Over the last couple of years, the world has seen a race to develop the best expertise in financial technology – boosted and supported by technological evolution, availability of funding, increased support from governments and regulators and changing customer appetite and expectations. While a few years ago blockchain and bitcoin were the exclusive domain of a few, they have now become mainstream. Another demonstration that a revolution in financial technology is not just desirable, it’s happening.
And as with any revolution, the battle grounds are being drawn. No capital city or financial centre wants to be left behind. While London, New York and Silicon Valley all compete for the FinTech crown, a number of other cities are also creating the infrastructure necessary to compete on the world stage. Berlin hopes to gain ground after Brexit and funding inflows for the country’s fintech sector amounted to $421 million in last year’s first three quarters only, compared to the UK’s $375m. China is fast developing world class expertise in fintech, pushed by its tech savvy consumers, strong investment and government support for innovation – a contrast compared with many aspects of China’s more traditional financial services sector. According to Accenture, fintech investment in China more than tripled to $10bn from 55 deals last year representing 90% of fintech ventures in the Asia Pacific region. Dubai’s fintech scene continues to grow – late last year the emirate launched its own blockchain strategy that aims to move all government transactions to the online database by 2020 and earlier this week, Dubai International Financial Centre launched a $100m fund to invest in financial technology startups.
But what is most exciting is that compared to other growing sectors, innovation in fintech has not just been confined to developed markets. Interesting fintech startups have popped up in places where the majority of the population are young, and largely unbanked. In Indonesia, where SMEs represent a vast proportion of enterprises, businesses like Amartha, a peer to peer lending platform for businesses has proven very successful. In Africa, most fintech ventures focus on developing easier ways to make payments and sending remittances (but despite that focus, most investment in African fintech continues to prioritise blockchain).
This worldwide interest in fintech is not, however, without challenges nor critics. Some wonder how much it is hype and how much it is reality. But whatever it is, the entire world has turned its head towards fintech, trying to understand how best to support this growing innovation, and how integrate it into the way we run businesses and live our lives.
There is no doubt that as fintech continues to grow, policymakers and financial services will have to look at the right framework to support it. The trends are moving in the right direction:
- Fintech and financial services are increasingly collaborating across the world. Failure to do so will lead to falling into irrelevance and into what the former CEO of Barclays, Anthony Jenkins, called their own ‘Kodak moment’ if they fail to keep up with the pace of rapidly developing fintech technologies. Partnering with innovators allows incumbents to outsource a chunk of their R&D and bring solutions and products to markets quickly. Fintech companies also benefit from those partnerships – they can test theories and models and in some cases can access larger data sets. Banks and insurance companies are increasingly supporting tech hubs and encouraging others to do the same. There are many examples of successful models for partnerships and initiatives – from Intesa Sanpaolo’s Neva Finventures spa, a corporate VC set up by the bank to invest in international fintech startups as minority investors; To YES BANK, India’s fifth largest private sector bank, which earlier this year launched a business accelerator programme for fintech startups called YES FINTECH.
- A number of countries are re-looking at regulation and at cooperation between regulators globally – although this is a more marked trend in Asia compared with the rest of the world. In a recent study of fintech hubs, Deloitte found that out of the 16 regulators who have either set up or have committed to setting up regulatory sandboxes, 7 are in Asia. Regulators in India, China, South Korea, Hong Kong, Japan, Australia and Singapore have all signed international cooperation agreements with other regulators (Singapore’s MAS has signed more fintech cooperation agreements than any other). While it’s generally true that the most successful innovations come from the ground up, government support is key to scaling. Around the world, particularly in more developed economies with strong governments, we are seeing the public sector competitively finding new ways to support a growing fintech ecosystem – committing funds, words, strategy documents and infrastructure to varying results.
- More academic institutions are looking to develop the next generation of fintech talent by training science and management graduates through fintech courses. Oxford University, MIT, Wharton School of Business already offer opportunities in financial technology, and a number of other universities are following fast. Democratising the access to fintech know-how will be increasingly important too, to ensure that countries that would truly benefit from financial technology are not excluded – and this is where partnerships with the financial services sector could really make all the difference, enabling brilliant startups in emerging and developing markets to learn how to grow, though bespoke programmes and university/private sector partnerships.
- Many cities have understood the importance of building healthy ecosystems for startups to talk to each other, mix, discuss and create JVs. As international family offices and new investors descend onto fintech, the sector can appear hard to penetrate and crowded to an outsider. Having a physical fintech hub where some and most of these companies congregate, have a voice and network is helpful to investors too. Cambridge’s life science’s scene did well in that, and so did of course Silicon Valley. Cities have an opportunity to create something special to attract the best minds and R&D in fintech – and the competition is on.
Alessandra is a member of the advisory council of YES BANK’s India Fintech Opportunities Review, launched in November 2017. The Review’s purpose is to understand India’s fintech landscape and to provide recommendations to the Government, regulators and corporates on how to create an enabling policy and infrastructure for a fintech ecosystem. Please feed your thoughts into the survey.