07 01 2021 Insights Regulatory

Ireland seems perfectly positioned to cultivate a thriving FinTech sector

Reading time: 4 mins


One of the lasting impacts of the pandemic has been the accelerated acceptance of the role of technology in more and more areas of our lives. Almost without noticing, consumers are now conducting more and more of their business online. So now more than ever, the more established, older financial services providers such as banks and insurance companies are looking to find ways to fulfil changing consumer demands.

The retail financial services sector is dominated by large corporations, many of whom have been wedded to a traditional view of how their customers’ needs could be best met. In the not too distant past, these larger firms often lacked the appetite and agility required to innovate. Smaller, FinTech firms have stolen a march on them by effortlessly harnessing technology so as to smoothen and streamline financial services processes in a way that makes things easier for the customer.

In response to the shifts in consumer expectations and demands, some of the traditional firms are running fast to play catch-up while others are looking to collaborate with, or even acquire smaller technology focused firms with an ingrained digital DNA.

The importance of FinTechs to the wider financial services sector is reflected in the price that larger players are prepared to pay for access to their innovations. It was hard to miss the acquisition in June 2020 of the county Meath-based firm, Prepaid Financial Services by Australia’s EML Payments for €148.9m or the 2019 joint-venture acquisition of Payzone Ireland for €71m by AIB and First Data. Further afield, we saw banking and payments firm Galileo being acquired by SoFi – a personal finance platform - for $1.2 bn, and at the beginning of 2020, Visa Inc. paid $4.9 billion for its acquisition of California-based Plaid Inc – a firm that provides technology that is crucial to open banking.

2020 was a busy year for those at the Central Bank of Ireland who are tasked with poring over applications for authorisation. Last year saw authorisation granted to a number of FinTech firms, including Finclude, Segpay, Square, Moneycorp, Modulr, SumUp, and OFX. Meanwhile, many other hopeful FinTechs are journeying through the authorisation process at the Central Bank of Ireland.

It is no surprise that so many new FinTechs are choosing Ireland as their base. According to IDA Ireland, all of the top 10 global software companies and the top 10 ‘born-on-the-Internet’ companies have chosen to locate in Ireland. In terms of the future of the FinTech sector in Ireland, the Government has set its sights on achieving substantial growth of the sector. One of the stated ambitions of the Governments’ strategy for the financial service sector (Ireland for Finance) is “to position Ireland as the world leader in fintech, platform development, and technology-based financial services”. The wider context here of course is Ireland’s ambition to become, by 2025, a world leader as a location for financial services and as a source of technology and innovation-led solutions.

There is clearly still much work to be done to achieve those goals. According to the Global Fintech Hub Report 2020 (Sept, 2020), Dublin ranks in 27th place among 40 of the world’s regional FinTech hubs. Beijing, San Francisco (Silicon Valley), New York, Shanghai and London occupy the top five places and clearly Ireland has much to learn and much to do to improve its position in the rankings.

The Central Bank of Ireland has been seeking to play its part in demonstrating a far greater openness to new innovations in the provision of financial services. In 2018, the Central Bank announced the establishment of an Innovation Hub which is specifically aimed at allowing fintech firms to engage with the Central Bank outside of existing formal regulator/firm engagement processes. The Innovation Hub also provides the Central Bank with an opportunity to build on its understanding of the rapidly evolving technological landscape in which it operates.

The Central Bank initiative follows on from the launch in 2016 of the UK Financial Conduct Authority’s Regulatory Sandbox. The regulatory sandbox enables selected firms to test innovative products and services in a controlled environment involving a limited number of customers. The experience of firms that have availed of the sandbox has been that it has delivered real value to them, not least in terms of a better understanding of how innovative propositions are likely to be regulated. According to a study[1], firms entering the sandbox see a significant increase (15%) in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%.

Last September, TechNation – an organisation that is focused on accelerating the growth of digital businesses across the UK - launched the Fintech Pledge. Under the pledge, established financial services firms commit to providing for tech firms seeking partnerships: (i) a dedicated landing page (ii) a named point of contact, and (iii) guidance and feedback – all with a view to creating opportunities for collaboration between established firms in the financial services sector and smaller Fintech firms that have something valuable to offer.

In addition to the policy approaches being pursued by individual countries and their respective regulatory authorities, the European Commission has been seeking to bring about a more coordinated approach to the development of FinTech. In 2018 the European Commission adopted an action plan on FinTech to foster a more competitive and innovative European financial sector. Since that time, the European Commission has been driving a range of fresh initiatives in this area. This included the establishment of an Expert Group on Regulatory Obstacles to Financial Innovation (Dec, 2019). Also that month, the Commission also opened a public consultation on an EU framework for markets in crypto-assets, as well as a further consultation on a potential initiative to make the financial sector more secure and resilient while alleviating compliance and administrative burdens. The Commission also launched (Feb, 2020) a digital finance outreach on Fintech and digital innovation in the financial sector, and more recently (Sept 2020), the Commission adopted a digital finance package, a digital finance strategy and legislative proposals on crypto-assets and digital resilience, all aimed at leveraging synergies between high innovative start-ups and established firms in the financial services sector and ultimately giving consumers access to innovative financial products.

Already playing host to the European Headquarters and major data centres of many Global Top 200 technology companies, Ireland has a real competitive advantage in terms of its ecosystem. Added to this is the fact that Ireland already punches above is weight in terms of the scale of its financial services sector.

Ireland seems perfectly positioned to cultivate a thriving FinTech sector. Achieving that will necessitate the creation of the policy and regulatory conditions where the financial sector and tech sector can freely collaborate and innovate. Ireland for Finance serves as the roadmap, and it also evidences the Government’s commitment to prioritising the growth of the FinTech sector. But what is needed now is an acceleration of implementation, with a greater concentration of effort on the measures required to remove policy and regulatory obstacles that stand in the way of Ireland becoming one of the leading centres for FinTech.

[1] Cornelli, Doerr, Gambacorta and Merrouche, “Inside the regulatory sandbox: effects on fintech funding” (Nov 2020) Bank for International Settlements.

AUTHOR: Brian Hunt and Gavin Bluett

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