Show Hide image

The Silicon Valley of South London

London’s deputy mayor for business Rajesh Agrawal and Croydon Central’s Sarah Jones MP tell Augusta Riddy why Croydon is becoming a hotbed for fintech talent

It has been almost seven years since riots took hold of Croydon, and many residents would argue that it is today a very different town. This regeneration can be seen everywhere in the area, but perhaps the best evidence is to be found in Croydon’s thriving tech scene. And while the riots are for many a painful memory, Jonny Rose, founder of the not-for-profit tech hub Croydon Tech City, says that disruptive time “had a real galvanising effect”. Rose, who was then a recent graduate, says the riots inspired him to return to Croydon, to build something positive at home. “We couldn’t just sit on our laurels,” he says. “We’d come back from university, we were full of ourselves,” he remembers, but says that when he began thinking of starting up, a sense of place and limited resources made Croydon the obvious choice.“Let’s do it from our parents’ houses, rather renting up in Islington.”

Between 2011 and 2013, Croydon’s tech scene grew by 38 per cent. The area is now home to more than 1,500 tech start-ups, progress the Deputy Major for Business Rajesh Agrawal describes as “phenomenal”. He calls Croydon Tech City “London’s fastest growing digital, creative and technical start-up cluster”. Rose, too, is very proud of the progress that has been made, but he attributes the growth to bottom-up regeneration. “You don’t build the UK’s fastest growing tech economy by waiting on politicians.”

So, what is behind Croydon’s tech boom? Rose says the area already possessed all the necessary parts, and that it just needed a “unifying body” to unlock its potential, as Croydon Tech City has been successful in doing. As the “largest town in Europe,” the talent was there in spades. “Croydon is almost a city within a city, and if you think about the sort of people, the sort of talent you need to create a tech ecosystem ... [they] are all present in Croydon.” The borough is a major commuter belt, and Rose points out that talent was there, but simply commuting elsewhere. “We knew the talent was going uptown, so why not build an ecosystem here to retain it? This has really been one big retention exercise.” Crucially, Croydon was already home to some major tech companies, such as Dotmailer. Rose says this “proved that you could build a tech city here”, provided the means to create a well-connected tech community.

At the forefront of this community are a number of fintech firms that have been born and raised in the borough take off in recent years. Notable success stories include QuidCycle, an “ethical financial services company” that re-finances high-interest credit cards and loans, and Uniqodo, a “voucher code platform for eCommerce marketing”. Agrawal is himself a successful fintech entrepreneur, and he agrees that Croydon held the “key ingredients of developing a good ecosystem” including cheap rent and excellent travel links. For Agrawal, a particularly important factor is the makeup of the workforce: “[something] that really is attractive to entrepreneurs is diversity, and Croydon is very diverse”.

The newly-elected Labour MP for Croydon Central, Sarah Jones, is equally enthusiastic about Croydon’s future as a home for fintech companies. “As a new MP, I’ll be looking to quickly get involved and build relationships within the tech scene. I will be listening closely to firms already here to ensure we are doing all we can to support them,” she says. Like Agrawal, Jones points to a diverse talent pool as one of the factors central to the borough’s tech success. “Croydon is a vibrant community with incredible diversity and energy so it is no surprise that young and innovative companies are increasingly choosing to set up here”. In local government, too, the potential of tech start-ups is recognised and encouraged; Croydon Council was named digital council of the year in this year’s Local Government Chronicle awards.

A nationwide debate on the technological skills gap has emerged in recent years with the growth of Britain’s tech sector. Jones says it is “vital that people from Croydon are contributing to and benefitting from our burgeoning tech scene. In the longer term this means investing properly in skills both for young people and adults – helping develop those lacking in basic digital skills and abolishing the digital divide.” There is a strong feeling that the growth of Croydon’s tech scene should not benefit only a technologically savvy elite, but the community as a whole. At City Hall, Agrawal points out the Mayor’s £7m Digital Talent Programme, which is aimed at training young people in digital skills, while at Croydon Tech City, Rose and his team have set up Future Tech City, a volunteer educational programme “converting non-tech locals so at least they have the skills to access jobs in the scene on their doorstep”.

Rose is so enthusiastic about his home town that he has recently started a line of T-shirts that read: “Croydon vs The World.” He talks excitedly about a recent local exhibition by Damien Hirst and an urban saffron farm round the corner from East Croydon station. “Now everyone has got a bit of vigour whereas once people were a bit ashamed ... Croydon is no longer a place where we lay our head at night”. Clearly, fintech firms are not the only things taking off in London’s leafiest borough and, as everyone is keen to point out, it’s all just 15 minutes from central London.

Augusta Riddy is a Special Projects Writer at the New Statesman.  

Show Hide image

Borderless banking: changing how we send and spend money abroad

Different countries represent fresh opportunities for businesses and individuals alike.

At the Bao Forum earlier this year, the People’s Bank of China governor Zhou Xiaochuan said that globalisation is a “reality for all countries and is not a matter of choice”, as he urged G20 finance ministers and central bankers to ensure their policies reflected this. Pankaj Ghemawat, professor at NYU Stern and IESE business schools, is not so sure. He argues that the world is “not nearly as globalised as people think” and told the Harvard Business Review: “I’ve been spending a fair amount of my time compiling simple metrics of globalisation. I ask people, for instance, of all the phone calls in the world, what percentage last year were accounted for by international phone calls? Turns out, the answer is about three per cent. Or I ask people questions about foreign direct investment; what percentage of all the investment going on in the world last year was accounted for by cross-border investment? The answer is less than 10 per cent.”

