As the global fintech sector continues to grow at pace, the Channel Islands’ own financial services digital scene continues to thrive, thanks to a firm foundation of open access and opportunity for all
There have been several landmark moments for the Channel Islands fintech sector in recent years. To name a few, Guernsey in 2017 saw the launch of a blockchain for the private equity market – a world first – along with the rise of popular investment service Wealthify, based in Cardiff but with strong Guernsey connections.
In 2014, Jersey saw the launch of another world first – bitcoin investment fund Global Advisors Investment Fund. The following year, the release of ARC coins, a cryptocurrency, also took place in Jersey. Fintech activity in the region is rife.
So, what’s behind the rise of the Channel Islands fintech sector? The short answer is that it didn’t happen by chance. Rather, a combination of factors came together to spur its growth.
The first factor is infrastructure. Running a fintech firm involves churning through data, performing millions of calculations and using powerful analysis tools – all of which takes a lot of firepower. Fortunately, the Channel Islands have that in bucketloads.
Jersey boasts the world’s second fastest broadband – while Guernsey ranks just one place behind mainland UK. Jersey offers three 4G networks, its early adoption of 5G has been well documented, and both islands host world-class data centres.
Then there is the islands’ thriving financial services sector – a perfect testing ground and source of knowledge for the new tech adventures.
Adam Brown, Strategic Projects Manager at Jersey Finance, explains: “It is common for people to start out in financial services, then launch their own fintech companies.”
These entrepreneurs already know the challenges facing financial services businesses, which is a great starting point for developing solutions.
The Channel Islands also provide a clear regulatory environment in which fintech firms can operate.
In Guernsey, the 2019 Electronic Transactions Ordinance provided legal clarity for contracts built on blockchain and AI. If a company wants to set up a blockchain business, it can do so knowing it won’t risk falling foul of regulators.
In Jersey, while there are not yet specific regulations in place around fintech, Kate Le Blond, Inward Investment Development Manager at Locate Jersey, says the Jersey Financial Services Commission (JFSC) is amenable to the sector.
“When fintech businesses move to Jersey, they are impressed by the fact they can actually talk to the regulator and get all the information they need to get their ducks in a row,” she says.
These factors certainly create an encouraging environment. And there are more efforts under way to get fintech flying, as well.
Silicon bailiwicks
“If you wander down to the hub in Jersey, you see different companies sat next to one another, learning how the other works and making connections,” says Le Blond, describing the Digital Jersey Hub in St Helier.
At the shared office space, digital professionals can rent desks for as little as £5 per day, and bounce ideas off other tech industry workers.
In St Peter Port in Guernsey, the Digital Greenhouse is a similar start-up hub, which is backed by the States of Guernsey.
These hubs are more than just offices with colourful sofas. They offer training on how to pitch for funding, organise mentoring programmes and, pre-Covid-19, put on physical events – ideal for fintech founders to get talking with banks, funds and investors.
Another initiative is the Digital Jersey Academy, a centre of excellence that aims to train people in IT skills. According to Digital Jersey, there are already some 3,000 people working in ‘digital’ positions on the island – around 5% of the working population – but growing the skills base is important.
Jessica Osman, Business Development Manager at Digital Jersey, explains the thinking behind the academy. “We have a fast-growing need for digital skills, but at the same time had a lack of availability of higher education on-island.”
Anyone looking to brush up on Boolean logic, website design or cybersecurity would previously have had to travel further afield. “We now offer degree-level courses, both full and part time,” Osman says.
Since its launch in 2019, the academy has proven hugely popular, attracting students from a variety of backgrounds – school leavers to mid-career professionals.
Then there are ‘sandboxes’ – jargon for using a place as a test case. Jersey in particular has promoted itself as a sandbox for various types of IT.
The idea is that the island’s high-speed internet, reasonably large population and economic development make it a good place for tech businesses to try out a new idea, see if it works and then scale up to bigger markets. Osman cites a blockchain platform that was recently trialled in Jersey for just this purpose.
Similarly, the Channel Islands’ small size makes them a perfect “beachhead” for fintech firms hoping to break into international finance firms, says Adam Brown. “If a company starts up in Jersey, they can prove themselves here and begin working with local branches of international organisations,” he says.
He highlights an off-island fintech firm that began working with a Jersey branch of an international bank. After winning local endorsement, it had a foot in the door, which led to it supplying the bank in bigger markets too.
It is perhaps no surprise that many of the fintech start-ups that have emerged in the Channel Islands are focused on the business-to-business market.
“Other fintech hubs tend to be more focused on the retail, low-value, high-volume market,” Brown points out.
While there certainly are some business-to-consumer fintech firms launching in Jersey and Guernsey, the islands’ finance firms tend to focus on highly sophisticated investor markets.
As a result, the technology being developed targets those needs. “That’s something of a USP for us,” Brown notes.
Giants and minnows
In summer 2020, Jersey Finance conducted research into the state of digital transformation in the island’s professional services sector. The picture that emerged was one of widespread digital adoption, but at varying levels of maturity.
It is, of course, relatively easy for fintech start-ups to use the snazziest new tech, opting to be ‘cloud-first’ and digital in all things. However, for more established FS firms, incorporating these new tools can be the real challenge.
“People often talk of large firms being like oil tankers – it takes a long time to stop and turn them,” says Brown. Weighed down with legacy IT systems and long approval processes, these firms cannot be quite so nimble as the start-ups. That said, bigger firms can also afford to “make greater investments in technology”.
Jersey Finance’s research ranked businesses on a five-step ‘maturity ladder’, from basic IT meeting ‘core fulfilment’ up to advanced firms ‘leading with technology’. Most finance firms in Jersey sit on steps three or four of this scale, according to Brown.
The difficulty with digital transformation is that, like many overused terms, it can end up meaning different things to different sectors. The list of digitalised systems and processes that are now in place across the islands include:
• Regtech – which can enhance the way firms meet their regulatory obligations
• Artificial intelligence – used for tasks such as monitoring normal customer behaviour and identifying unusual purchases to reduce fraud
• Biometrics – identity tools that let customers digitally log in or create accounts securely
• Robotic process automation – which speeds up laborious back-office processes
• Cloud – outsourced computing power that is cheaper and more secure than running servers in a firm’s basement.
While the sheer variety of new technologies available can be overwhelming, Brown argues that tech is really an “enabler”. Firms should ask ‘where do we want to be… what do we want to be known for?’. They can then figure out which technologies will help them reach that goal.
As fintech becomes increasingly entwined with the economies of Jersey and Guernsey, and as more and more funds, banks and wealth managers deploy a variety of new technologies, will we soon come to see fintech and finance as the same thing?
After all, fintech isn’t that different to traditional finance – it just uses a different mechanism.
• This feature was first published in the Digital Edition of Businesslife in December 2020