Fintech to the United States
Trends and opportunities
The financial technology (fintech) revolution is a global movement to bring traditional banking financial services into the new age. It encompasses the technology disruptors that typically come in the form of start-ups or new market entrants, as well as the incumbent firms and institutions that are investing in new technologies in order to maintain their vital status in the global financial system. The United States (US) is at the forefront of this revolution, led by the country’s financial hubs that foster and fund innovation through key financial market participants (banks, exchanges, institutional investors, insurers etc.). The economy is well-positioned to hold its status as a global fintech leader given the country’s diversity in financial services, educated workforce and access to capital for developing and commercialising new ideas, products and services.
In the three years to 2015, investment in global fintech has risen an estimated seven-fold to US$20 billion, including an astonishing increase of 66 per cent from 2014 to 2015 (Source: KMPG, H2 Ventures; Fintech 100 report; 2015). In conjunction with CB insights, KPMG has also looked at global investment funding for VC-backed fintech companies to measure the level of investment activity in the sector. North America is the leader in this funding accounting for US$7.7 billion across 378 deals in 2015, nearly all of which was raised in the US. Globally, funding to VC-backed companies hit an all-time high of US$13.8 billion, up 106 per cent compared to 2014’s total of US$6.7 billion (Source: CB Insights, KPMG; The Pulse of Fintech, 2015 in Review'; 2015).
For industries driven by technology innovation, the rate at which ideas are commercialised and accepted by the market is crucial. According to a survey by Ernst & Young, the United States has the second-highest rate of fintech adoption throughout the globe at 16.5 per cent, preceded only by Hong Kong at 29.1 per cent. Other top markets to adopt fintech-use include Singapore (14.7 per cent), the United Kingdom (14.3 per cent), Australia (13.0 per cent) and Canada (8.2 per cent) (Source: Ernst&Young; EY-UK FinTech: On the cutting edge; 2015). The US is arguably the world’s pivotal market for companies to make or break their success in the world of fintech, driving many to locate operations within the country’s top cities for innovation, including San Francisco, New York and Boston.
For fintech companies’ first coming to the US, the opportunities to find partnership, collaboration, investment and customers are endless. The United States has some of the world’s most largest and valuable financial industries such as commercial banking, lending, securities exchange, wealth management, insurance and payment processing. The states which are most known for their communities and supportive economies for fintech innovation are California (San Francisco/Palo Alto –Silicon Valley), New York (New York), and Massachusetts (Boston/Cambridge).
The state of California (particularly the cities of Silicon Valley) is a fintech force on national and global scale. According to Ernst & Young, California is second only to the UK in the world’s leading fintech ecosystems due to its mature fintech and venture capital communities that are highly interconnected. (Source: Ernst&Young; EY-UK Fintech: On the cutting edge; 2015). In the United States California is the leader in venture-backed FinTech investment activity, with nearly US$4.2 billion in total investment activity between the cities of San Francisco, Palo Alto and Los Angeles in 2015 (Source: CB Insights, KPMG; The Pulse of FinTech, 2015 in Review'; 2015). In 2015, the California fintech workforce reached 74,000 people, also according to Ernst & Young estimates. Some of the major employers in fintech within the San Francisco bay area include Visa with 3,800 local employees, followed by PayPal with an estimated 3,000 local workers and Intuit with 2,600 (Source: San Francisco Business Times; These are the biggest, fastest-growing Bay Area fintech companies; 5 February 2016).
While most fintech hubs within the United States can boast strengths in financial services, New York, NY is the country’s leading global financial centre serving worldwide capital markets. Unlike Silicon Valley, New York offers very close proximity to a wide customer base of major international financial institutions and an existing financial technology workforce, in addition to venture capital resources (Source: Accenture, Partnership Fund for New York City; The Rise of FinTech; 2014). In 2014 the state of New York employed over 536,065 workers across financial and insurance activities (Source: U.S. Census Bureau; 2014 County Business Patterns; 2014). The presence of the New York Stock Exchange (NYSE) and the NASDAQ exchange fosters a city-wide ecosystem for financial innovation in markets and commerce, and inspires technologists to create products for financial markets. The creation of the Bloomberg Terminal in 1982 for securities market data storage and sharing is one such example of NY-based fintech innovation that has changed the world. In 2015 New York was the second-to-top state for venture-backed fintech investment after California, totalling US$442.4 million across 50 deals (Source: CB Insights, KPMG; The Pulse of fintech, 2015 in Review'; 2015).
