A leading financial technology industry figure has said giants are not responding fast enough to the challenges posed by the digital revolution as he raised the prospect some could get trapped in a “death spiral”.

David Ferguson, inaugural chairman of Fintech Scotland, said the country is well placed to prosper in the fast-growing sector thanks to the emergence of new firms that are developing technologies which could revolutionise how financial services are delivered.

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“There’s a lot of exciting companies, very small, with lots of great ideas, lots of entrepreneurial activity going on,” he said. “We’ve got a hundred start-ups now in Scotland, which everyone’s pretty excited about.”

As the founder and chief executive of the Nucleus Financial investment platform business, Mr Ferguson has played a notable part in the development of the fintech ecosphere in Scotland.

However, he noted: “We’ve got less activity as far as I can see in our institutions and established companies. It doesn’t feel to me that they are embracing this quite as rapidly as they could or indeed I think we need to.”

Mr Ferguson added: “I don’t know whether it’s been too easy to make money in these firms and no-one’s had to think that hard about it before now, or whether it’s felt so hard because things like systems and operating models are so embedded, but it definitely feels too slow in terms of reinventing for that different future.”

His comments come as new entrants shake up sectors such as banking, with online-only players making inroads without having to deal with the kind of legacy issues some incumbents face.

“It just feels that financial services has to go through a pretty big blood-letting,” cautioned Mr Ferguson, adding: “We can do that and grow to minimise the impact of it or, what you wouldn’t want to see happen here, is have a bunch of companies caught in a death spiral where they’re continuously cutting costs to try to make them remain relevant rather than reinvent through it and come out the other side in really good shape.”

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The 49-year-old can bring a broad perspective after working in big firms and start-up operations.

After studying actuarial maths and statistics at Heriot Watt university, he became a trainee actuary at the former Life Association of Scotland only to get bored of number crunching.

After going on to work in marketing and product development work with the newly formed Scottish Life International and a niche business launched by blue-blooded fund manager Ivory & Sime, Mr Ferguson founded the Abacus consultancy with a colleague Philip Martin in 1998.

The driving force behind the move was the growing conviction that there was lots wrong with the life and pensions industry of the time.

“We both reached more or less the same conclusion that the industry didn’t feel like it was doing quite the right thing for the customer.

“You had a bunch of financial advisers who were essentially working for the insurance industry rather than working for the customer … We thought it would be more interesting if they could work for the customer rather than being paid a commission for selling products.”

Noting the complexity of many products sold at the time, Mr Ferguson suggested this served to conceal the commissions that were being paid.

After spending years considering a range of business models, he founded Nucleus in 2006 with the aim of harnessing the internet to give advisers easy access to the information required to monitor the portfolios of clients and associated charges.

Read more: Nucleus eyes boost from regulator's platform report

The business won early backing from South African giant Sanlam and a range of independent financial advisers but found itself facing big challenges when markets went pear-shaped while it was in its infancy.

“We had a massive problem in 2008 when the financial crisis happened,” recalled Mr Ferguson, noting the fees Nucleus generates go up and down with markets. “We were in grave danger of going bust not long after the financial crisis had we not raised more money.”

A decade on and Nucleus has grown to become one of the leading independent players in the platform market.

Last week Nucleus revealed Assets Under Administration on its systems increased by 6.9 per cent to £15.3 billion at June 30 from £14.3bn at the same point in 2018. The FTSE All-share index fell 3.5% over the same period.

Nucleus made an underlying profit of £4.6m after investing heavily in support of growth.

Regulatory changes such as the 2012 Retail Distribution Review and the introduction of pensions freedoms that have left people with more control over how they save for retirement have provided a boost to demand. The new MIFID II directive to increase the transparency of charges levied in the investment world could also help.

Read more: Scotland wins significant vote of confidence from pensions giant

Nucleus has prospered despite facing competition from Edinburgh-based giants Standard Life and Edinburgh-based Aegon, which moved into the platform space after concluding the traditional pensions business was too capital intensive.

But Brexit uncertainty has created complications. Mr Ferguson noted last week that Nucleus had experienced a marked downturn in applications for jobs from EU citizens. It has managed to recruit the staff it needs but seen upward pressure on salaries, especially in areas such as software development.


What countries have you most enjoyed travelling to, for business or leisure, and why?

I’m a huge fan of the vibrancy and rhythm of New York and Hong Kong, the beauty and vastness of South Africa and the chilled mood of Portugal. My favourite city is probably Berlin, an incredible melting pot.

When you were a child, what was your ideal job? Why did it appeal?

I first wanted to be a pilot - I guess in those days it remained unusual to be able to travel all over the world and absorb all the positive experiences that go with that.

What was your biggest break in business?

I’ve been very lucky in this respect and been exposed to a few highly challenging and inspiring leaders who have been instrumental in encouraging me to think beyond current possibilities and to recognise what can be achieved.

What was your worst moment in business?

We had loads of funding disappointments when we were trying to get Nucleus off the ground. The toughest time was raising new capital at the back end of 2008 just after all the banks had gone bust.

Who do you most admire and why?

Everyone who’s trusted us with part of their career and thrown themselves into trying to push us onto the next level. Others would include David Bowie, Lou Reed, Tom Waits, Wayne Coyne and Scott Hutchison, for their storytelling, resilience or wider influence on the world.

What book are you reading and what music are you listening to? What was the last film you saw?

Mark E Smith’s biography ‘Renegade’ and Seth Godin and Hugh McLeod’s blogs. Music favourites include Mark Lanegan, LCD Soundsystem, Sonic Youth, Velvet Underground and Frightened Rabbit. Last film was Rise: the Story of the Augustines.