Silicon Valley has a long-established reputation as the online startup hub of the world. When people imagine young entrepreneurs developing the next big app, they usually picture trendy Californians in open offices, essentially re-enacting scenes from The Social Network.
But this stereotype overlooks the essential contributions of other countries. This is especially true when it comes to fintech. For anyone interested in tracking the future of this industry, it’s worth paying attention to the following countries:
You won’t find the “capital” of fintech in Silicon Valley, New York, or even London. Instead, cities in China’s Pearl River Delta region are giving rise to financial innovations that greatly exceed the output from other tech hubs.
Upon further analysis, it’s not difficult to see how China offers the right environment for fintech startups to thrive. On the one hand, many Chinese citizens own smartphones and have Internet access, resulting in a population that’s ready to take advantage of fintech products.
On the other hand, the Chinese financial and banking ecosystem prevents many citizens from accessing credit and other traditional financial services. And most fintech experts agree that new technologies and products will be especially useful to such underbanked and unbanked populations.
Additionally, e-commerce platforms like Alibaba have resulted in a greater demand for applications that facilitate easy, efficient transactions, and Chinese fintech startups are stepping in to offer the necessary solutions. The rapid rise of Chinese e-commerce platforms has also allowed startups to gather user information that can help them customize the user experience. As the fintech revolution continues, it’s highly likely that China’s role will only grow more influential.
Perhaps less-surprisingly, the UK has established itself as a fintech-friendly environment, thanks primarily to substantial early funding for fintech startups. This vote of confidence has allowed new companies to get ahead of the competition.
Currently, the UK is second only to China in fintech development. It is home to more billion-dollar fintech firms than every other country in Europe combined. It also boasts four fintech “unicorns” (companies worth more than 1 billion dollars), which together are worth $18.5 billion. In comparison, China has 13 fintech unicorns valued at a total of $112.3 billion.
The country is still trying to catch up with China, due in part to the UK’s prohibitive financial regulations and restrictions. That said, the Bank of England’s Governor has already addressed the fact that the government will have to make policy changes in order to make the UK even more hospitable to fintech companies, saying “The challenge for policymakers is to ensure that fintech develops in a way that maximizes the opportunities and minimizes the risks for society.”
The desire to strike a balance between promoting fintech development and protecting traditional financial institutions may inhibit growth right now. But in the long run, a focus on cooperation could pay off for everyone involved.
Germany may have arrived late to the fintech scene, but it’s not wasting any time catching up to the UK. While it might never surpass its rival as the European fintech capital, Germany has seen clear, rapid growth in fintech investment over the past few years. In 2015, investors closed a total of 23 fintech deals in the country. In 2016, the number rose to 34. The current year is on pace to eclipse that number, with 22 deals already in place and four months left in 2017.
Germany also has a larger economy than the UK, which gives it an advantage that may pay off in the years to come. The fact that it places fourth in the world ranking of GDP (in dollars), while the UK ranks fifth, is also worth noting.
German fintechs garnered more venture capital funding than UK firms did in the second and third quarters of 2016, and industry watchers expect Germany to continue to grow as a fintech leader over the next several years. In fact, there are already a number of German cities that are successfully building up fintech hubs. This is model is more like the American fintech community, which is split between San Francisco and New York. In contrast, the UK’s fintech industry is centered in London.
Fintech’s applications are recognizable the world over, and the United States is far from the only country where developers are making strides. Fortunately, it doesn’t need to be a competition. The impact that fintech will have in regards to connecting world economies is yet to be seen, but the results of this effort could benefit citizens across the globe.