As a hub for financial services and ICT research, the Boston/Cambridge area has become a hotspot for fintech innovation from start-ups and leading financial institutions alike. The financial sector as a whole is a critical component of the eco-system in Massachusetts, supplying innovating companies with needed capital and providing jobs particularly in information technology (IT) roles. In 2014 insurance and financial institutions in Massachusetts contributed US$41.5 billion to Gross State Product, about 10 per cent of the state’s total output (Source: PwC; Financial Services Sector Report; 2016). The convergence of financial firms and universities has created a highly entrepreneurial community for fintech innovation in the city of Boston, which is estimated to include more than 100 fintech start-ups (Source: Boston Globe; ‘Boston Fintech Sector Seizes Moment’; 30 May 2015). Locally sourced venture capital funding has also led to the growing success of the community in recent years, with state-wide VC funding estimated to have reached US$7.42 billion in 2015 (28 per cent higher than 2014) (Source: Boston Business Journal; ‘Massachusetts breaks a record for VC funding’; 20 December 2015). Organisations such as the Boston Financial Services Leadership Council (BFSLC) and Fintech Sandbox aim to connect the different points of the city’s fintech community, and drive partnerships for research and collaboration.
While the United States’ fintech market is highly competitive, the collaborative nature of the sector allows for many different start-ups and entrepreneurs to find their niche in the country’s financial ecosystem. Many foreign companies from fintech hubs across the globe have found success in the United States from both established and emerging fintech markets. The United Kingdom, Singapore, Hong Kong, Japan, Germany and Australia are commonly listed as the top global fintech hubs due to their sizable financial industries, access to capital, and widespread adoption of digital technology.
Tariffs, regulations and customs
In order to conduct temporary business in the United States, for example business meetings and consultations, attending conventions and conferences, or negotiating contracts, individuals need visitor visas unless they qualify for entry under the Visa Waiver Program. Visitor visas are non-immigrant visas for persons who want to enter the United States temporarily for business (visa category B-1), tourism, pleasure or visiting (visa category B-2), or a combination of both purposes (B-1/B-2). Find out more about the visitor visa application.
While some fintech companies inherently disrupt standards and traditional business models found in financial industries, it is important for all new companies to be aware of existing regulation and practices in order to operate legally and be competitive. The United States has a number of federal regulatory bodies in financial services and markets that establish and monitor standards on a national scale, but new and foreign companies should also be aware of state-based regulation that can impact companies operating within certain states. (In the United States you will find that many companies register their business in multiple states in order to work with customers across the country)
Marketing your products and services
Before bringing a new product or service to the market, it is not only important that you adhere to regulation, but also to put your offerings through a certain level of testing to ensure quality and avoid future liability for losses that occurred using your products. For many early-stage fintech companies it can be valuable to approach potential customers with a pilot project idea to not only develop your products better, but to also use as a case study when pitching to other customers as well.
A number of fintech-friendly incubators in the United States offer partnerships with banks and financial services incumbents that are interested in trialling new technology in their own operations, and are willing to give new companies limited access to data to test new ideas. The FinTech Sandbox based in Boston, MA is one such initiative helping many fintech companies innovate using real-world applications.
There are many conferences in the United States now focusing on fintech that can be invaluable to foreign companies looking to learn about the market, gauge the competitiveness of their offerings, find like-minded companies and individuals to collaborate with, and scope opportunities for customers and partners for commercialisation.
Links and industry contacts
Regulatory bodies in financial markets and services
Commodity Futures Trading Commission (CFTC)
Consumer Financial Protection Bureau (CFPB)
Federal Deposit Insurance Corporation (FDIC)
Federal Reserve System (‘Fed’) - there are 12 Federal Reserve Banks (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco). Each Reserve Bank is responsible for member banks located in its district.
Financial Crimes Enforcement Network (FinCEN)
Financial Industry Regulatory Authority (FINRA)
National Credit Union Administration (NCUA)
National Association of Insurance Commissioners (NAIC)
National Futures Association (NFA)
Office of the Comptroller of the Currency (OCC)
Securities & Exchange Commission (SEC)
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