I’m just going to come out and say it: here in the U.S. FinTech industry, we are spoiled.
We never have to travel more than half a day to get to the top conferences and events, and we have the lion’s share of the funding and many other benefits that come with a collaborative ecosystem and business culture that rewards innovation and experimentation.
However, after spending the last week in Melbourne for FinTech Australia’s Collab/Collide Conference in Melbourne, I am left wondering whether U.S. FinTech players could be missing major opportunities and leaving money on the table.
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Your right room might be in a different house
Successful networking can have amazing consequences. Being in the right room with the right people can lead to profitable partnerships, new revenue streams and technologies, client bases, light bulb moments and so many other game-changing connections.
At the same time, there can also be a risk of going on ‘autopilot,’ mindlessly attending the same events with the same people with little preparation and burrowing deep into your comfort zone.
As we look to 2017, FinTech executives and entrepreneurs should challenge themselves to look further afield, particularly at the many whose products and solutions have global applicability. It can be easy in the U.S. to be inward-looking, considering the vast number of financial institutions, prospective capital backers and, of course, hundreds of millions of customers.
But according to the EY FinTech Adoption Index, Hong Kong has the highest rate of FinTech use of all markets surveyed (29.1%) with the U.S. adoption rate coming in at just over half (16.5%). In addition, FinTech hubs are sprouting around the globe in places as diverse as Berlin, Tel Aviv, Shanghai and Sydney, and FinTechs that are not building relationships in these places are missing out on great partners, insights, customers and, ultimately, revenue and profit.
“The Australian government has been very supportive of the FinTech community,” says Danielle Szetho, CEO of FinTech Australia, an organization dedicated to cultivating the financial technology ecosystem. “Federal Treasury and Regulators such as ASIC have been working closely with us to help drive a more forward-thinking, world-leading policy agenda, and address critical infrastructure gaps at a grassroots level to help Fintech startups in Australia to thrive and grow.”
“The Collab/Collide Summit, and the inaugural EY FinTech Australia Census launched at the Summit is a perfect example of that collaboration in action,” says Szetho.
In addition to governmental support, there is significant investment being made in FinTech by major financial institutions, such as the announcement by Westpac, one of the ‘four pillars’ that dominate Australia’s banking system, that it will allocate $50 million AUD to the construction of a FinTech-specific capital fund.
“Reinventure is a bold new strategy in corporate VC designed to directly address the challenges presented by banking disruption,” says Simon Cant, co-founder and managing director at Reinventure Group. “We focus on innovative technologies that can scale rapidly through knowledge sharing with Westpac, our investment partner and second largest bank in Australia. Our current principle investing theme is focused around data and AI companies like Data Republic, a platform for managing data sharing between corporations.”
“By marrying great entrepreneurs with a great partnership opportunity, it creates a win-win that advances all interests,” explains Cant.
While the U.S. will always be a FinTech hub, there is a growing trend of financial technology companies with global applications using Asia as a base to develop and grow before looking at the U.S.
“Banks in other parts of the world, in places that we in the U.S. may think of as developing nations, have had systems advance more quickly by responding to the rapid growth of mobile/digital-enabled inclusion. These growth markets have needed hyper-efficiency in a lower deposit/loan balance environment,” said Joe Salesky, award-winning banking innovation expert and CEO of global banking CRM provider, CRMNEXT.
“Most major U.S. banks have significant issues with siloed systems and channels supporting the customer. Frequently, self-service customers start a loan application online, and have to restart the process with a branch associate. Tellers and call center staff frequently need to screen-hop across systems to complete simple tasks. This friction causes lost sales, lost quality and can lead to lost customers for banks with antiquated systems.”
Follow the middle classes
It is said that one only needs to look at the middle class to see where a country’s economy is headed. While the U.S. is still a key innovation leader, many FinTech companies are looking beyond North America and Europe with our shrinking middle classes to Asian markets, which the Brookings Institute estimate will more than double by 2030, accounting for 64% of the global middle class and over 40% of global middle-class consumption.
Some FinTechs are realizing that for those that do their research and are willing to take the plunge, success in Asia is not only be lucrative, but relatively swift.
“We launched our payments application LATIPAY that allows Chinese currency to be seamlessly transacted cross border in a compliant manner last year and already have a dominant market position, 32 employees and funding that would likely take years to obtain in the U.S.,” says Leigh Flounders, CEO of LATIPAY. “Now that we have a solid base of customers and a tested system we are bringing our technology to the U.S. with our 2017 launch.”
Government as friend or foe?
Government support of FinTech was a recurrent theme at the Collab/Collide conference. The Hong Kong, Chinese and Singaporean governments, for example, are all making large investments into FinTech, putting on massive government-sponsored festivals and events, making large investment allocations, and creating incubators that will help emerging companies take the next step. The Australian Securities and Investments Commission (ASIC) has signed agreements to support FinTech innovation, including collaborative documents with equivalent authorities in countries such as Kenya and Canada.
However, striking the right balance between fair regulation and a free and innovative market can still be difficult, particularly when it comes to cutting edge technology. Designing compliant systems in a time of shifting legislation in this area is a major challenge for FinTech product developers and marketers, and can cost businesses valuable resources before they even collect a single item of revenue.
According to data presented by The World Bank, economies with the most business-friendly regulations are Singapore, New Zealand, Denmark, Korea and Hong Kong. The U.S. and the UK, believed to be the world’s FinTech innovation centers, are falling behind with the UK holding 6th place, and the U.S. at 7th.
The answer may lie in the “regulatory sandbox” approach, which was another recurring theme in Melbourne. This framework involved regulators setting up specific teams to assist FinTechs in complying with existing regulations while at the same time gaining greater on-the-ground insight into the latest innovations. Being involved in one of these sandboxes can be a major boon to a FinTech, particularly in its early stages.
A number of sandbox projects are now underway in the U.S., such as in Chicago and Boston, with Congressman Patrick McHenry of North Carolina recently introducing a bill that would further this trend across the country.
These initiatives are a sign that many U.S. innovators are starting to look beyond the precipice of national borders, but many more remain deeply in the comfort zone.
It is a great big world out there and opportunities abound for those willing to put in the hard work. Those that do not embrace the global FinTech community that is quickly emerging will likely miss out on potential success or risk being disrupted themselves.