Fintech clusters are producing some of the world's fastest growing companies. So what makes a cluster shine?
LendingCLub, Transferwise, Funding Circle – they all came out of fintech clusters. There are plenty more, although perhaps not quite so well known, including Oscar, Wealthfront, Avant, Atom, Klarna and OurCrowd. Together these innovative companies are worth billions of dollars and are changing the way we borrow, invest, save, spend and transfer money. More than that, they are showing how companies these days develop and thrive.
Fintech clusters are small, concentrated geographic areas where lots of start-ups develop technology in the hope of it being adopted by the financial services sector. The three biggest are probably New York, London and Singapore, and there are plenty of others bubbling under. Dubai, Hong Kong and Luxembourg all have serious government backing, along with Israel and India. Other cities hoping to develop a significant fintech sector include Cairo, Nairobi, Johannesburg, Oslo, Amsterdam, Copenhagen and Helsinki. Ideally, each continent would have its own major cluster serving its banking sector.
According to an infographic created by Deal Sunny, a coupon and promotions company, total investment in fintech between 2010 and 2015 was $31.bn in the US, $5.4bn in the UK and Ireland, $4.4bn in the rest of Europe, $3.5bn in China, $2.2bn in India, and $453m in Israel. Singapore has significantly stepped up investment from $167m during this period, helping it to leapfrog rivals and join London and New York at the top. Clearly, significant sums are being invested. This is because clusters matter.
Start-ups sharing an environment drive each other on. Their founders meet up, discuss problems and successes, and share information. Yes, they are competitors, but they are a community too, creating populations with appropriate specialist skill sets and feeding off a market in need of solutions. And the more concentrated a cluster, the better the outcome. Success breeds success.
Just a quick look at the finalists for our Innovation Jam 2016 confirms this. Of the 58 fintechs, more came from the three top clusters than anywhere else – eight from the US, five from the UK, and 10 from Singapore. The winner, KERV, came from London.
These centres all have common ingredients: a good source of investment, enough interested and supportive local clients to make a market and a helpful legal and corporate environment. Governments and regulators also need to be flexible and encouraging.
When new technology comes along and disrupts a well-established industry, many governments' reaction is to clamp down and protect what already exists. The cloud is a good example. In countries where the regulator has taken a light hand, fintech has flourished; those where the regulator has moved slowly to adapt have had their dreams of developing clusters stymied.
Take Cairo. Recently it held RiseUp, a rapidly growing conference attended by some 10,000 delegates and investors. But the city's hopes of becoming the fintech cluster for Africa are being harmed by a slow regulator which has left some 50 banks still waiting to be allowed to use the cloud. There are similar issues in Nairobi. Dubai is in a better position, but the legal framework still demands that ownership of fintechs is offshore, creating a more complex and difficult environment in which to start a new company.
Singapore, on the other hand, is flourishing. Blessed with an enthusiastic government with a S$225m five-year plan to build a fintech cluster, it is determined to become the South East Asian fintech capital and is producing fintechs across every sector from blockchain to payments, wealth advisory to trading. It has even recently formed the world's first fintech bridge – with the UK – that will help fintechs and investors from each country gain access to the other.
The bridge is important because size matters when it comes to driving innovation and collaboration and it extends the reach of the respective fintech communities. But perhaps what will always separate the successful from the rest is their constant drive to do things better, to find better ways and better technology. Unicorns, fintech start-ups worth $1bn or more, all have a razor sharp focus. It's about solving problems after all, and banks will always buy into solutions that work.