Fintech A Global Change Agent
Nicole Anderson, Redsand Partners
The international finance sector has undergone its biggest historical change during the last eight years, following the initial sea-change felt immediately after the 2008 financial crisis, with almost every corner of the globe impacted by a radical tightening of liquidity, unprecedented levels of regulatory scrutiny and a worldwide contagion of contracting markets, spending and optimism.
Late in 2010, the world witnessed the political upheaval of the Arab Spring — a revolutionary wave of both violent and non-violent demonstrations, protest, coups and riots affecting North Africa and the Middle East.
The overwhelming call for democracy was fueled by ordinary people who finally had the opportunity to have a voice. The catalyst for the wave of political protests and ultimately the toppling of power in Tunisia, Libya and Egypt was essentially the immense dissatisfaction with the status quo. The tool and mechanism to aid the cause was technology — mobile technology and social media (i.e. YouTube, Vimeo and Facebook).
This series of events symbolized a world dissatisfied with the ‘traditional powers of the past’. The parallels with the world of consumer finance are evident. After the most severe global recession in recent history, digital innovators were rapidly emerging all over the world to address the ‘empowerment gap’.
Entrepreneurs, many of them ex-industry were channeling their knowledge and expertise to develop new financial service products and services across all areas of retail and commercial banking — lending, payments, personal finance management, insurance and wealth management.
Fueled by billions of dollars of venture funding, the period between 2010 and 2016 saw an average of US$10 billion dollars per year flow into these companies. Also, this wave of activity has been truly global — San Francisco, Nairobi, London, Zurich, Tel Aviv, Singapore, Sydney, New York and Hong Kong have gained momentum in seeding this innovation landscape with the full knowledge of the powerful impact this could have on economic development, job creation, trade and regulatory advancement.
Becoming relevant as a center for financial services innovation takes time. It has to be predicated on a nation’s, city’s or region’s unique assets. Fintech hubs have to consider at least four enablers in order to be successful:
Many markets have biases — some are very consumer centric, others far more institutional; some fall into further segments or vertical specialization such as wealth (Switzerland) or capital markets (New York). Whatever the market heritage, it is key that a fintech hub serves its innovation directly by providing customers or distribution opportunity.
The ability to blend capability between incumbent businesses and new or entrepreneurial entities creates a fluid and virtuous ecosystem.
Access to capital across the funding ladder is vital to ensure that businesses across the maturity curve can kick-start their technology offering and be sustained throughout their lifecycle.
The early access to capital is generally based on equity models — angel investment, venture capital or even corporate venture capital but as these businesses grow their funding preference often flips to debt or venture debt. Well-funded ecosystems also attract the best global talent.
The resilience of the fintech entrepreneurs is well known. These are globally mobile people who are motivated by opportunity, ease of doing business, investment and the opportunity to make a real difference.
Policy and regulation
The new business models in fintech have challenged regulators and policy makers around the world. The most advanced fintech centers have benefited from open and engaging regulators who are willing to learn and adapt their approach and frameworks to the market demand.
Many regulators have created compliance sandboxes, offering direct support to innovative companies to help them accelerate the readiness for obtaining regulatory licenses. Some regulators, such as the Monetary Authority of Singapore, have set aside an investment fund to directly invest in innovative companies as well as actively experiment with emerging new technologies such as Blockchain.
Fintech is still emerging, as the industry capabilities — technical, commercial, legal — are all being tested. The demand for the best talent — whether it be to serve institutional needs or build growing businesses — is intensifying.
New technology areas such as blockchain, artificial intelligence, machine learning and data science are emerging as ‘big ticket’ skills where premium salaries are being paid. Executives are needing to explore different leadership skills to deal with outside capability.
The aforementioned factors are crucial components to consider but there are others that also play an important part. A culture of creativity is an inherent quality, which does not come that easily. Every hub will need to consider how they foster this piece by piece. Another component is the physical infrastructure.
Bringing ecosystems together in physical labs, co-working spaces and high-speed internet connections, will go a long way to fostering the best foundation for any center to stake its claim as a fintech hub.
These ecosystems work together to fuel knowledge build. Academia, industry experts, mentors and professional service organizations all fulfil an important role in the health and sustainability of a fintech hub. Great examples include the recent announcement of MAS (Monetary Authority of Singapore) at the FinTech Festival not only to make available a US$20 million grant for artificial intelligence (AI) and data analytics projects but to set up a dedicated fintech hub in the middle of Singapore’s business district with the already 400 strong fintech companies.
Level39 in London is an iconic brand in and of itself having been established four years ago. Its 3-floor space allocation to fintech entrepreneurs fueled a collection of some of the best minds and make Level39 a proud landlord to many of London’s fintech unicorns (valued over $1bn) such as Azimo, Revolut and World Remit.
There is a real battle between cities all around the world to gain and sustain strong fintech ecosystems. The reason for this is that fintech innovation, when sustainable, has a straight line to economic development and strengthening of the broader finance system.
A recent study from Deloitte, entitled A tale of 44 cities — The Connecting Global FinTech: Interim Hub Review 2017, demonstrates how fast global centers have entered the frame. The notable fact here is most of the concentration is focused around Europe, the Middle East and Africa.
Fintech is a new economic segment. It is here to stay. The verticalization of Fintech into InsurTech, WealthTech, etc. shows how quickly this market has matured. The opportunities to partner and collaborate are immense. The business models of trust and transparency provided by blockchain and crypto currencies is gaining unprecedented attention, adoption and momentum.
It is my firm belief that there has not been a more significant impact on the finance system and related industries than what we are experiencing now. We are all making history — whether we are innovators or users of the innovation. We all have a role to play in making financial inclusion a reality for the majority. Fintech has acted as the power broker to make this a reality.
This article first appeared in VTQ Magazine.
Read more: https://vtqglobal.com/