Fintech Companies Vie for Some of That Irish Luck
WHY YOU SHOULD CARE
Because what comes next is regtech!
By James Watkins
It’s happy hour, and young financiers from Citi and Deutsche Bank and State Street are loosening their ties and mingling with techies from Google and LinkedIn and Facebook. Some in the crowd talk passionately about startup ideas they’ve always wanted to pursue; others cheerfully gripe in myriad accents about the blustery weather in their dynamic, cosmopolitan city.
But this isn’t San Francisco; this is Dublin, one of the world’s most surprising hubs for financial technology (or fintech, to use the insiders’ lingo). Here, in the handsome, historic capital facing the Irish Sea, established multinational companies and scrappy startups alike are raking in investment dollars, bringing a whole new kind of green to the Emerald Isle.
What counts as fintech can be difficult to define, but at its broadest, the field includes all forms of technology that digitize services that established financial institutions have controlled since, well, forever, and Ireland is getting in on the disruption. CurrencyFair, a peer-to-peer site that set up shop in Dublin in 2009, allows users to move money abroad at bank-busting rates. Realex Payments has been providing payment services for companies since 2000. Future Finance recently raised $171 million to grow its algorithmic student-loan offering in Europe. Nurturing these kinds of dynamic new players are a handful of incubators — facilities that offer investment, mentorship and networking to startups — including the Accenture-backed Fintech Innovation Lab, which is in only three other cities (New York, London and Hong Kong). On top of that, Citigroup, Mastercard and State Street have established their own R&D innovation labs in the Irish capital.
[Dublin is] ideally placed as an innovator in the fintech world.
Malcolm Craig, senior manager, PwC Ireland
According to the Irish Venture Capital Association, small fintech companies raised more than €101 million ($106 million) in the first three quarters of 2016, up more than 50 percent from the full-year 2015 figure. According to Malcolm Craig, senior manager and fintech specialist at PwC Ireland, the vigorous stats help tell the story that Dublin is “ideally placed as an innovator in the fintech world.”
Attracted by Ireland’s low corporate taxes, Google, Facebook, Airbnb and other tech giants have established their European headquarters here. They’re just across the River Liffey from the sleek, glassy International Financial Services Center, the Dublin hub that houses several global financial corporations, although the complex has lost a few tenants since the 2008 financial crisis and subsequent regulatory kickback. Unlike the 7.5-million-strong metropolitan area in northern California where many tech companies congregate, the population of the greater Dublin area is less than 2 million, meaning that the “fin” and “tech” gurus mix in tight quarters, providing what Craig calls the ideal petri dish for innovation. Add to that a nationally diverse population — Brett Meyers, cofounder and CEO of CurrencyFair, is Australian, and Future Finance was started by an American — and a deep talent pool. Ireland is “the only English-speaking country in the Eurozone and has close ties to the U.S.,” notes Meyers, which makes it “a great place to be based.” Dublin also benefits from its proximity to London, Europe’s current fintech capital: It’s cheaper to be based in Ireland, though, and the 90-minute flight between the two cities can cost less than $100.
Ireland’s fintech boom has a cousin, and it goes by the name of “regtech.” The sector’s latest buzzword, regtech is shorthand for regulatory technologies — web platforms or algorithms designed to streamline processes of regulatory compliance, risk management and reporting. While not all regtech is financial, a large chunk of it is, driven by the need for small financial firms to navigate the complex government regulations that big corporations once handled in-house.
Regulation may turn out to be one of the niches in which Dublin becomes a world leader, according to Craig. The Irish financial sector has had a bumpy regulatory ride of late, as excessive deregulation made Ireland’s post-2008 financial crash particularly bruising, and the regulatory backlash since then has forced many firms to streamline and outsource their compliance processes. Many regtech company founders came directly from the financial industry, says Geraldine Gibson, CEO and founder of AQMetrics, which provides compliance and data analytics software to corporate clients. “There is plenty of industry knowledge [in Ireland],” she says. Several Irish regtech firms now have a global reach, including AQMetrics and Fenergo, which provides client-management solutions for banks.
Of course, on a global scale the Irish fintech market is still “very small,” says CB Insights analyst Matthew Wong. London still dwarfs the rest of Europe in pure numbers, and several other cities, from Berlin to Sydney to Hong Kong, aim to challenge the dominance of New York and San Francisco. While the venture-backed investment model is very different elsewhere, mobile payments and other fintech innovations are disrupting the payments industry in India, Kenya and other unlikely places. The Irish government’s ambitious financial-services strategy, which includes generous funding support for fintech, is designed to attract investment dollars in the innovation economy’s increasingly competitive global arms race.
Nevertheless, the country — the fastest-growing in the EU — remains well-positioned to capitalize on the fintech (and regtech) revolution. As Wong points out, since Brexit, the number of VC-backed fintech deals in the U.K. has fallen for three consecutive quarters. While he cautions against assuming direct causation, Dublin may still be set to gain from any people, companies and pounds potentially leaking from London in the future. And, thanks to the rise of fintech currency traders, it might be a lot easier to trade those pounds for euros.