Nevermind the digital revolution, location is still important when deciding where to set up your business. Sofia Lotto Persio investigates what makes for a prime location on the global fintech scene.


Fintech start-ups know that the old business mantra “location, location, location” remains as relevant now as it was in the pre-internet era. The development of digital messaging has enabled faster and more efficient communication between businesses across the world, but the physical jurisdiction in which a firm is located plays a big role in determining its access to funding and mentorship, as well as its overall growth.

Just like in real estate, in the fintech space some locations are more prized than others – which explains the rise of fintech hotspots around the world. At a session dedicated to why banks need fintech hubs at Sibos this year, representatives from six established locations: Silicon Valley, New York, London, Switzerland, Singapore and Sydney, were able to
make the case for their own unique value proposition. Out of these, Singapore, New York and London stand out as the biggest centres in their respective regions.


The three main global hubs

London, Singapore and New York’s position as global fintech hubs is hardly surprising, as these cities are also top financial centres, and the fintech industry, it turns out, needs proximity to financial centres more than to technology. Just ask Nektarios Liolios, CEO and co-founder of Start-up Bootcamp, an accelerator platform that runs its fintech start-up programme in those cities. He tells GTR that it was important for the firm to have a presence in all three hubs, with the first fintech programme established in London in 2014.
London was almost an obvious choice. According to Liolios, the city combines all the elements start-ups need in order to flourish: access to key industry players; an innovation-friendly regulator; a tax system allowing for venture capital funding; and a visa system allowing entrepreneurs to establish themselves in the country.

Start-up Bootcamp then expanded to Asia Pacific. “We decided to go to Singapore first because we really wanted to have global credibility before we entered the US,” he says. Singapore was chosen over other alternatives, like Hong Kong, for a few reasons: despite Hong Kong being a bigger financial market in terms of volume, the start-up ecosystem is not as developed. The financial regulator also played a part in the decision. “The Monetary Authority of Singapore is a much more impressive and visionary regulator than any other in the region,” says Liolios.

From the strength of these experiences, Start-up Bootcamp exported its programme to the States. “For us it makes more sense to be in New York [than Silicon Valley] because we need to be close to the financial industry and to the regulators,” explains Liolios. That proximity is essential in enabling the success of the programme, considering the early stage of development of the start-ups participating in it. “The West Coast is good for funding once the start-up has grown a little bit and is looking for money; then it makes sense,” he says.
Establishing the programme in different jurisdictions presented challenges, especially concerning living costs. “London, Singapore and New York are not the cheapest cities in the world. You need to run a programme in these locations because that is where the industry is, but sometimes it is quite expensive for the entrepreneurs to live in that city for three months, especially for the early-stage teams who come from an emerging market,” says Liolios.

Visa requirements are another aspect that can make or break the success of a fintech hub. Blockchain-based KYC start-up Tradle recently relocated from New York to London to take part in the fintech Start-up Bootcamp, but CEO and co-founder Gene Vayngrib has yet to secure a long-term visa. Still, Vayngrib does not regret the move. “The London fintech scene is striving, I witnessed it with my own eyes. We started with banking but now we get a lot of traction in insurance, for which London is the best place to be in,” he says.

Securing a visa is, however, a real worry: “Despite being a US citizen, it is a huge problem. I need to apply for the entrepreneur visa, but it has requirements that I cannot meet at the moment.” One of the conditions for the visa is that the entrepreneur has access to at least £50,000 investment funds, which may be difficult for early-stage start-ups to secure.

Being able to attract entrepreneurs of various nationalities is an important element of being a fintech hub. “London has over 48,000 jobs in fintech because it is a global city. Being a global place is key because talent can come from anywhere. You need to make sure you have a match of talent, great policy environments and the problems that you are solving are real, genuine problems,” explains Adizah Tejani, head of ecosystem development at Level39, an incubator and accelerator programme based in the heart of London’s Canary Wharf. Governments, both at the local and national level, have a huge role to play in creating a favourable environment, for instance, by supporting start-ups through trade missions. Remitia, a Level39-based start-up which enables the buyer in the supply chain to pay his supplier invoices instantly, opened an office near Wall Street in September after joining London mayor Boris Johnson on a trade mission to New York in February. More initiatives in support of transatlantic co-operation are being set up. The UK government-backed Innovate Finance recently partnered with the association BritishAmerican Business to facilitate companies in expanding their operations across the US-UK fintech axis.

Promoting excellence of the local start-up scene to the outside world is a job that business organisations are increasingly focusing on. “Organisations like UK Trade and Investment (UKTI) and London & Partners are making sure they know what is going on in the fintech space and are flying the flag for entrepreneurs. They all want more tech companies to be based here in the UK, so it is also their job to have a good understanding of what is happening,” explains Tejani. In standing up for fintech start-ups in London, she says, strength is in unity: “To compete in the best way it is better for us to stand together, but we all have our niches.”


Enabling collaborative partnerships

Global fintech hubs aim to foster that spirit of collaborative partnership between banks and start-ups, and strategy is key. “A bank should be strategic in how it applies technologies, and fintech companies are able to help. Making sure you are open to that is important,” Tejani says.

