Fintechs spreading across the globe: Seeking innovation beyond the US market

QuickLook Blog

Fintechs are gaining traction in terms of headquarters locations and investments in a vast array of cities around the globe. How do financial services firms stay on top of this rapidly shifting landscape?

July 18, 2018

A blog post by Jim Eckenrode, executive director, Deloitte Services LP.

We have been conducting research on the state of global fintech development for several months. We started by looking at the numbers: How many fintechs are in selected solution categories; what types and volume of investments are they seeing; and where are they located. We are now drafting a new report that explores how fintechs are engaging with incumbents to solve problems for their mutual benefit. There are many threads that weave their way through this effort, and I thought I’d share one of them here: the increasingly global nature of the fintech movement.

In our first report, we noted two countries—the United States and China—where a large amount of fintech funding has occurred. Those investments are spread differently. For example, in the US more than $7 billion has been funneled to over 250 payment fintechs, while in China, a similar amount has been invested in only seven payment fintech companies.

But the reality is that overall, fintech companies and their associated investments are spread across a pretty diverse array of not only countries, but cities around the globe. To understand the specifics, we further analyzed companies and investments by headquarters location.

San Francisco, New York, and London are clearly ahead of the pack for headquarters locations. Each plays host to between 400 to 450 companies, which is not surprising given that the fintech movement gained its first footholds in these three cities. If you add in other cities in the top 50 in the general vicinity of San Francisco, that location wins the headquarters sweepstakes by a country mile. Including Palo Alto, San Mateo, Redwood City, San Jose, Mountain View, and Oakland puts the Bay Area at over 630 fintechs. Other cities in the top 10 include Singapore, Berlin, Chicago, Toronto, Austin, Boston, and Mumbai.

Turning to funding, the numbers show a different picture. While the three cities mentioned above are still in the lead, both Beijing and Shanghai move into the top five, along with Palo Alto. Companies in each of these five cities have raised upwards of $5 billion since 1998, with both San Francisco and New York approaching $20 billion in collective investment. Others in the top 10 are all based in the US, including Atlanta, Chicago, Redwood City, Austin, and San Mateo. It should be noted, though, that Berlin, Singapore, Stockholm, Mumbai, and Sydney are all in the “billion dollar club,” which is not insignificant.

Fintech growth will continue in many locations around the world

The global nature of the fintech movement is borne out in our interviews with fintech and financial institution leaders as well. We noted in our first report that there are “horses for courses,” meaning that certain geographies favor incubation of certain types of fintechs. I wrote in a previous blog about cybersecurity startups in Tel Aviv, for example, which we heard also in our recent discussions. Others mentioned specific strength in artificial intelligence in Silicon Valley and Boston. London was cited as having particular strength in the institutional side of financial services, including capital markets. Blockchain is seen as a hot area for development in Singapore and Hong Kong too.

Nevertheless, fintech growth will continue to find a home in many locations around the world. One European banker, for example, emphasized the emergence of France as a hotbed for startup activity. Trying to stay on top of this rapidly-shifting landscape was seen as both a challenge and an opportunity. Some of the challenge, though, is based on trying to be global, but act local. By the very nature of specific cultural and regulatory differences, solutions designed to solve similar problems will look very different if developed by firms in two different locations. Adapting such solutions for a global market, therefore, is challenging if not impossible to do with a single solution.

As one firm leader said, “We don’t want to be constrained by focusing only on the US. You can usually find five to seven companies globally doing the same things; that was not the case (before).”

What do you think?

Is your company pursuing a global approach to fintech engagement? What challenges and opportunities do you see in engaging with companies in unfamiliar territory? Join the conversation on Twitter: @DeloitteFinSvcs.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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