Are classic financial centers strong attractors for the fintech industry?
At first sight, it seems as if the classic finance industry in London or
is the driver for the development of the local fintech industry. In our view, however, the strong startup
landscape at the two locations is the root cause for the success of fintechs. Financial centers with a
weaker start-up scene such as Frankfurt,
Singapore, Paris and Dublin also develop rather weakly.
On the other hand, the absence of the financial industry does not prevent the development of a strong fintech scene as we see in the
Valley (negligible banking industry) or Berlin (a municipal savings bank and a few smaller banks).
Offshore centers such as Luxembourg, Switzerland, Cyprus, or various Caribbean states are important
habitats and pro forma headquarters of the financial industry but can not attract many fintechs with
their mix of low taxes and low regulation. In future the quality of regulation may play a greater role –
the active, supportive stance of the UK’s FCA towards fintechs may give startups in London
an extra boost, while for instance the more passive and bureaucratic approach of the German BaFin will maybe
curb innovation in Berlin. However, the rather restrictive approach of the different authorities in the US
towards financial innovation was not able to stop the local, fintech industry from gaining leadership.
Beyond the Valley
While most of the world's top startups are headquartered in the Valley, the fintechs are much more spread
across the globe (admittedly, the Valley is still the top player). One reason is the local regulatory and
political framework: Fintechs in China and other emerging markets are predominantly targeting their local
market, which is often difficult to access from Western countries.
However, most large and successful players in Europe and North America address a number of markets with a
very heterogeneous regulatory environment - still being able to adapt their service to a variety of local
markets. In our view, the Valley has lost its dominance mainly because the fintechs are latecomers in the
startup business. The big picture we see - a multicentric landscape - could be the future landscape of
the whole startup industry.
Still, at the moment there are only five countries (USA,
Switzerland and Australia) with a
significant number of fintechs with a really international focus. Will that stay so? It is an open
question, if the big players of the emerging markets will and can go international. And whether the
existing fintech hubs in other western cities like Tel Aviv, Vancouver, Toronto, Paris will grow fast
enough to catch up to with the top hubs.