Bitcoin is now a household name and Blockchain is the hottest topic in finance since the creation of electronic trading. Over the past decade, the FinTech industry has experienced exponential growth. FinTech companies saw over $5.4bn of investment in the first quarter of 2016, a 67% year on year increase, according to a recent Accenture study.
This surge in investment drove up the number of startups in London, which has affectionately been labelled by some as the FinTech capital of the world. While London may have enjoyed the label by many media commentators, sceptics have identified other cities may seize the crown after the UK voted to exit the European Union in June. Potential beneficiaries such as Singapore could become FinTech havens in the wake of the forthcoming Brexit.
After the UK’s vote to leave the EU, the world speculated how the European regulatory environment and investment appetite might change. What regulation would be implemented? Would the UK pursue harmonisation in compliance standards? These questions all gravitated around the legislative and economic relationship between the UK and the EU and gave room to the idea that maybe Singapore would be more attractive than London in regards to the growth and development of FinTech startups.
On a global scale, the rise in popularity that FinTech startups has garnered has allotted them the spotlight of some big time investors and the world’s largest banks. As the “financial capital of the world”, London has previously been attractive to FinTech startups as opposed to the likes of Singapore and Tokyo.
The biggest needs of FinTech firms are access to clients, human capital and investments. With a 500 million strong EU labour pool, London has been the premier city in respects to some of FinTech companies’ greatest needs.
To give an idea of the size of FinTech in London, UK Trade and Investment (UKTI) estimated that the FinTech industry generates in revenue over £20 billion annually just in London, which is more than any other city.
London is also now host to some of the biggest tech investment funds which include Google Ventures with over $76 million in capital and Index ventures who boast over $328 million. As of now London is clearly the global headquarters of the FinTech industry and some professionals believe nothing will change.
In a discussion forum with several Japanese companies shortly after the Brexit vote, Tim Hitchens, the UK ambassador to Japan, claimed that the UK is still an attractive place for overall business development.
The ambassador said: “The UK offers one of the most flexible labour markets in the world. It is the fastest growing major European economy, and is highly valued for retaining and attracting global talent. Businesses benefit from a highly skilled workforce with the second highest proportion of adults with tertiary education in Western Europe.”
He went on to address some of the regulatory concerns of the Japanese Investors. “Free trade with the single market will continue to be one of the most important priorities for the Government going forward. It is now the UK government’s responsibility to make sure that all of these key selling points of the UK are protected as we decide on the shape of our relationship with the EU.”
Other government officials have also chimed in on why they believe that the UK will be a great place for business development regardless of their EU departure. Lord Price CVO, minister of State for Trade and Investment, said in a conference in Shanghai: “The UK is and wants to be the most business friendly, open, dynamic and innovative economy in the world. That remains unchanged.”
Price claimed that London is the number one destination for foreign direct investment (FDI) in Europe and the European city most likely to create the next tech giant. Price mentioned that the current value of sterling will give UK exporters a helping hand and will attract more investment to the UK.
While members of the UK stand by their stance on how London’s fruitful economy will not be affected, several economic factors of Singapore, show how it might be seen as better for FinTech growth in the long run.
In a report during London Fintech Week, The FinTech Times stated that the UK will have to negotiate with 26 other financial regulators and delay market entry until bilateral agreements are signed when their exit from the EU becomes final. These regulatory strains would potentially depreciate FinTech growth by limiting access to international clients, and limiting ability to perform intended operations.
Inversely, Singapore was recently ranked the number one country with the least burden of regulation by the World Economic Forum. The United Kingdom had ranked 89th.
Additionally, Forbes named Singapore the third wealthiest nation in the world, while EY - the consultancy formerly known as Ernst and Young - rated it the second most globalized economy. The UK was not in the top 10 for either category.
Singapore also has a 0% capital gains tax rate and corporate tax rates at 8% for up to 300K in profits. This has attracted a cosmopolitan and international workforce that make up a highly talented work pool
The potential labour force of the UK could also see a 13.6 decrease if migration restrictions are imposed. According to ‘TechInAsia’ Brexit would make London FinTech startups lose out on the talented pool of coders that the EU provides, in addition to potential losses in investment from EU investors.
The Asia Pacific region has already witnessed an immense rise in the volumes of FinTech startups, with over $5.3 billion in investments just from 2015, according to a report by Accenture.
There are also several overlooked factors that make Singapore a great place for FinTech companies. The World Economic Forum ranked Singapore as the Country with highest public trust of politicians. This high political stability directly relates to FinTech startups because it decreases risk for investors and increases the yield for potential investment and growth.
Singapore is no stranger to financial technology investment. Just last year, the Monetary Authority of Singapore announced that it will spend S$225m over the next five years to promote the creation of innovation centres and technology projects within and across banks.
In regards to banks, Singapore bank DBS have come to a partnership with Standard Chartered to develop distributed ledger technology or Blockchain, for trade finance in Singapore according to a report by Bloomberg. The two banks have invited other companies to assist and contribute in their development.
The increase in co-operation between banks and FinTech companies has given large incentives for FinTech startups to grow in cities with a heavily structured banking hub. Singapore is the headquarters for DBS, Bank of Singapore, and Far East bank. The idea of collaboration with these banks has given significant incentives for FinTech firms willing to incorporate themselves away from Europe.
Steven Fang, former chief executive of tech company Cordlife, stated that Singapore’s reliable infrastructure, level of English language proficiency, and its strategic location make it a key entry point for companies looking to penetrate into international markets.
Fang said: “A significant portion of Singapore’s population still remains underbanked, or unbanked. This, together with availability of talent, will drive digital solutions and FinTech investments in the region as financial institutions seek ways to capture this market.”]
In regards to the opinions of startups right now, several pioneering entrepreneurs gave their thoughts on how Brexit will affect their industry.
Tomohiko Nakamura, head of business development for Doerming, a Japanese FinTech company, claimed that while Brexit may have caused less appetite from talented employees to stick around London, the referendum could actually be beneficial for startups.
Nakamura said: “Large businesses may have to restructure due to Brexit, so talents who have been in corporate life in their careers could swap into a startup which shares the same goal. This may help to balance out the talent pool for startups, especially more established startups with funding and revenue.”
Nakamura did say however, uncertainty will hurt potential investment into FinTech, and uncertainty with trade agreements might cause issues for long term contracts. “Uncertainty is not good for investment, whether it’s a startup or an established company. There will be less risk appetite. The valuations maybe be more conservative for a lot of the startups.”
Nakamura still sees London as the most attractive city for FinTech companies despite Brexit but only in the short run. Nakamura stated for the long term he is uncertain. “It depends on the agreements made by the government and how the other cities attract the FinTechs away from London for the long-term and help to set startups in their seed stage to grow. There are uncertainties and risk in moving a company to a new city, and it could change the dynamics of the company.”
Comparing London and Singapore involves many variables and statistics and one cannot give an overall answer. Singapore has access to a larger talent pool in the Asia pacific region that boasts a population of 4.2 billion; however, London handles over 37% of global currency transactions, according to the Triennial Central Bank Survey . The question of which city is better for a FinTech business is purely up to individual attributes and personal preference.