When the fintech companies burst onto the U.S. scene around the time of the financial crisis in 2007-’08, the image was one of young Silicon Valley and Silicon Alley techbros ready to put aging, creaky necktie-wearing bankers and their businesses out to pasture.
But here’s what happened instead: Global fintech centers rose to challenge the supremacy of San Francisco and points beyond. Overseas, government attitudes on regulation have fostered an environment for fintechs to grow and collaborate. And at home, some cities have quietly laid the groundwork to encourage fintech growth away from the spotlight—but now worth spotlighting. Here are six of those leading and growing global centers.
Atlanta: Heating up into ‘Hotlanta’
The presence of tech talent, academics and/or government regulatory support help drive U.S. hotbeds, Schwartz says. He cites the traditional examples: Silicon Valley (tech talent and Stanford University), New York (tech talent, academics and multiple industry hubs), Boston (M.I.T. and Harvard) and the Washington, D.C. area (government and regulatory).
But there’s also a surprise guest: Atlanta, a center of payments technology.
“Atlanta and Georgia are the most significant places for debit and credit card processing”—handling between 70 and 80 percent of domestic transactions, says Larry Williams, president of the financial industry group of Technology Association of Georgia (TAG). “It’s the part of the process that most people never see as we swipe strips or insert chips, and it’s all enabled right here.”
Williams adds that Atlanta’s story is not increased collaboration between fintechs and banks, but part of an overarching narrative integral to the region’s overall success: “You have this great intersection of companies that have abilities, and also the companies using the technology.”
There’s also lots of infrastructure here—the fiber optic kind—and several other elements making fintech magic:
- Major companies either grown in Atlanta or transplanted there that need payment and other fintech solutions (UPS, Home Depot, Coca-Cola and Equifax among them)
- About 100 companies involved in payment processing (such as Global Payments, NCR and First Data)
- About 90 startups (including Kabbage and Qoins)
- Educational institutions that supply engineering talent such as Georgia Tech, Kenesaw State, Emory and the University of Georgia)
Most Atlanta fintechs collaborate exceedingly well with banks and the vast majority making big profits “are working on the rails that are already there,” Williams says.
Yet Atlanta’s fintech train has hardly left the station—new ones, in fact, seem to pull in constantly.
London’s edge is falling down? Not yet.
London’s ascendance as a global center of fintech was challenged by no one—until the Brexit vote. And now it’s all up in the air, especially with British Prime Minister’s stunning defeat in June’s general election that wiped out her Conservative majority in Parliament, and has put key parts of her Brexit agenda in jeopardy.
Meanwhile, innovation is still booming in London, said Rohit Arora, CEO of marketplace lending site Biz2Credit.com, which connects entrepreneurs with loan options. He pointed to a few challenger banks—in mobile-first fintech, for example—that allow innovators to launch services they couldn’t in the U.S. because of the regulatory environment. (One such financial institution is Starling Bank, the first mobile-only bank in Europe and featured on the BAI Banking Strategies podcast.)
“That’s one big plus London still has,” Arora says. “Innovation is still going on, but the uncertainty over Brexit will not get resolved anytime soon.” Institutions based in London, for example, will not have full access to the full EU market, and are grappling with great uncertainty over bringing in non-UK citizens to work.
The UK is also working hard to foster startup investment through initiatives such as the Enterprise Investment Scheme, a series of tax relief statutes dating from the 1990s. Through the EIS, high net worth investors are incentivized to invest in small, early-stage companies, said Matt Schaffnit, co-founder and chief operating officer of Lending Technologies Corp, a customer acquisition management tool that helps lenders target, acquire, onboard and retain small and medium enterprise borrowers.
Schaffnit also notes that the Financial Conduct Authority Sandbox in the UK, which launched in 2016, allows businesses to test new ideas without all the normal regulatory consequences: for example, facilitating blockchain trials in a government-supported ecosystem that nurtures innovation.
Participants in the first sandbox round included HSBC and Lloyd’s Banking Group, as well as multiple blockchain companies such as Luno (formerly BitX), a cross-border money transfer service powered by digital currencies and blockchain technology. Also making the cut was Nextday Property, a nascent startup that provides interest-free internet loans for a guaranteed amount to customers who can’t sell their property within 90 days.
Berlin and Geneva: Europe’s upwardly mobile
Germany is jumping to be the “not London,” with Berlin now one of the hottest tech centers in Europe, if not the hottest, Schaffnit says. And as a very sexy place to live, Berlin attracts young tech talent.
Switzerland, a traditional stronghold of banking technology and secrecy, has also seen a leap in blockchain and cryptocurrency, in spirit of the nation that’s home to the famously anonymous Swiss bank account. The action centers on Geneva, which hosts FinTech FUSION, a prestigious assembly of 10 global fintech startups handpicked for a 12-month accelerator program.
“There has been an active regulatory scene to create and support innovation for blockchain and fintech in general,” in Switzerland, says Aaron Schwartz, head of fintech research at DeNovo, PwC’s proprietary fintech intelligence platform. He points to a 2016 proposal that made it easier for blockchain startups to hold assets without being classified as a bank, and hence having to negotiate the associated regulatory restrictions.
Singapore: Asia’s tiny tiger
In Asia, the talk has often been of Shanghai’s ascendance. But China’s lack of transparency, closed market and the uncertain political climate make fintechs leery of going there, Schwartz said. But Singapore’s regulatory body and central bank, the Monetary Authority of Singapore, has thrown its support behind both fintech and RegTech. The interesting juxtaposition with the latter is that the relaxed regulatory stance of MAS is helping develop technology that lightens the burden of regulatory requirements.
All of this is making this city-state of just 5.8 million people a fintech force to reckon with.
Schwartz says that Singapore is turning RegTech from a reactive, backward-looking function (“the principal tells you that you have to stay after school”) to a proactive one ingrained in the business. It uses cognitive computing, for example, to monitor and detect suspicious trading as a form of employee surveillance.
“RegTech is an area where you have to have regulators embrace the technology to move it forward,” he said, and having the MAS act as a champion has helped Singapore emerge as a leader.
Singapore has also created its own sandbox geared towards keeping fintech business at home. The overarching goal is to create an ecosystem where banks, fintechs and regulators can work together.
India: Mumbai, Bangalore, and the ‘India Stack’
Arora also pointed to the boom in India, which features two strong fintech scenes: Mumbai as the financial hub and Bangalore as the tech hub. Here, demonetization in 2016 pushed digital adoption on the payment, lending and data fronts.
Mobile wallet players such as Paytm won big as digital payments profited from the “India Stack”—a set of application programming interfaces (APIs) that allow government, businesses, startups and developers to use a digital infrastructure that has moved the nation “towards presence-less, paperless, and cashless service delivery,” as the IndiaStack website says. Individuals are assigned unique identification numbers to make digital transactions quick and secure, let the unbanked join the monetary system, and transform business and government delivery of services and goods.
Yet India has some growing up to do. Its infrastructure is still weak, Arora notes. India’s connectivity is still rising to meet world standards and its integration into world markets lags behind global centers such as London and New York.
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Jeanne Pinder is the founder of ClearHealthCosts.com, an award-winning startup bringing transparency to the health care marketplace. She was an editor, reporter and human resources executive at The New York Times for close to 25 years, and has also worked at the Des Moines Register, Associated Press and Grinnell Herald-Register.