Ireland Seems Perfectly Positioned To Cultivate A Thriving FinTech Sector – Technology


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One of the lasting impacts of the pandemic has been the
accelerated acceptance of the role of technology in more and more
areas of our lives. Almost without noticing, consumers are now
conducting more and more of their business online. So now more than
ever, the more established, older financial services providers such
as banks and insurance companies are looking to find ways to fulfil
changing consumer demands.  

The retail financial services sector is dominated by large
corporations, many of whom have been wedded to a traditional view
of how their customers’ needs could be best met. In the not
too distant past, these larger firms often lacked the appetite and
agility required to innovate. Smaller, FinTech firms have stolen a
march on them by effortlessly harnessing technology so as to
smoothen and streamline financial services processes in a way that
makes things easier for the customer. 

In response to the shifts in consumer expectations and demands,
some of the traditional firms are running fast to play catch-up
while others are looking to collaborate with, or even acquire
smaller technology focused firms with an ingrained digital
DNA. 

The importance of FinTechs to the wider financial services
sector is reflected in the price that larger players are prepared
to pay for  access to their innovations. It was hard to miss
the acquisition in June 2020 of the county Meath-based firm,
Prepaid Financial Services by Australia’s EML Payments for
€148.9m or the 2019 joint-venture acquisition of Payzone
Ireland for €71m by AIB and First Data. Further afield, we saw
banking and payments firm Galileo being acquired by SoFi – a
personal finance platform – for $1.2 bn, and at the beginning of
2020, Visa Inc. paid $4.9 billion for its acquisition of
California-based Plaid Inc – a firm that provides technology
that is crucial to open banking. 

2020 was a busy year for those at the Central Bank of Ireland
who are tasked with poring over applications for authorisation.
Last year saw authorisation granted to a number of FinTech firms,
including Finclude, Segpay, Square, Moneycorp, Modulr, SumUp, and
OFX. Meanwhile, many other hopeful FinTechs are journeying through
the authorisation process at the Central Bank of Ireland. 

It is no surprise that so many new FinTechs are choosing Ireland
as their base. According to IDA Ireland, all of the top 10 global
software companies and the top 10
‘born-on-the-Internet’ companies have chosen to locate
in Ireland. In terms of the future of the FinTech sector in
Ireland, the Government has set its sights on achieving substantial
growth of the sector. One of the stated ambitions of the
Governments’ strategy for the financial service sector
(Ireland for Finance) is “to position Ireland as the world
leader in fintech, platform development, and technology-based
financial services”. The wider context here of course is
Ireland’s ambition to become, by 2025, a world leader as a
location for financial services and as a source of technology and
innovation-led solutions.

There is clearly still much work to be done to achieve those
goals. According to the Global Fintech Hub Report 2020 (Sept,
2020), Dublin ranks in 27th place among 40 of the world’s
regional FinTech hubs.  Beijing, San Francisco (Silicon
Valley), New York, Shanghai and London occupy the top five places
and clearly Ireland has much to learn and much to do to improve its
position in the rankings. 

The Central Bank of Ireland has been seeking to play its part in
demonstrating a far greater openness to new innovations in the
provision of financial services. In 2018, the Central Bank
announced the establishment of an Innovation Hub which is
specifically aimed at allowing fintech firms to engage with the
Central Bank outside of existing formal regulator/firm engagement
processes. The Innovation Hub also provides the Central Bank with
an opportunity to build on its understanding of the rapidly
evolving technological landscape in which it operates.

The Central Bank initiative follows on from the launch in 2016
of the UK Financial Conduct Authority’s Regulatory Sandbox.
The regulatory sandbox enables selected firms to test innovative
products and services in a controlled environment involving a
limited number of customers. The experience of firms that have
availed of the sandbox has been that it has delivered real value to
them, not least in terms of a better understanding of how
innovative propositions are likely to be regulated. According to a
study1, firms entering the sandbox see a significant
increase (15%) in capital raised post-entry, relative to firms that
did not enter; and their probability of raising capital increases
by 50%.

Last September, TechNation – an organisation that is
focused on accelerating the growth of digital businesses across the
UK – launched the Fintech Pledge.  Under the pledge,
established financial services firms commit to providing for tech
firms seeking partnerships: (i) a dedicated landing page (ii) a
named point of contact, and (iii) guidance and feedback – all
with a view to creating opportunities for collaboration between
established firms in the financial services sector and smaller
Fintech firms that have something valuable to offer.

In addition to the policy approaches being pursued by individual
countries and their respective regulatory authorities, the European
Commission has been seeking to bring about a more coordinated
approach to the development of FinTech. In 2018 the European
Commission adopted an action plan on FinTech to foster a more
competitive and innovative European financial sector. Since that
time, the European Commission has been driving a range of fresh
initiatives in this area. This included the establishment of an
Expert Group on Regulatory Obstacles to Financial Innovation (Dec,
2019). Also that month, the Commission also opened a public
consultation on an EU framework for markets in crypto-assets, as
well as a further consultation on a potential initiative to make
the financial sector more secure and resilient while alleviating
compliance and administrative burdens. The Commission also launched
(Feb, 2020) a digital finance outreach on Fintech and digital
innovation in the financial sector, and more recently (Sept 2020),
the Commission adopted a digital finance package, a digital finance
strategy and legislative proposals on crypto-assets and digital
resilience, all aimed at leveraging synergies between high
innovative start-ups and established firms in the financial
services sector and ultimately giving consumers access to
innovative financial products. 

Already playing host to the European Headquarters and major data
centres of many Global Top 200 technology companies, Ireland has a
real competitive advantage in terms of its ecosystem. Added to this
is the fact that Ireland already punches above is weight in terms
of the scale of its financial services sector. 

Ireland seems perfectly positioned to cultivate a thriving
FinTech sector. Achieving that will necessitate the creation of the
policy and regulatory conditions where the financial sector and
tech sector can freely collaborate and innovate.  Ireland for
Finance serves as the roadmap, and it also evidences the
Government’s commitment to prioritising the growth of the
FinTech sector. But what is needed now is an acceleration of
implementation, with a greater concentration of effort on the
measures required to remove policy and regulatory obstacles that
stand in the way of Ireland becoming one of the leading centres for
FinTech. 

Footnotes

1 Cornelli, Doerr, Gambacorta and Merrouche,
Inside the regulatory sandbox: effects on fintech
funding
” (Nov 2020) Bank for International
Settlements.

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