According to her, a successful bank/start-up relationship needs to have these elements: clarity about the problem to solve; awareness of how the bank’s procurement cycle works; and communication within the organisation about why the change is important and helpful for the institution’s growth. “It’s also about the follow-up and the building of the relationship,” she adds. “It cannot just be a one-off, it needs to be more long-term. Entrepreneurs are trying to build their business, their team, keeping things going… In fintech sometimes things take a bit longer and that is important to understand.”

This timing issue is one of the reasons why accelerators play a big role in facilitating start-ups’ development. Vayngrib’s Tradle just graduated from the Fintech Start-up Bootcamp and the experience has fast-forwarded its time to market. “Normally for a start-up to get to market it would take a year and a half at least – we shortened that time and by the end of the programme we had a pilot with a bank. That is something amazing and really hard to understand outside of that environment.”

Working with the banks has its challenges, especially when it comes to communication. To create the right product, Tradle entrepreneurs met with several people within the bank, holding several discussions regarding the product’s validation. “Out of these conversations came ideas for product changes that we implemented during the accelerator programme, and that was extremely hard. We had four or five hours of sleep every night,” says Vayngrib, adding that the hard work paid off: “At the next meeting with a bank, we understood their language and they understood ours and we could move much faster.”

For Remitia’s business development advisor Jonathan Schneider, timing was also an issue, but mostly due to the banks’ internal processes. “The biggest challenge has been the fact that we needed sign-off from a lot of different departments and that has usually been fairly attritional, and also time constraints, particularly on the senior executives side, has [made the process] slower than we would have hoped,” he tells GTR.

Nonetheless, “bank partners are extremely valuable”, says Darren Camas, CEO and co-founder of BitNexo, a bitcoin-blockchain-based platform facilitating cross-border payments between Latin America and China. BitNexo won an innovation competition organised by BBVA and worked closely with the bank’s executives to understand regulatory, compliance and legal issues. “From a start-up perspective these are all costs and research time that we would have to bear, so that was huge,” he says, adding that BitNexo is still working on prototypes together with BBVA.


Choosing the best opportunity

Fintech collaboration is not only about creating products to improve the banking system, it is also an opportunity for banks’ executives to increase their own digital expertise.
A growing number of financial institutions are looking to forge mutually beneficial partnerships by opening hubs and accelerators around the world, or organising hackathons. To mention a few examples, HSBC has recently launched an Asia Pacific innovation lab in Singapore; BNY Mellon has opened its first innovation centre for the Emea region in London, following those in the US and India; Commonwealth Bank of Australia’s lab has produced its own blockchain, and Barclays’ programmes in New York and London have become respected within the accelerator scene.

But do start-up accelerators feel like they are competing with the banks? “I don’t know if competition is the right word, because everyone has their own value proposition,” says Liolios. He points out, however, that the increase in programmes organised by banks or other organisations is creating an environment that start-ups are finding hard to navigate. “Because there is so much noise, entrepreneurs are finding it difficult to figure out which programmes are giving them a lot of quality and which are the ones that generate a lot of PR.” He advises entrepreneurs to understand their own needs, what each programme can offer, and to choose accordingly: would they rather be in a programme run by one organisation or go to one giving access to a pool of contacts or products with multiple organisations?

Liolios advises banks who have fintech ambitions to consider what they can offer entrepreneurs outside of their brand, and to consider whether they truly have in-house capability to deal with early-stage start-ups. He reflects: “Regardless of the PR element, what do you actually want to do with those start-ups? I think some of the banks who run their own programmes haven’t fully figured that out.”


Do you speak Fintech?

A programme to which start-ups apply to receive mentorship and limited capital, in exchange for a single-digit percentage of equity. The programme usually lasts three to four months, at the end of which the start-ups graduate. Similar to a very intensive college experience to jump-start a business.

Digitalisation vs. digitisation
The two terms are closely related and both refer to creating digital data, products and processes. One refers particularly to the process of converting analytical data to a digital format, whereas the other defines the process of making ever more products available on and for a digital platform – but which term refers to what is an ongoing matter of discussion. Tread carefully around this topic!

One of fintech’s most popular buzzwords, its use in the context of technology and innovation derives from the work of professor Clayton M Christensen, who coined the theory of disruptive innovation. He defined it as innovation that starts from the bottom of a market and relentlessly moves up, creating a new market and value network, allowing a whole new population to access that market, and eventually displacing market leaders. Basically, it’s as if an industry sector underwent a French revolution.

An event of limited duration (one to a few days) in which people from different backgrounds, but particularly those involved in computer sciences (from developers to designers to data scientists), work in teams to create a new product to solve a certain challenge. They usually win monetary prizes, and eternal glory. The products developed are generally open-source.

Similar in goal to an accelerator, but different in method, incubator programmes are usually physical locations in which start-ups collaborate with one another and with external mentors. Incubators don’t set a timeframe for the start-up’s graduation, but are likely to take a bigger equity cut of the businesses they support.

A term describing a start-up whose market evaluation, based on fundraising efforts, is valued at US$1bn at least – an eventuality that was thought to be a figment of someone’s imagination. For something that was once restricted to the mythical world, the unicorn universe is becoming increasingly populated, with over 100 companies and counting. This new reality is giving way to new equine-related terms to describe different kinds of billion-dollar start-ups. Watch out for the thoroughbreds, companies whose value is expected to last in time rather than pop in a market bubble.