Turning affordable cities into fintech opportunities
The fintech industry—characterized by brilliant, creative individuals and scrappy startups—has posed perhaps the biggest challenge to the traditional banking industry since globalization. Yet it also provides enormous opportunity, as well as potential. Financial institutions are faced with two choices, then: bury their heads in the sand and lose touch with galloping changes in the market … or get behind fintech innovation and become part of the movement.
In the U.S., transaction value in the fintech market has already reached $1.26 trillion in 2018. And the UK has recently been described as the “global capital of fintech,” an emerging industry that contributes £7 billion ($9.32 billion) to its home economy. These figures hint at the urgency traditional financial institutions face to fully embrace digital economies.
Banks and other financial institutions can help startups succeed when they capitalize and mentor them. Another way to provide critical support is to invest in infrastructure in underdeveloped cities, in order to better house and grow this industry.
That’s not often a headline-grabbing theme associated with the bank-fintech connection. But financial institutions can’t afford to ignore it any more than the ascendancy of fintech in the first place.
Here I’d like to discuss more deeply the idea of banks investing in the renewal of second-tier cities, and the technological advancement of innovation “hubs”—a topic actively and avidly discussed in the UK.
How can we do this sustainably? More than simply throwing money at the startups, we can help them gain footing in cities ripe for reinvention and renewal by investing in infrastructure and local economies. There are many of these second- and third-tier cities in the U.S.—from Kenosha, Wisconsin, to Little Rock, Arkansas, to Syracuse, New York.
Corporate pullouts and population exodus have waterlogged these kinds of cities; nonetheless they are livable places with far more affordable real estate than can be found in big cities. It’s been our experience in the UK that by investing heavily in updating and connecting these second-tier cities—“forgotten” places such as Leeds and Manchester—we’ve sparked prosperity. We become partners in their reinvention: again, not just throwing money at them but helping them think through and achieve civic attributes to help them thrive. Some ways of doing this have included investing in roads and railway lines; building and renovating housing near office parks and other workplaces; and even refurbishing local points of pride such as the town’s soccer stadium.
Further, less expensive second-tier cities have even more potential than gentrified, glamorized areas to become smart cities: ultra-connected, running on cutting-edge environmental thought and technology, and in a constant feedback loop with their involved citizens. So in the UK, a wealthy, ancient university town like Oxford would come up short in terms of offering the kind of real estate entrepreneurial techies can afford.
The other issue is connectivity on the infrastructure level. Living and working in a smart city—a sweet spot for fintech entrepreneurs—requires different approaches to the Internet of Things (IoT) in homes, traffic management of autonomous vehicles, smart energy management including local micro-grids, and so on. Of course, excellent intra-city transport and good, affordable housing are fundamental. Plunging patient investment capital into less glamorous but decidedly more infrastructure-friendly cities would help these innovative businesses start up and thrive.
In the U.S., fintech hubs have already started to spring up in cities such as Atlanta, Austin, Seattle and Omaha. Even digital businesses that start up without much in the way of capital and hard assets still need great connectivity. As financial institutions, we’re in a position to provide that. We’re seeing a similar trend in the UK, where cities such as Cardiff, Birmingham and Newcastle are fast becoming home bases for companies that produce innovative ideas in other digital markets—MedTech, EdTech and CareTech, for example—and attracting talent from our world-class universities.
We must enter into innovative partnerships for the right, positive reasons, and we need the support of enabling regulators, emboldened leaders and ambitious governments. That may sound difficult, but great opportunity exists here for growth, prosperity and job creation. fintech innovators have offered our customers fairer, speedier and stronger services than we have.
By failing to embrace these emerging realities, we risk falling behind challengers from Asia and elsewhere—and truly losing our shirts—because they have everything to gain and nothing to lose. It makes much more sense in this case to commence doing the good work: to roll up our sleeves.
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Nigel Wilson was appointed Group Chief Executive of Legal & General in 2012 having joined as Group Chief Financial Officer in 2009. In 2015 – 2016 Nigel was a member of the Prime Minister’s Business Advisory Group.
For more insights, check out the article: Five ways financial services organizations can build trust.