Alternative Fintech Capital – Iceland

Note: I wrote this in March 2015. Lots has changed since then and Iceland is emerging as an Alternative Fintech Capital with some power.

The Fintech Global Tour has gone to 19 locations, from the obvious (London, New York, Silicon Valley) to places that most venture investors considered to be backwaters (but where we found a surprising amount of activity).

We now move onto a new phase of the tour when we go to the Alternative Fintech Capitals. Like alternative music, these are places that feel excluded from mainstream financial services. Innovation often comes from those who have been excluded because they have unmet needs that incumbents ignore. Punk music emerged from kids alienated by rich, jaded rockers of an earlier generation. The Sundance Film Festival helped create the alternative film business with festivals now in lots of places.

We look for 7 attributes in Alternative Fintech Capitals:

  1. Outsider status (excluded from mainstream global finance).
  1. Close to big markets. Alternative usually means small home market, so Fintech startups must be focused on global markets.
  1. Access to talent (combination of colleges and open to immigration and the sort of place where techies like to live).
  1. Friendly Fintech regulation (without 2&3 this would only create nameplate operations run by lawyers).
  1. Wired population (high speed access to Internet).
  1. Some interesting startups i.e. evidence that the ground is fertile.
  1. Low cost electricity. That seems an odd attribute, but when the primary cost of the Bitcoin economy or cloud data centers is electricity, it does make sense. Note: this is the one that looked strange to remark upon in March 2015, but is now critical.

The first stop is Iceland:

  1. Outsider status. Iceland gets top score here. The Global Financial Crisis devastated the Iceland economy. Imagine what would have happened if the Banks in New York and London had not been bailed out. That is what happened in Iceland. Their banks went smash. The impact on the economy was rough but a) few people cared, because “it was only Iceland” and b) Icelanders are tough and they are now emerging “blooded but unbowed”.
  1. Close to big markets. Find Iceland on the map between America and Europe (closer to America).  Flights can stop over on route between the Old World and the Middle Aged World (Asia being the Young/New World today). Iceland is a member of EFTA but withdrew its application to join the EU. In their position between America and Europe, how they play the complex and controversial negotiations around TTIP will be interesting.
  1. Access to talent. No iconic colleges but the fundamentals seem good. As a tourist destination, Iceland has fervent fans. However Iceland is not immigration friendly and I don’t hear many people putting it on their list of places they want to relocate to.
  1. Friendly Fintech regulation. Iceland is famous for taking the decision to:

“bail out the people and jail the bankers”

This post explodes some myths and gives a reality check. Banks failed and were nationalized and then quickly privatized, but the story may not be as heroic as the legend. However the result is a bit like Sweden after their banking crisis around 1991/2 and that ended well.

Note: since then, Iceland has taken a leadership position on monetary reform known as sovereign money or positive money (or vollgeld in Switzerland). This may sound academic but it takes away the “license to print money” that has been the source of all those bank profits. Take it away and the Fintechs will compete on a level playing field. Saying this is a big deal is a “British understatement” (like saying “its a trifle chilly” when climbing above 8,000 meters on Everest).

Nor does Iceland appear to be embracing Bitcoin, having made it illegal to avoid currency flight after the crisis.

Note: amazingly it is still illegal, despite big mining operations.

However Iceland is looking at serious alternatives to the norm of letting commercial banks create credit as this recent report in the Telegraph describes. The more radical option would be to move to Bitcoin, but I don’t see any evidence that is under consideration.

  1. Wired population (high speed access to Internet). Good score here for Iceland.
  1. Some interesting startups ie evidence that the ground is fertile.

The only Icelandic Fintech startup I could find was:

Meniga described on their site as follows:

“Meniga’s Market Match is a data-driven CLO platform which allows financial institutions to provide merchant-funded offers to their online customers using the power of PFM.

Meniga’s transaction-data analytics and enrichment engine, developed and optimized through years of engagement with millions of PFM customers around the world, enables us to deliver uniquely targeted and relevant offers to the consumers on our platform.”

The real entrepreneurial revolution in Iceland seems to be around genomes and medicine, which is far removed from Fintech.

  1. Low cost electricity. Iceland scores well here. Update: Iceland has become a major mining centre. When the biggest cost of mining is electricity, all those geysers are lot more than eye candy for tourists.
  1. Techies and rich peopleThese are the two active ingredients for innovation as per Paul Graham of Y Combinator. I am sure Iceland has plenty of techies and rich people, but it is not what Iceland is known for. Nor do they have people who became rich by being techies, which is what makes Silicon Valley so successful.

I have not tried to reduce this to a numerical score, but an intuitive glance says Iceland is not yet a strong contender in the Alternative Fintech Capital rankings. Update: if Bitcoin became legal and they made it into an alternative to China for Bitcoin mining…


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