London is the best city in the world for fostering fintech, ahead of New York, Silicon Valley and Hong Kong – but it faces a run for its money from Singapore – as the industry pushes for better measures for assessing its contribution to the economy and the government's new industrial strategy.
The two cities were ranked highest based on areas such as innovation, business and regulatory friendliness of the 21 locations around the world analysed in a new report.
The research praised the capital for having an ecosystem with "the 'fin' of New York, the 'tech' of the US West Coast and the policymakers of Washington, all within a 15 minute journey on public transport".
The scores take into account research from the World Bank, academics and analysts and were compiled in a new report by Deloitte and All Street Research for industry bodies Innovate Finance and Innotribe, which recently formed the Global Fintech Hubs Federation (GFHF) to represent the industry globally.
The closeness of locations to expertise and customers as well as the ability to attract foreign startups were also a factor in the ratings, revealed at the global finance event Sibos being held in Geneva this week.
Singapore was named a "serious contender for the global number one spot in fintech" with strong government support and funding, and a handful of initiatives, such as innovation labs and a regulatory sandbox as well as several startup accelerators.
“The development of financial technology has opened up the opportunity for disintermediation and transformation of traditional financial institutions. Established financial services centres are well-placed to take advantage of the trend," said Louise Brett, UK fintech lead at Deloitte.
"However, where traditional barriers to entry are lowering, others now have the opportunity to carve out their own, niche role in fintech. Key ingredients for the development of fintech global hubs include a mix of government support, progressive regulations, a culture of innovation and collaboration, and strong financial services and private investors.”
However, she warned that without continued attention, top locations could be overtaken by emerging fintech hubs in future.
"Each of these centres depend upon a range of contributory factors and conditions that are often subject to changes beyond their control. It will therefore be critical for all hubs to continuously evolve their approach to support the growth of entrepreneurs and investors globally," she said.
Fintech's contribution to the economy
Innovate Finance chief executive Lawrence Wintermeyer told City A.M. the inaugural report was the starting point for creating a new benchmark for evaluating not only the value of different fintech hubs around the world, but also its contribution to the economy.
"Fintech is not reflected in traditional industrial and productivity measures. We think venture capital going into fintech is a fine but superficial measure," he said.
"It's the start of developing a taxonomy for measuring that's not overly complicated and identifies what the measures of success are," he added, indicating aspects such as jobs in fintech and its spread across sectors like retail, as well as the institutional capital going into fintech were not counted in current measures which largely rely on VC investment in fintech.
"It's estimated that the biggest banks are spending more than one billion over three to five years on fintech programs, from accelerators and labs, to proof-of concepts and talent, none of which are accounted for in current figures."
Wintermeyer revealed this matter was "on the agenda" of the government as part of its industrial policy. "We're confident that they're thinking of these things," he said, adding that it was "all back to business" after Brexit, which had left some concerned that the capital's fintech expertise might be given less attention than in the past.
"We still believe the biggest comparative differentiator [for London] is the Financial Conduct Authority and Treasury, who have done a good job translating mandate into innovation. The FCA has Project Innovate, the sandbox, guidance on cloud data, a robo-advice unit, a regtech unit and the Treasury expedited challenger bank applications and created the pension dashboard. There's a huge degree of innovation," added Wintermeyer.
The biggest challenges to fintech hubs across the globe were cited as the limited number of opportunities for exits and a risk averse culture, while in developed markets, the high cost of living was also identified as holding back the sector's growth, the report also found.
Top global fintech hubs
*The composite score was produced based on the Global Financial Centre Index from Z/Yen, the World Bank's Doing Business Index and the Global Innovations Index from Cornell University, Insead and the World Intellectual Property Organisation (WIPO).