Fintech For Beginners, Part 2

“Creative disruption” is a phrase that’s often used when talking about fintechs, and “Fintech for Beginners, Part 1” introduced some of the ways in which this relatively new industry is affecting traditional approaches to business. It’s not just business practices that are changing, though: Fintechs are also playing a part in altering the economic prospects, regulatory requirements and even the geography of the areas in which they’re based.

No matter where you go these days, you’re likely to encounter a fintech or a fintech employee: the industry’s strong technological bias and desire to tap the best in innovation provide an ideal base for distributed workforces. Physically, fintechs often cluster together with San Francisco and London being the leading locations of choice. New York, Peking and Mumbai additionally act as fintech hubs, and hotspots such as Wellington, Amsterdam, Stockholm and Berlin also offer a focus for fintech activity.

The concentration of fintechs in certain areas isn’t just a case of birds of a feather flocking together. A favourable regulatory environment and openness to innovation can be decisive factors in a company’s choice of location. London’s emergence as the fintech capital of Europe has been facilitated by its reputation as a world financial centre, and a clearly voiced political willingness to support innovation in the financial sector.

Whether due to tradition or inertia, many other European countries are currently lagging behind in creating equally favourable conditions for fintechs. In both the UK and the Netherlands, banking associations have acknowledged that fintechs can benefit their business; the UK’s Open Banking Working Group supports an open banking API which would enable data sharing and increase competition and consumer choice. In a contrasting move, Germany’s Sparkassen (savings banks) wish to ensure that Internet companies (particularly major players moving into the mobile payments field, such as Apple) are held to the same high – and potentially restrictive – regulatory standards as the banks.

London’s status as the European fintech player is borne out by the figures: EY reports that one half of all promising fintech startups are located in the capital, which attracts 68% of all European investment in fintech. Although the US still takes the lion’s share of fintech investment globally, the funding continues to flow for the UK and Ireland: in 2014, fintech investment in these countries grew by 136% .

Overall, fintech remains a popular choice for investors. Major players such as Andreessen Horowitz and Accel Partners have fuelled the boom, with investment in fintech rocketing from US$3 billion in 2013 to US$19.1 billion in 2015. Perhaps appropriately for an industry committed to finding new solutions to old problems, fintechs are also looking towards alternative, less traditional forms of investment – it’s predicted that crowdsourced funding will soon overtake venture capital investment.