According to research carried out by Deloitte, there are about 70 fintech companies operating in Ireland employing 4,000 people. This vibrant and growing sector is developing novel technologies in areas such as payment systems, peer-to-peer lending, regulatory compliance, and automated financial advisory systems and has established an international reputation for the quality of its output.
According to Deloitte head of financial services David Dalton, there are three main drivers of growth in the sector. “Most of the established financial services players have focused on regulatory-driven change over the past seven years and they haven’t invested much on IT-driven change so are a bit behind the curve there,” he points out. “That’s why there is so much start-up activity. There is also massive venture capital investment into the fintech sector globally – $16 billon (
14.2 billion) in the last year alone and $40 billion in the last five years. And lots of disruptive technologies which offer better ways to deliver products and services are being developed.”
BDO corporate finance partner agrees but points to particular Irish conditions as well. “What’s fuelled the growth in fintech was the global financial crisis but Ireland is very well placed to benefit,” she says. “We have 25 years’ experience in the sector in this country with firms like Trintech and so on. We have a lot of financial innovators and a great ecosystem for start-ups with Government supports, incubators and other initiatives playing their part. A significant number of financial institutions are leading the charge on incubators and this effectively gives them first pick of the innovative fintech solutions being developed.” ‘Small environment’ For once, Dublin’s small size relative to international competitors is actually an advantage, according to PwC senior manager Malcom Craig. “We have the IFSC and the digital hub here,” he notes. “In a small environment you get an excellent mingling of processes. Dublin is small. These people go to the same conferences and they socialise together. We have lots of companies training and developing people in both financial services and technology; they meet each other and share ideas. It’s a great breeding ground for ideas.”
Accenture’s Sinead Barry also agrees with the small-is-beautiful proposition when it comes to fintech. “We really need to appreciate the fact that our scale and size is a huge advantage,” she argues.
“ We have all the right ingredients to incubate an industry and our ability to bring them all the players very important.”
Also important is our close proximity a major financial market like London. “This helps companies to scale very quickly and that is crucial,” Barry adds.
PwC has just produced its first report on Fintech in Ireland – Blurred lines: How FinTech is shaping Financial Services.
The report reveals that a quarter of Irish financial services organisations believe they could lose more than 20 per cent of their business to fintech competitors by 2020. On the other hand, more than two-thirds of the 50 Irish respondents said they were putting fintech at the heart of their business strategy. This indicates that Irish financial services companies are set for a fundamental shift in how they do business in the future as a direct result of the impact of fintech. ‘Main impact’ “The main impact of fintech will be the surge of new financial services business models, creating challenges for both regulators and market players,” says Craig. “By focusing on incorporating new technologies into their own architecture, traditional financial institutions will continue to play a central role in the new world of financial services.”
The traditional players are adopting a variety of different strategies when it comes to bringing in the new technologies.
“The banks and financial services companies have to be more open to fintech and have to adopt it and use it to disrupt themselves or they will be disrupted by others,” says Dalton.
“They are doing a whole range of different things to respond and innovate,” Dalton adds. “Some of them are appointing a head of innovation, some banks are setting up venture capital funds to invest in fintech businesses so that they can understand it better and bring it in, others have set up innovation labs, some financial services companies are investing directly in fintech companies or acquiring them, others setting up incubators and accelerators to partner with them, while others are doing all of the above.”
Looking to the future for the sector in Ireland, all agree the availability of talent will be of critical importance. “We need to keep producing the talent,” says Sinead Barry. “The Government’s IFS2020 strategy will help and Enterprise Ireland has been hugely important in this up until now.”
Katharine Byrne points to the role of the tax system in this regard. “The tax regime is very important. We have to make sure that emerging entrepreneurs stay here to start up and grow their businesses. Personal tax and capital gains tax rates are an issue – why should fintech entrepreneurs stay here when they can go abroad and pay much less in tax?” International competitors David Dalton also cautions that international competitors cannot be ignored.
“At the core of these businesses is the need for talent and anything you can do to increase the supply would help,” he notes.
“Other locations like Berlin and Luxembourg are investing in marketing and trying to make themselves more attractive as fintech locations as well. We need to compete with that. The regulatory environment is very important as well.
“Many fintech companies come under financial regulation and they need to understand that. The UK regulator is very supportive of the fintech sector and we have to figure out how we can be more supportive here.”