FinTech in Small Jurisdictions
Partner and Americas FinTech leader at EY
As new FinTech hubs begin to develop in cities throughout the world, it’s worth asking – what about the little guys?
We often hear about small islands such as Bermuda, the Cayman Islands or the Isle of Man in the context of sunny beaches, reinsurance, mutual funds, and offshore banking. The FinTech opportunity is global, as companies around the world are rewiring and reinventing the Financial Services industry. Could these small jurisdictions provide a compelling value proposition for FinTech start-ups?
There are two particularly note-worthy advantages that a small jurisdiction can offer: agility and a highly developed and specialized market.
Start-ups represent a level of agility that a large incumbent cannot compete with and so too are small jurisdictions more agile than their large counterparts. Within small jurisdictions, there are simply fewer parties involved in negotiations and incentives are often aligned between the government, local companies, international companies and the general population. Each is dependent on the other for survival. This alignment creates a platform for cooperation and collaboration between government regulators, companies and the population. Regulators of large FinTech hubs are scrambling to keep up with the pace of regulatory change FinTech requires, however, when there is direct collaboration between regulators and the companies involved, this pace for change suddenly becomes feasible.
Many small jurisdiction have a unique market focus such as reinsurance in Bermuda or hedge funds in the Cayman Islands. These jurisdictions therefore offer a condensed, highly specialized market with a talented population with whom to collaborate and experiment. Many companies within these small jurisdictions also demonstrate a readiness for technological advancements as can be seen through extensive robotics and automation. FinTech startups will be able to introduce new ideas with a community that will quickly provide them with market adoption rates before building protocol for more heavily regulated and larger populations. Additionally, populations within these small jurisdictions have significant mobile proliferation, making them a perfect testing ground.
While there will certainly be challenges associated with developing FinTech in small jurisdictions, there are significant opportunities for FinTech start-ups and local communities alike. Attracting FinTech start-ups to small jurisdictions both increases financial inclusion in the population and injects capital into the economy. The opportunity is now. Small jurisdictions must make their unique advantages known, and take claim to the opportunities of financial innovation and FinTech.
Written by Matt Hatch, Chris Maiato and Shelley Pearson