THE F FACTOR
Can Ireland become a global leader in Fintech?
CHRIS Skinner sums up Ireland’s fintech scene succinctly: “It’s small but beautifully formed.” The UK-based fintech and financial services expert and commentator, and chief executive of think tank Balatro, was in Dublin last week to speak at Enterprise Ireland’s Future of Fintech event. The venue for the event — Dogpatch Labs in the once moribund but now bustling CHQ building on Dublin’s north docks — encapsulates a particular dynamic of the sector in Dublin that impresses Skinner: adjacency.
Walk out the door at one end of the huge building and you are in the heart of the IFSC, with its banks, hedge funds, insurance giants and aviation leasing companies. Walk out at the far end and you are looking at the techcentric Silicon Docks rising up across the river. Nearby sparkles the new golden facade of Ireland’s regulatory seat of power, the Central Bank. Inside CHQ, those employed in these sectors buzz about at lunchtime eating salads and drinking smoothies.
“There is a big opportunity for Dublin to become one of the major centres for financial technology focus,” said Skinner. The prize, he said, is huge. Globally, fintech averages up to $30bn (€24bn) a year in investment and the next generation of financial services is being built by those chasing this investment.
“Adjacency is a critical advantage for Dublin,” he said. “You’ve the regulator, the Central Bank, the technology community, the financial community all side by side. What does a fintech startup really need? Tech talent and financial talent.”
It seems simple but, according to Skinner, this type of adjacency is not the case in many of the other countries vying for business in the sector.
“Take the US. New York has the financial community, Silicon Valley has the technology community and then there is Washington DC. In Germany, Frankfurt, Berlin and Munich are all vying for financial and technology business separately. That separation makes it more difficult to get things done quickly.”
But, warned Skinner, the fintech ecosystem in Ireland needs to get a lot bigger and Brexit is an opportunity for it to gain critical mass. He places Dublin, with Amsterdam and Berlin, in a second tier of cities vying for fintech business, after a first tier that includes London, Dubai, Singapore, New York and San Francisco.
Enterprise Ireland has placed much hope in the sector. Its head of fintech, Giles O’Neill, also believes that a confluence of increasingly compatible sectors is a key advantage.
“What really stands out for us is the dynamic created by having seven of the top 10 international insurance companies, 17 of the top 20 international banks and financial institutions, huge presence from big tech giants like Google, Apple, Facebook and LinkedIn. You have people who work in these places honing their own skills and then deciding to do something themselves. You can’t put a value on that.”
Ireland has over 400 specialist financial services firms, half of them foreign-owned, employing over 40,000 people. Enterprise Ireland’s 200 client companies in the space now have exports topping €1bn a year. Employment at those companies rose 7pc last year.
Last week’s conference showcasing the industry here saw more than 60 international financial institutions fly in representatives. MasterCard’s head of technology and Deutsche Bank’s head of innovation rubbed shoulders with eager young founders from Ireland’s fintech hopefuls. “Introducing them to the ecosystem in Ireland is a really good opportunity that we couldn’t miss,” said O’Neill.
Other delegations came from Africa to tell their story of how technology is changing the economy in countries like Kenya and South Africa, using mobile payments and micro payments: “Taking that insight and applying it to what we are doing is really, really valuable,“he said.
Many banks in developed countries have not changed their legacy banking systems since the 1970s, making applying new technology difficult.
“Industries such as pharma have had constant innovation and change over the years,” he said. “But in banking, for a long time, there was one way to do it and the big banks were in a powerful position. Those were the rails on which the industry operated. But those rails have been removed and the speed of innovation has gathered pace. That is driven by ourselves as consumers and what we are demanding. We don’t care that it has always been done this way or that way. We just want it done. So the industry has had to become really mobile and the speed of innovation has been quite dramatic. And it’s not just banking. There are huge opportunities to transform the insurance and legal industries too,” said O’Neill.
