Fintech has a place within financial service ecosystem

While many financial services firms fear that parts of their business are at risk from the rise of standalone fintech competitors there are also considerable opportunities to be realised by those organisations which learn to adapt. After all, not every fintech firm is in the business of disrupting and competing with the mainstream financial services players, many of them are optimisers whose business model is based on collaborating with the sector in order to make it more effective and cost efficient.

Ireland has already developed a quite vibrant ecosystem of both types of firms with payments specialists such as Stripe and Realex being examples of the disruptors and fund management service providers such as Fenergo and Fundrecs being among the optimisers.

A Deloitte survey carried out in 2015 found that there were more than 70 active fintech firms in Ireland employing about 4,500 people in three main areas: asset management, payments and regtech.

Regtech firms assist financial services companies with compliance. “There has been a huge amount of additional regulation since 2008,” explains Deloitte head of financial services David Dalton. “The cost of compliance is enormous and this is not to mention reputation risk of not being compliant. The regtech firms ensure regulatory compliance is more effective and more efficient and at lower cost.”

The asset management firms offer a range of automation services to the funds management sector. “There is a very big funds industry based here in Ireland and the software companies helping them do processes more efficiently,” Dalton notes. “The fintech sector here is aligned to our existing areas of strength in the financial services industry.”

More attractive

Ireland hasn’t attracted any of the global fintech firms as yet but this is not altogether surprising according to Dalton. “Fintech is only about three to four years old in its current iteration,” he points out. “It is probably only now that the major fintech companies in the US are thinking of setting up European operations. Interestingly, the Brexit decision might make Ireland a little more attractive for them now.”

On the other hand, many global financial services companies have established innovation centres here. These include State Street, Citi, BNP Paribas, and MasterCard which all have EMEA innovation labs in Dublin. “They are plugging into the broader tech cluster which exists here,” Dalton adds. Peter Oakes, founder of specialist industry adviser Fintech Ireland believes that while Ireland is attractive to the global industry more can be done to enhance this position. “Ireland is a great place to do business, but it is not necessarily the best place,” he contends. “It is a highly competitive market. London is very attractive for investment management and payments; Holland and Denmark are chasing the market as well. And we still slightly fragmented approach to support despite the government strategy for the industry.”

Oakes also believes that Brexit may have positive ramifications for Ireland. “Fintech firms can’t take their regulatory authorisation from one country to another and exchange them like driving licences, EU rules don’t allow for that,” he explains.

“Firms based in London may start considering establishing a presence here to get accustomed to the jurisdiction and trade here under the EU passport for its UK authorisation.

“Then, if they decide to relocate to Ireland as a result of Brexit, the fact that they have been established here for some time and trading under a UK authorisation should help with securing authorisation from the Central Bank.”

Skills

However, the availability of skills will be a key issue. “There will be a challenge in getting talent for the industry in future,” says Dalton. “The industry needs to have IT skills available to it if it is to grow.”

Oakes agrees. “In terms of firms coming to Ireland the IDA is doing a great job overall but there is some concern about the supply of a skilled workforce,” Oakes adds. “There is no concern in relation to the quality of the people here but the volume is an issue. This plays into the education system; if you think about ten years into the future we need to see things like coding on the school curriculum.”