A Brexit vote may have rattled the U.K.'s ambition to become the world's Fintech capital, but the country's biggest lenders are finally opening doors to sector players for tighter collaboration.
Investment into British financial technology companies has dropped 26% to $532 million so far this year, according to a recent survey by Innovate Finance and obtained by TheStreet, less than half of the $1.09 billion recorded last year. It's also a striking contrast to the 27% increase -- to $15.2 billion -- witnessed globally, with China and the U.S. leading the way.
The not-for-profit association, which represents more than 250 Fintech players in the U.K., attributed the decline largely due to uncertainties surrounding the country's June 23 vote to leave the European Union. A steep decline of 33% was witnessed in the second quarter, when the vote was cast.
And with Brexit confusion lingering - a leaked memo Tuesday accused the government of having "no overall strategy" for leaving the EU - the coast may not clear for awhile for the Fintech players, a majority of which are waiting for policies to be set on passporting and immigration, among others.
In another part of town, however, change is slowly happening regardless of the outcome.
Royal Bank of Scotland (RBS) rolled out its tie-up with Iwoca -- which stands for instant working capital -- a London-based Fintech player which lends to small businesses utilizing technology to check an applicant's data and enable speedy credit checks.
Under this scheme, which also involves RBS tying up with four other alternative lenders, the relationship managers of the Edinburgh-based bank can now refer small business customers across the country to Iwoca for credit where the bank cannot.
To be sure, the bank's move was triggered by a change in law, which now obliges the U.K.'s nine biggest banks, including RBS, Lloyds (LYG) , HSBC (HSBC) and Barclays (BCS) , to pass on details of small businesses they have rejected for finance to three online finance platforms - Funding Xchange, Business Finance Compared, and Funding Options. The platforms will then share the details with alternative lenders.
But RBS "cleverly" pre-empted the move by identifying the alternative lenders themselves, according to Iwoca CFO Michael Elalouf.
"For RBS, it's not a desperate move, but a better way to engage with its customers," Elalouf said.
Under the tie-up, Iwoca will continue to extend up to £100,000 ($125,000) under its own brand, which should help the start-up -- launched in 2012 and currently lending in the U.K., Germany, Spain, and Poland -- reach its goal of lending to a million customers out of a potential 20 million across Europe "in the coming years."
But Elalouf insists they have created a win-win situation.
"We are able to do [what the big lenders can do] in detail for small business that are very complex as well...that's what we bring, and that's why it's innovative in that way," Elalouf said. "We are creating a new asset class."
The tie-up may be just one of the many the coming years and may also signify that banks are finally giving a nod to the Fintechs, which have been under scrutiny as to whether or not they can revolutionize the way the banks operate.
Some sceptics have viewed the industry as over-hyped, a view validated when London-based Powa Technologies, a fintech unicorn, was placed into administration in February.
But at least one investor gives a clear verdict on the change that the tech start-ups can bring change.
"Whether a start-up will replace a bank, or the banks wake up and start acquiring start-ups once they've mitigated risks, the jury's out on that," said Jörg Sievert, an investment committee member of technology-focused GP Bullhound. "If you look at the large corporates in banking, they certainly have the ability to act."
"The notion however that those segments in financial services will be heavily impacted by technology, and that innovation comes purely from start-ups, not from the corporates, to me that is very clear," he added.