Chris Skinner believes that real success will come from looking at even more radical approaches. Europe and America, he said, are dealing with infrastructure from the last century, trying to use technology to evolve the old way of doing things into an open banking market. “But China has leapfrogged us all because it didn’t have that legacy infrastructure and started this century with a clean slate.”
Last year, Chinese citizens spent over $15trn (€12trn) through their mobile phones, he said, compared to $140bn (€112bn) in the US.
“Chinese giants like Alibaba and Tencent are going global and we are not looking closely enough at their business model, which is very different to Amazon or Google or the banks. They have integrated social, financial and commercial services into their ecosystem.”
Equally, he said, there is huge innovation coming out of countries with little financial market infrastructure, for example in sub-Saharan Africa, Indonesia and the Philippines.
“They are inventing brand new models of how to transact money,” said Skinner. “What we are doing is developing ways to make the old infrastructure better. In Asia, Latin America and Africa, they are creating brand new visions of everything to do with commerce and money.”
Tapping into this new vision could, he said, provide a really bright future for Irish companies.
One firm that is attempting to do just that is Leveris — one of the largest startups Enterprise Ireland has ever funded, with more than 200 staff already employed. The Leveris platform allows banks to bring a 21st-century experience to their customer base and to easily integrate third-party services into their core banking experience.
“That means that the bank doesn’t have to be the sole source of innovation for its customers,” said Leveris head of innovation Conor McAlevey.
“The bank can, for example, offer a current account but offer foreign exchange or cross-border payments through a partner. That allows a bank to give customers a much wider offering of products and services through one portal.”
The type of technology developed by Leveris also allows for the development of a community of compatible service providers in an increasingly hot subsector known as marketplace banking.
McAlevey believes, like Skinner, that the best indication of where all of this technology is likely to be at in five or 10 years is to be seen in China.
The most used app in China by far is Tencent’s WeChat, accounting for 30pc of all app time. It started as a chat app but has developed into a central portal for almost every useful product and service in the country. “Now you can order flowers, order a taxi, get dates, do whatever you want within that one platform,” said McAlevey. “We are beginning to see that happening in banking as well. The bank will have the banking licence and will take your deposits, look after your money, handle your current account and do some lending, but it will curate specific services from third parties and offer them to you through their portal and their app. Sometimes you will know it and sometimes you won’t and it will also allow consumers to choose the services that are most convenient and cost-effective for them.”
But, he said, some banks are more progressive than others, not least because of the problems around their legacy underlying tech infrastructure.
“On the whole, the Irish banks are lagging behind some of the UK and Spanish banks, who are probably the standard bearers when it comes to collaborating with fintechs and opening up their platforms. But a change of culture has to happen as well as a change in technology to allow that journey with fintechs to take place,” he said.
He believes this change would further boost the growing fintech sector here but that the sector is in no way dependent on that happening.
“Ireland is a small country with a small number of banks. So Irish fintechs have always had to look abroad because they were never going to survive simply by selling their wares to AIB and Bank of Ireland. As a company, we talk to the Irish banks but we’ve always had a global view.”
Skinner agrees that Ireland can look to tap into this global demand for new, more technologically advanced tools in banking and finance.
“What Ireland has in its favour is that — not only has it been a strong centre for tax efficiency — it is also the natural stopping point between the UK and America,” he says.
That, he believes, means Ireland will become increasingly important for US fintech companies looking for an English-speaking, European base.
But he has a warning too: “I’ve been coming to Dublin for quite a number of years. I’ve seen the Port Tunnel and the tram system being built ... it has taken a long time. There needs to be a faster cycle for the implementation of infrastructure.”
Issues around housing, public transport and broadband availability — in the long term — are what could stifle the potential of Ireland as a global fintech hub, he said.
“I see cities like Dubai and Hong Kong building the infrastructure they need very rapidly. If Dublin wants to be in the race for fintech business you have to learn to do these things at a much faster speed.”