Financial institutions and their services are used to being very local. Banks, credit unions – all of them are regulated locally, look for local customers etc. And it’s quite a success when some bank is going nationwide or even international.
This is our recent history. Look at TOP 5 UK banks (at the image), they’ve been here for a long time – for ever for most of us:
Image 1. Top 5 of Banks in the United Kingdom (source)
And now this history repeats itself with FinTech. How many global fintech companies do you know? I guess, not many.
This is what happens – fintech companies operate locally. And it has to be changed in the nearest future.
The new generation of fintechs are going global earlier in their journeys. For example, some of the European digital banks like N26 and Monzo have built pan-European operations, and have announced their launch to North America. Emerging market born companies are making South-South expansion at the top of their agendas, like Nigerian fintech Paga recently did, announcing plans to expand to Mexico. Some fintechs are building a multi-market strategy from the get-go as, Branch and Tala have demonstrated and collectively raised hundreds of millions in the process.
This fintech trend will only accelerate. More and more fintechs will be global, driven by three mutually reinforcing reasons: an evolution towards regulatory openness, a rise of fintech enablers and a growing global outlook.
What can be done to smooth and ease the process of fintechs going global:
1. Make regulations more standard and open:
Alex Lazarow states:
For example, to offer insurance in the US requires the cumbersome process of getting regulatory approval in every state. Going to another country is even more complicated.
UK and Europe have already made a few positive towards standardization:
Sandboxes like those launched in the UK, Singapore and Malaysia offer a structured construct within which to experiment, at much lower cost. In Europe, PSD2 is a regulation that standardizes how financial services institutions must share customer data, making it simple to expand across markets. A common European banking licensing allows players to ‘passport across the country’.
Hope, this is just the beginning and this process will continue to develop.
2. Grow an infrastructure for expanding fintechs:
For instance, Techcrunch yesterday reported:
Yapily, a London fintech startup that offers an Open Banking-based API platform to enable financial services providers and other types of enterprises, such as merchants, to connect to banks, has raised $5.4 million in seed funding.
Note, Yapily was founded by the former Goldman Sachs employee:
Founded in mid 2017 by ex-Goldman Sachs employee Stefano Vaccino, Yapily is another platform play aiming to grasp the opportunity of Open Banking by making it easier for various service providers to connect to banks. The platform provides a way to retrieve financial data and initiate payments via a “single secure API” that in turn connects to each supported bank’s open API.
Customers include accountancy firms, companies in the payment space, crypto currency providers, digital wealth applications and e-commerce companies.
“Yapily removes the technical barriers for enterprises that want to benefit from Open Banking, helping them to innovate and bring new products to life faster,” Vaccino tells TechCrunch. “Legislators have been implementing Open Banking differently in various countries and even within the same jurisdiction banks all have disparate technical implementations. For a service provider that wants to benefit from it, the technical barriers to integrating with hundreds or thousands of banks are very high.”
3. FinTech founders are the first to go global by growing their global outlook:
Alez Lazarow states:
…ultimately, it is the entrepreneurs that choose to take a global strategy.
One reason is practical. Looking at successful fintech exits over the last decade (defined as >$100m), the vast majority, over 75% were below $800m. Only 3 exceed $5 billion: Lending Club, (IPO, 8 years old, though today trades at ~$1.3b), Adyen (IPO, 12 years old) and Qudian.com (IPO, 3 years old). The vast majority of these were single market players. Those that scaled globally did this slowly and over time.
All the while the list of top banks in different countries has virtually remained unchanged in the same period. Even venerable Paypal, whose revenues were $15b in 2018 is dwarfed by JP Morgan Chase’s revenue of $135b, nearly 10x larger in the same time period.
Likewise, Yapily was founded by Stefano Vaccino, who was inside traditional banking for a long time and then was able to go beyond and build the product enabling other fintechs expand.
This is where fintechs start going global, and it’s happening right now.