The challenges involved in banking and doing business across borders, of course, are not exclusive to governments or large international firms. At the most basic consumer level, people can be put off spending or sending money abroad by unfavourable exchange rates, domestic bank mark-ups or the slow processing times caused by legacy technologies.

TransferWise, a fintech venture committed to globalisation, was born out of frustration with the torpor of traditional banks, and their exploitation of customers. In 2011, Taavet Hinrikus, Skype’s first employee, and financial consultant Kristo Käärmann were Estonians living in London. Both found the hidden costs of transferring money between their native country and the United Kingdom punitive. Hinrikus worked for Skype in Estonia so was paid in euros; Käärmann worked in London but had a mortgage back home to pay in euros. As most UK banks charged a mark-up on the currencies’ exchange rate, which was not advertised, the pair were losing significant sums in a veiled commission.

In 2016, HSBC, formerly advertised as “The World’s Local Bank”, charged its customers £63.70 to change £1000 from sterling into euros. Halifax wasn’t much better, with a transfer cost of £42.50 on the same sum. For Käärmann, this amounted to “an extra tax,” on the men’s monthly salaries; but out of this problem, they found a solution. He explains: “Taavet and I came up with a simple scheme. Each month we checked that day’s mid-market rate on Reuters to find a fair exchange. I put pounds into Taavet’s UK bank account, and he topped up my euro account with euros.” As a result, Hinrikus was having his living costs paid in London and Käärmann was having his mortgage paid at home. “We both got what we needed, and neither of us paid anything in hidden bank charges.”

TransferWise now serves 61 different countries with exchanges between 41 currencies with its Borderless account, which is accessible both through an app and the company’s website. Borderless does charge a “small and transparent fee” on each currency conversion, of between 0.5 and 2 per cent depending on the locations involved. The “clever part”, Käärmann says, is that Borderless doesn’t actually need to see money leave its country of origin to be transferred. “TransferWise has accounts all over the world, linked together by our smart technology. If you want to send pounds to France, simply log on and send pounds to TransferWise’s UK account. Then TransferWise’s French account sends euros to the recipient. The money never actually leaves the country it started in.”

When TransferWise began, Brexit would have represented little more than an elaborate typo. Six years on, the UK’s decision to leave the European Union is a curveball which most businesses will have to deal with. Do fintech services such as Borderless represent an opportunity for UK-based companies to remain competitive on the continent? Käärmann says borderless accounts will “make it more convenient for people who make these transfers more often, for example a Swedish furniture maker.”

He continues: “What they would normally do when they sell in another country is make an invoice to a foreign warehouse or whoever sells their tables and chairs. They would put their Swedish account number on it. They would charge them in Swedish Krona. There is the supplier, or re-seller, getting the invoice with the Swedish account number and invoicing them in Krona. What they would do is go to a bank in the other country and do an international wire. What the Borderless account allows them to do, is to start invoicing in local currency instead.”

Philipp Paech, assistant professor of financial law at the London School of Economics, says many attempts at borderless banking will be hampered by the regulatory environment. He explains: “In practical terms, borderless banking can happen for sure, at least when it comes to transferring money for holidays or whatever. But in legal terms, it’s impossible. As long as we work on the basis of territory, then rules and regulations are going to be different in different countries.”

There is also the question of tax. How can we be sure that UK businesses won’t use fintech companies such as TransferWise to circumvent regulation by basing’ themselves in countries with more favourable tax rates? Käärmann counters: “That’s more of a question for the taxman himself. People are taxed where their business is based physically. As for abusing something, at TransferWise we have 100 people working on preventing tax evasion and anti-money laundering schemes.”

Perhaps the most significant bulwark to borderless banking, however, remains undecided. The ‘passport’ rules between banks – which allow free trade between any firms in an EU or EEA state – will be revised, and most likely removed, post-Brexit. Paech says: “After Brexit, the UK won’t have a European passport for financial services, which it does have now. At the moment, UK fintech companies can provide their services across Europe without any additional authorisation from other countries, or if they do need some then it isn’t very much. If a fintech company decides to stay in the UK and the Brexit terms aren’t great, then they’re going to need a second lot of authorisation from each EU country. That could be a lot more work.”

Lucian Morris, the UK head of fintech at Deloitte, suggests that whether banking can really be borderless depends on two things: fintech’s ability to actively encourage a step change in traditional bank behaviour and the eventual demise of cash. While bank-bashing might be in vogue, Morris points out that banks still signify the status quo. He remarks: “It’s clear that people don’t like their banking relationships, but when you look at the rate of current-account switching, it’s actually quite low. Various aspects of banks’ services might be under threat, but when you’ve already got that large-scale presence from years of being the incumbent, you’ve got time on your hands. Fintech still needs to work on getting better mass adoption.”

Achieving that, though, Morris feels is definitely possible and he credits people craving convenience as the core reason for his optimism. “We are heading towards a cashless society,” he continues, “and that’s because people want to be able to pay in real time. Contactless is already a step towards that. As we go cashless, fintech companies are going to be able to offer a market rate plus a small fee. That sort of thing, I expect, is where you’ll see the borderless movement of fintech really take off. What do we even mean by borderless? There are two tracts. One means sending or using money wherever you are in the world. The other means being able to have a local account in more than one place. You can create accounts remotely with fintech and you don’t need a physical address anymore.”

Ultimately, then, it would seem that borderless banking is possible – the technology is becoming increasingly available – but there are barriers to adoption which need to be overcome. Considering the prospect of increased protectionism post-Brexit, the business case appears clear; but it is the growing culture of convenience, as Morris notes, that may be what really turns the tide.

Rohan Banerjee is a Special Projects Writer at the New Statesman. He co-hosts the No Country For Brown Men podcast.