Where Finance and Technology Come Together - New York Times

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Lawrence Tang of Invest Hong Kong at the recent Money 2020 fintech conference in Las Vegas. “We are at the right place to try to capture some of these high-flying fintech companies,” he said. Credit Isaac Brekken for The New York Times

The hub of the technology industry is Silicon Valley. In finance, the world capitals have long been London and New York.

But in the emerging industry that combines finance and technology, often called fintech, the center of activity is less obvious.

The traditional centers, London, New York and San Francisco, are attracting substantial investment, but so are less-established capitals like Berlin, Singapore and Sydney, Australia.

The lack of a clear winner has been apparent to executives like Chris Larsen, chief executive of the San Francisco company Ripple, which offers international payment processing services to banks. Mr. Larsen fields a steady stream of calls from representatives of foreign cities hoping to lure him and his company to their shores to bolster their fintech credentials.

“Everybody recognizes that the capital of fintech has yet to be determined,” said Mr. Larsen, who founded the fintech companies Prosper and E-Loan.

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Several cities around the world are competing to become the capital, or at least one of the regional capitals, of fintech. If the young financial technology industry has the transformative effect that some have imagined, the contest could also determine the future capitals of finance as a whole.

At the recent Money 2020 conference in Las Vegas, the largest fintech conference in the world, government representatives from Dublin, Hong Kong, London, Luxembourg and Belfast, Northern Ireland, among others, were walking the floor looking to woo companies.

In the exhibition hall, Invest Hong Kong, a quasi-governmental agency, had a booth where start-ups could learn about the regulatory benefits and subsidies the government of Hong Kong recently began to offer fintech companies.

“The whole industry is waiting to be disrupted,” said Lawrence Tang, the agency employee at the booth. “We are at the right place to try to capture some of these high-flying fintech companies.”

Hong Kong has the benefit of being connected to China, which has, mostly in isolation, been home to some of the most notable developments in the fintech world. Chinese fintech companies like Alipay and Tencent have been processing more financial transactions than the largest Chinese banks. The four most highly valued fintech unicorns (companies valued at $1 billion or more) are based in mainland China, according to most recent surveys.

Early this year the chief executive of Hong Kong’s central bank, Norman Chan, announced a multipronged effort to become a “Fintech Innovation Hub.”

The city-state’s government is offering to put money into companies that locate in Hong Kong, and its regulators have a new “supervisory sandbox” where new companies can try their products without needing to fulfill all the normal regulatory requirements. Hong Kong brought in several foreign companies this month to attend its first government-sponsored conference.

Hong Kong has lots of competition from Singapore, which recently started its own aggressive effort to become a capital of fintech. Singapore has begun offering some of the same inducements as Hong Kong, including its first fintech week.

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Last year, more fintech companies in Singapore raised money from venture capitalists than did in Hong Kong, but the Singapore companies raised less money in sum than those in Hong Kong, according to data from Accenture.

Nowhere, though, has the competition been fiercer than in Europe, because of the British vote to leave the European Union.

Before the so-called Brexit vote, London had clearly established itself as the hub of fintech activity for the Continent. But if Brexit comes to pass, financial institutions in London are likely to find it harder to do business freely with European companies and financial institutions. Equally important for start-ups, young developers from outside Britain may not be able to remain in London.

“The big question for London is, what will happen to talent?” said Taavet Hinrikus, the Estonia native and co-founder of one of the biggest London-based fintech companies, TransferWise, which lets people send money abroad in real time over the internet.

The day after the Brexit vote, the Irish government sent a playful message to Mr. Hinrikus and TransferWise on Twitter: “Dublin sure is a nice place for a fintech company. Just saying…”

Berlin, which has become a hub for young technology workers, took an even more aggressive approach. The city’s minister of the economy and technology wrote a letter to dozens of fintech companies in London pitching Berlin as a better option.

Berlin Partner, a government-financed agency leading the city’s effort, opened a small office in London in September to court fintech companies full time.

Stefan Franzke, chief executive of Berlin Partner, said that five London-based fintech start-ups had already decided to move to Berlin, and he has 40 more prospects.

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Mr. Franzke said that many banks did not want their fintech employees in a financial capital like London or Frankfurt, because they needed the workers to avoid the mind-set of the traditional financial industry.

“It’s really complicated to disrupt something in your headquarters,” Mr. Franzke said.

Mr. Hinrikus, of TransferWise, said that a year ago he would have told young companies to go to London. “But right now,” he said, “I would recommend people to go to Berlin.”

London is certainly not watching business go quietly. The primary British regulator, the Financial Conduct Authority, has set up Project Innovate to help start-ups clear regulatory hurdles.

At the conference in Las Vegas, the British Department for International Trade was co-host of a breakfast at a French bistro, where start-ups could meet with the head of Project Innovate.

Shaul David, the department’s leader of fintech expansion, said at the breakfast that his job was certainly easier before the Brexit vote. But he said his goal remained the same, “to make London synonymous with fintech as much as Silicon Valley is with technology more broadly.”

In the United States, the government has been slow to act, but the Office of the Comptroller of the Currency has been talking about creating a type of charter, with more limited rules, for fintech companies.

And the United States still has the hub of tech talent that is Silicon Valley. Mr. Larsen, of Ripple, still has his headquarters in San Francisco, but said the United States might not keep companies like his.

“It’s not prewritten that we are going to win this battle,” he said.

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