hays Technology shows that nine of the top 20 salary increases in Scotland during 2021 are related to the sector.
Security architects saw a salary increase of 17.3%, while IT development and operations roles saw an above average increase of 10%.
Justin Black, director of Hays Technology in Scotland, said: “Clearly, the high demand for tech roles that we’ve seen in recent years continues and salaries are increasingly rising as a result.
“This is great news for Scotland which is the largest fintech hub after London, but we need to make sure that the talent pipeline is sufficiently healthy to fulfil the demand going forward.”
The research was undertaken alongside FinTech Scotland, whose chief executive Nicola Anderson said that skills shortages are something the industry body is trying to tackle.
Practical initiatives include work with Hays to support the Scottish fintech cluster in recruiting for in-demand skills like cyber security, mobile banking, cloud applications, artificial intelligence and blockchain solutions.
FinTech Scotland is also working with Skills Development Scotland’s digital advisory group and with Deloitte on a pilot promoting the sector within five schools in Scotland during December, getting entrepreneurs in to speak with S2 and S3 pupils before they make decisions on subjects.
“Nobody’s denying that this is an issue to be addressed, but the more we’ve moved into this home-working digital environment, there’s more innovation around recruitment - recruiting overseas but in similar timezones, better apprenticeship programmes and improving visa schemes from the UK Government,” Anderson said.
Colin Frame, managing director at IT services firm Stellar Omada, believes there is a growing tech talent problem in Scotland and has taken steps to solve it at the grass roots, sponsoring a Digital Education and Innovation Centre at Heart of Midlothian FC, supporting technology skill development in young people.
“I think this is a major problem in Scotland - you’ve got to fix the problem in schools and adopt a bottom-up view of how tech skills become embedded in individuals, giving people the opportunity to embrace it,” he commented, noting relative outperformance by nations like Ukraine and Israel due to their grass roots investment many years ago.
“There’s just not enough people, the skills don’t exist, the problem is here and now,” Frame continued. “In things like software development and data analysis I’m still using the same people I was using 20 years ago.
“Universities seem to be maxed out - a lot of tech employees are retiring and we don’t have the pipeline of people coming through - you can only grow as big as your people allow.”
Myles Stephenson, chief executive at payments-as-a-service firm Modulr, agreed that there’s a global supply and demand mismatch in engineering and tech talent, but argued that this potentially plays both ways.
“It opens up newer markets to hire from, with so many people now working flexibly, but it does take away from some of the benefit Scotland has as a talent pool, so there are clearly pros and cons.”
He is also planning to invest in educational initiatives to support growth, building upon existing links with the University of Edinburgh to broaden the available talent pool.
Analysis by Dealroom and Adzuna in December found that Edinburgh had more than 2,000 tech job vacancies - an increase of 85% since last year. The average tech job in the capital is also offered £58,405 for a new role - the highest in the UK outside of London.
Technology company AND Digital ran an online survey in October with a nationally representative sample of 551 UK-based decision makers. In addition, 50 tech firm leaders from Edinburgh were surveyed.
It found that 40% were concerned about the costs required to train and equip their people with the right data skills - such as analytics, engineering and machine learning.
Dave Livesey, executive for AND Digital’s Club Somerville in Edinburgh, said: “In an age where growth will be fuelled by the effective understanding, use and application of data, it’s vital that businesses do everything they can now to nurture and invest in an in-house talent strategy, placing data at the heart of business operations and opportunities.
“Those that make the necessary investments in talent now will gain huge competitive advantages in the near future.”
Kent Mackenzie, global head of fintech at Deloitte, said that while Scotland’s universities appear to be doing all the right things, and useful projects like CodeClan have sprung up recently, whether it’s enough remains to be seen.
“I’m on the fence - we need a huge amount of capability, but some of these skills are being commoditised, if you want easy access to developer environment, they’re becoming much easier to code in - I wonder whether the tech environment will evolve to the point where it balances out and this is less of an acute pressure point?
“It's not just about developers and data scientists, you also need other people to grow - I think there’s a residual anxiety that we focus too much on tech skills and forget about the social sciences side,” he added.
Paul Roach, co-founder and chief product officer at cryptocurrency start-up Zumo, explained that his team has grown rapidly during the pandemic, and now has 35 staff - with the development team making up about half of that.
Even before the coronavirus crisis, staff were working semi-remotely, with many based in Ljubljana.
“It’s been very challenging to find people of the level we’re at,” Roach stated. “Brexit has made things more difficult, as full timers without the right to work in the UK could have previously been hired throughout Europe, but we’re now restricted in terms of geography as to who we can hire into for the UK business.”
Scale-up funding
The last 12 months has been broadly positive in terms of funding, with Scottish technology start-ups raising £53.5m during the year to September, according to figures from the UK’s Digital Economy Council, Tech Nation and Dealroom.
But that overall figure masks some inequalities between companies and sections of the market.
Joseph Twigg, chief executive of Aveni, which provides speech analytics software for financial services firms, commented: “Securing funding during the pandemic has been challenging, and the stock market crash in March 2020 also impacted fundraising efforts.
“The lack of in-person events, networking and meetings with customers made things more difficult, because there is a very strong collaborative approach to our business,” he continued, adding: “Belt tightening by financial firms has also driven a renewed focus on cost and efficiency savings.”
Despite all this, Aveni secured a £1.1m investment to help launch its AI speech analytics platform last June.
Mackenzie said that some sectors have advanced faster during the last year or so, with venture capital firms being particularly interested in business-to-business solutions like regulatory technology, as the Financial Conduct Authority and global regulators seek better financial transparency, while many firms still don’t have proper digital reporting.
Aidan Campbell, partner at law firm CMS, agreed that payment services, credit and day trading specialists have been more likely to be backed.
“Investors have also been active in supporting providing compliance solutions for regulated firms, within the so-called regtech sector, which includes companies like Encompass and Autorek, both of which have a presence in Glasgow.”
Anderson said that those that have struggled during the pandemic have generally been recently-established start-ups which need more time to develop.
“Those focused on the banking sector have accelerated, while pensions and investment traction also have progressed with digital engagement - which has been a general rising tide - those thinking about inclusion in access to services have also done well recently.
“The fintech community here is looking to attract investment through connections with London, raising the profile of Scottish fintechs, and we’ve seen that start to reap some rewards, but there’s definitely more to do,” she added.
Mackenzie explained that within the Scottish sector, seed and start-up funding is relatively easy to come by, but the challenges begin for those seeking the serious cash injections required to create unicorns like Skyscanner or FanDuel.
Roach concurred that while the environment is good for start-ups in Scotland, the challenge is from going from that into “hyper growth”, as most of that scale funding comes from outside of the Scottish ecosystem.
“We’ve been fortunate in having supportive early-stage investors - governmental funding has a large part to play in the growth stage, as it’s helpful to have a funder that will provide assurance of follow-on investment.”
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