Where would you launch a FinTech company?

Just received Findexable’s annual report on FinTech hubs and developments, which finds San Francisco, London and New York as the key FinTech hubs of the world. Behind those cities, Montevideo (Uruguay), Hangzhou (China) and Riyadh (Saudi Arabia) are making great gains. What’s going on? Here’s the outline in the intro to the second edition of Findexable’s Global Fintech Global Fintech Rankings Report.

WELCOME TO THE SECOND EDITION OF FINDEXABLE’S GLOBAL FINTECH GLOBAL FINTECH RANKINGS REPORT.

Two years ago we set ourselves the challenge of investigating where fintech innovation is happening. The result was the first ever global ranking of fintech ecosystems of countries and cities, relying on hard data rather than subjective judgements. And an easier way to find where innovation is coming from.

We started our journey because we believe that as fintech innovation spreads across the world, it’s impact will be far and wide, including:

• Access to financial services - so millions more people around the world can fulfil their potential
• Speed and simplicity - so those who already use financial services can do so faster and at lower cost
• Ecosystem growth - as successful companies generate capital and founders fuel further innovation in their cities and countries
• Economic growth - which can accelerate and be distributed more evenly

FINTECH IS SPREADING

This year’s Index provides encouraging evidence that this global spread is happening - and that fintech is giving financial services the push it needs to become more diverse. To enter our rankings, a country or city must host the headquarters of at least 10 privately-owned fintech companies. Despite 15 months of pandemic, 50 new cities and 20 new countries achieved this milestone and debuted in the Index, a remarkable triumph in challenging circumstances.

The Global Fintech Index now covers 264 cities in 83 countries, proof (the kind that can only emerge from a data-based ranking) that the fintech industry is continuing to diffuse across the globe. It’s a pretty exclusive club. With more than 10,000 cities globally, the 264 ecosystems in our rankings represent just 3% of all urban populations worldwide.

This is wonderful news. As our Index shows, fintech innovation is a virtuous circle begetting technical skills, business networks and, eventually, exits that generate funds to be invested back into more innovation in a hub. Countries such as Uruguay and Israel, which have shot up the country Index this year, show how this dynamic can play out. (See our Montevideo and Tel Aviv profiles).

FINTECH IS GROWING

A decade ago, when private fintech companies started to emerge they were easy to dismiss as an irrelevance, a pimple on the global financial services marketplace and an outpost of the tech industry. But the pandemic has shown digital financial services to be fundamental to the smooth functioning of an economy.

Investors have noticed. The number of fintech unicorns surged from 61 in April 2020 to 108 a year later, according to CB Insight. The combined valuation of fintechs unicorns more than doubled to US $440bn. Fintechs now represent more than 20% of total tech unicorn value, compared to just 15% a year ago.

In our inaugural report we compared the world’s top financial centres to our list of leading fintech hubs, and found striking differences. Increasingly however fintech hubs are also hubs for the wider technology industry.

The message is clear. You can build a fintech hub outside a banking centre, but a successful tech hub needs fintech to thrive. From being a sideshow, our industry is moving to the centre.

FINTECH MAKES A DIFFERENCE

Sky high valuations, and a raft of new fintech hubs are great news for those with financial stakes in the industry, but how do we know if that is impacting the problems of financial access, cost and simplicity that we want our industry to solve?

Gratifyingly, the launch of our Index is helping researchers around the world to answer these questions.

Dr Angela Lyons at the University of Illinois used last year’s Index to show how “a country’s level of fintech development is highly related to improvements in financial inclusion in emerging economies.” In other words, as fintech solutions develop in a country, progressively more people will have access to essential financial services like bank accounts and the option to save.

But there’s still work to be done. The study found that the availability of financial services does “not necessarily result in increased demand and usage for these services, especially among vulnerable populations.” Fintechs are an accelerator of inclusion, but not a sufficient condition for it. As a survey by our partner, Mambu, found this year - consumers expect financial services providers to educate them on the best use of financial products. Fintech’s role as an enabler is well understood. Acceptance of its duty to improve financial welfare and support responsible use of financial services however is still patchy.

It would be foolish to say that our industry can solve the world’s biggest challenges on it’s own. But as you will see throughout this year’s report, we can play a pivotal role - by building bridges to remove gaps in access, supporting responsible innovation and enabling a financial services ecosystem that’s as diverse as the world it serves.

Simon Hardie, Founder & CEO Findexable