Alumni newsletter - Where ideas matter
Where ideas matter
In recent years, financial technology, or fintech as it’s more commonly known, has become an integral part of our daily lives – revolutionising the way in which we manage our money. For lawyers too, it is changing the traditional landscape within finance. Katherine Kennedy and Adam Baldwin are two Slaughter and May alumni who now specialise in fintech.
Having originally trained in Intellectual Property and Technology at the firm, Katherine left in 2006 to pursue an in-house role, with the aim of becoming more directly involved in a business. She worked at the investment bank Daiwa for three years before heading to infrastructure provider, Vocalink. She now heads up Talking Fox, offering bespoke legal advice to those operating in the fintech sector.
Adam was at the forefront of fintech work with the IP/IT team at Slaughter and May, and left the firm in 2015 to take up a post as Legal Counsel within the IP, IT and Procurement team at BNP Paribas. He is now Head of Approvals – managing the global internal and external approval of BNP’s eBanking apps, products and services, as well as various global markets electronic products.
Here, Katherine and Adam give us an insight into their work…
"Without a doubt, fintech is altering the dynamic of the financial sector,” says Katherine. “It has introduced an entire generation of start-ups that eat, sleep and breathe their ideas.”
She claims that this paradigm shift, at least in the banking and payments sector, has been catalysed by a number of regulatory initiatives; the one the industry is most focused on at present is PSDII, which has opened the sector to new concepts and a new breed of financial institutions.
“PSDII will ease the grip of the traditional high street banks, forcing them to give access to third parties. Unsurprisingly, payments fintechs have attracted a huge amount of attention over the last couple of years.”
While there’s now a real buzz around fintech, until relatively recently it was seen as a niche topic, according to Adam. “Then the industry started to develop quite quickly and banks woke up to the fact this was going to change aspects of their business,” he adds.
He continues: “When talking about my time at Slaughter and May – what I should really emphasise is that the firm quickly recognised that a different strategy would be needed for fintech work, something that has been highlighted once more by the new Fintech Fast Forward programme. This really stemmed from an awareness that our financial clients needed help in negotiating the fintech space. This meant there was a learning curve in respect of traditional tech risks – such as intellectual property – as well as a new requirement to work with smaller players.”
Embracing the future
A growing interest from consumers in more flexible and mobile banking has fuelled the flood of new ideas in that sector, according to both Katherine and Adam.
“Monzo Bank is a prime example of this,” Katherine states. “Monzo is app-based – allowing users to drill down into transactions, as well as manage their accounts and debit card use, and their customers are wildly enthusiastic about the product.”
While reliance on mobile may seem novel to the UK finance sector, it is not so new to Slaughter and May and its clients. Having worked very closely with Vodafone – which included a nine‑month secondment with the digital initiative and payments team – Adam became very interested in Vodafone’s mobile money transfer product (M-Pesa), which was launched in Kenya in 2007. “This basically allowed people to send money via SMS,” he continues. “One of the reasons this product grew so much was because it wasn’t embedded in the banking industry, so wasn’t constrained to its infrastructure and accessibility. Its popularity was massively disruptive and was a game changer for consumers and businesses in the region.”
Adam realised that the banking industry had to keep on top of tech changes as much as any other industry. “This really shaped my thoughts,” he explains, “and I moved to BNP’s tech team to focus on its fintech offer.”
The way in which contracts are written is another big factor in fintech, with both Katherine and Adam highlighting the need for uncharacteristically scaled-down agreements and the use of far more straightforward language.
“You just can’t approach fintech start-ups in the same way as traditional financial industry players,” Adam insists, “because a 60-page contract is just going to put them on the back foot. By doing that you risk losing momentum – with the deal simply going elsewhere. We have developed a start-up pack of contracts that are much simpler versions of big procurement contracts we would normally work with. It was easier in the past for lawyers to be lawyers and for techies to be techies – but now lawyers need to be well versed in both areas. It’s an incredibly exciting time for lawyers though, because the industry is often moving faster than the regulators – which means the law is not really there to guide you anymore. Instead, you have to predict where the law might go.”
Katherine says: “For lawyers, who have traditionally brought financial and regulatory expertise, the nature of these start-ups means that IP is paramount – but you’ll find it overlooked in the midst of tech development and associated ideas. As it happens, my move into payments was entirely accidental, but it coincided with the realisation that the companies we were negotiating with were actually having to educate the lawyers about payments. For me, that represented a gaping hole in the market.”
With its fintech incubation programme, she adds that Slaughter and May is ideally placed to build relationships with a number of smaller start-ups for whom things may later explode. “Traditionally, the firm has been geared towards big clients,” she continues, “but this is a great opportunity to gain knowledge and build loyalty with companies as they grow.”
While fintech start-ups remain fairly free to explore their ideas, Adam believes it is only a matter of time before the regulators step in and tighten regulations. “What they’ve done so far is give these start-ups a sand-box in which to develop their ideas and encourage fintech innovation, but as their market share gets larger (and their potential to impact the financial markets grows), regulators will step in. What is really encouraging, however, is that we now have the expertise to help them as this happens.”
Katherine points to open banking, PSDII, General Data Protection Regulation and blockchain as giving rise to legal issues that will increasingly affect the way fintech develops and technology is applied. “It’s official: data protection is about to become sexy – because it’s only a matter of time before you see a fintech combining banking information with other data. Banking isn’t going to remain isolated forever.”
While banks have largely looked to make fintech acquisitions, there is now a growing trend towards more collaborative deals, according to Adam. “The most obvious tactic is for a bank to buy the IP,” he continues, “but these days there are a lot of fintech companies who don’t want to sell out too quickly. Therefore, the strategy we develop has to be quite flexible. At BNP, we’ve currently got a mix of acquisitions, collaboration and in-house developments – including Hello Bank, a digital mobile bank launched in 2013 across France, Germany and Italy, the first 100% digital mobile bank in Europe.”