Report: London, Singapore excel as fintech hubs

Singapore

SINGAPORE and London make for successful fintech hubs because of a confluence of five key factors - markets, talent, capital, regulation and government support.

But the cities differ in the maturity and focus of their fintech scenes, which has led to different challenges in fund-raising and in contrasting approaches to policy-making.

These findings were presented in a joint report by the Institute of Singapore Chartered Accountants (ISCA) and the Institute of Chartered Accountants in England and Wales (ICAEW) on Monday.

The report referenced existing research as well as a roundtable discussion and several in-depth interviews with key fintech stakeholders in Singapore and London.

It said: "London and Singapore are unusual in bringing all five elements (markets, talent, capital, regulation and government support) together in one place.

"The US, for example, is still the leading location for fintech in terms of value, but the sector is somewhat split in terms of location. Silicon Valley is the centre for technology talent and capital, New York has the established financial sector and skills, and Washington DC has the regulatory functions, alongside state regulators."

Though London and Singapore are leading fintech hubs, both have their distinctions too, the report found. The UK represents a more mature fintech market than Singapore - startups in the Republic are still focused on building user bases and attracting early-stage investments.

In the UK, the challenges lie in scaling up businesses and providing an exit strategy for investors.

Traditionally, free core banking services and digital business models have led to startups struggling to create profitable models, which becomes a barrier to attracting scale-up investment. Because of the culture of "free" services, revenues have to be built either around transaction processing models, taking a small percentage of the transaction value, or around advertising based on data that is similar to other Internet business models.

"This can make business models complex and opaque, with the connection between customer services and revenues unclear," said the report.

Kirstin Gillon, technical manager of ICAEW's IT faculty and co-author of the report, told The Business Times that as fintech startups in Singapore mature, it is important to consider the profitability and sustainability of their business models.

"And when you think about the role of the accountancy profession in this sector, that's exactly the kind of things accountants need to do - ask questions, help startups think about where the money is coming from and also having these discussions further down the line."

The report also noted that despite challenges, London has been able to deliver significant investment to enable some successful fintech businesses such as Transferwise to scale rapidly.

Still, in many cases, investment to scale up and exit has resulted from established financial institutions buying out fintech firms. And while this may be a realistic approach to funding, "it potentially detracts from the overarching aim of increasing competition in the marketplace".

The report noted that in the UK, the focus of the Financial Conduct Authority (FCA) is on enabling fintech firms to disrupt and compete against the incumbents; in Singapore, a more collaborative approach is emphasised.

But competing effectively against the incumbents has been difficult to achieve in practice. This is because established players have large customer bases, strong brands, mature compliance functions and deep pockets. There is hence a shift in the UK towards a more collaborative culture.

In discussing the future of fintech in Singapore, panellists at the launch of the report highlighted the increasing potential for the use of blockchain in financial services.

Chia Hock Lai, president of the Singapore FinTech Association, said that Singapore might become the next financial blockchain centre.

"The trend that I'm observing is that there will be a lot more opportunity to apply blockchain technology in capital market services," he said.

He added that B2B (business-to-business) payment is another promising avenue for blockchain application.

That said, Varun Mittal, global emerging markets fintech leader of EY, cautioned against getting too charmed by the allure of new technology, and advised sticking to perennial accounting principles.

"Unfortunately, our industry is a victim of obsessive glamorisation of many things, such as saying that blockchain is the holy grail which will solve everything," he said.