Will Offshore on Thames (London) become the Fintech capital of the world?

 

I am a Brit, but I have lived all over the world and now call Switzerland home. I think Brexit was a mistake; but as an entrepreneur I work with the reality of what is rather than the hope of what could have been.

Money goes where it is welcomed and in a world of justifiable populism leading to both more trade barriers and higher taxation, money is looking for a welcome mat.

From the baby days archive  of Daily Fintech in 2014 is this post about Why London could become the Bitcoin Capital of the world. It was directionally correct and I will copy the 3 still-valid reasons why London could be a leading global Fintech/Bitcoin center:

  • Critical mass of techies and rich people. Paul Graham of Y Combinator fame famously said that all you need for an innovation center is (I paraphrase) techies and rich people. There is one caveat. The rich people must have made their money from the domain you are asking them to invest in. If the rich person made their money in property or manufacturing, a digital startup just looks ridiculous. London has plenty of people who made their money in Finance. They know that even the most venerable institutions are “data centers with fancy lobbies”, so a new tech powered innovation is not too big a stretch for them.
  • A light regulatory touch. Compare what the Cameron government is proposing vs what the New York State Department of Financial Services has proposed. It is clearly a fine line to walk. It is counterproductive if a center becomes a haven for scamsters and consumers to lose a lot of money. Bitcoin is a global phenomenon and many Bitcoin startups have global teams who can decide where they want to be based and regulation (along with talent and capital) is key to that decision. Regulation to protect consumers is good. Regulation to protect incumbents from competition is bad. New York has a lot of incumbents that certainly want protection; if they succeed in getting it, London will have a playing field tilted in their favor.
  • Talent with the right mix of domain expertise and deep tech. Fintech needs both. Deep tech expertise can be found in any location with good Computer Science colleges. Fintech startups need those engineers in the same room with people who understand the nuances of things like credit rating, derivatives, exchanges, asset management and so on. The devil is in the details that sit at the intersection of both deep tech and. domain expertise.

Regulatory competition is a harsh new reality for regulators and for their paymasters in government, which we have covered before.

Regulators don’t need to be perfect, they only need to be better than the alternatives.

In the maybe-United States of America, there are two contenders – New York and Silicon Valley. I say maybe-United because the red state blue state animosity is very toxic at the moment. I am voting for New York more than Silicon Valley (or Wall Street West as I call it) because the big tech companies are as reviled and in regulatory danger as Banks used to be.

In the maybe-United Countries of Europe, German contenders such as Berlin and Frankfurt have been hurt by the Wirecard fallout (see this great journalism by Paul Amery). Paris is not a serious contender albeit with some superb innovation.  So I am voting for Dublin as the Euro contender.

In Asia, the engine of growth, Hong Kong is hurt by the heavy handed of authoritarianism of China. So I am voting for Singapore – offshore in the tropical heat – as being equally comfortable for both Chinese and Indians. There is not even the pretence of a United Asia.

That is why London has such a strong chance – as does neutral Switzerland – the competition is in trouble.

The real winner is likely to be – anywhere with a connection to the Internet, The permissionless decentralized network alternative is a regulator’s nightmare. Something is needed because permissionless decentralized networks are full of scammy operators. Maybe the market will act as cop or maybe that is a libertarian wet dream,

While I was directionally right in 2014 to see London as a likely Fintech capital of the world, I was hopelessly wrong on timing. The reason is what I wrote about in this post in 2015 that London needs a big success story to become the Fintech capital of the world. That takes time (7-10 years as per the data). The Fintech capital of the world needs a mega big success story, not another early stage hopeful or some financial engineering IPO. You know, the sort of hyper scaling that made  Silicon Valley into the Tech-of-all-types capital of the world

A UK Fintech that may have learned how to hyper scale from Silicon Valley is Revolut. See next week for a deep dive into Revolut.

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

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