The FINANCIAL — New York’s most promising opportunity for technology leadership could lie in financial services, according to a new report by Accenture and the Partnership Fund for New York City.
Deals and investments in New York’s financial technology, or so-called “fintech”, venture sector have been growing at twice the rate of Silicon Valley since 2008. The report says the trend is accelerating innovation among New York’s global financial institutions.
Global fintech investment tripled between 2008 and 2013 from $928 million to $2.97 billion and is expected to double again to between $6 billion and $8 billion by 2018. The first quarter of 2014 was the most active on record, with $1.7 billion invested globally, according to Accenture.
Silicon Valley is still by far the world’s biggest recipient of fintech investment, but it is facing growing competition from New York. Banks, capital markets firms and insurers are increasingly aware of the benefit of having a fintech cluster close to home.
“New York with its huge financial center has a strong gravitational pull for the fintech sector. Proximity between entrepreneurs and financial institutions allows them to work more closely at a time when demand for innovation is high,” Maria Gotsch CEO of the Partnership Fund and co-author of the report, said.
New York has been steadily closing the gap on Silicon Valley in terms of fintech deal-volumes. It had one-third as many fintech deals as Silicon Valley in 2011, two-thirds as many in 2013, and a near-equal number in the first quarter of 2014 (17 in New York compared to 19 in Silicon Valley).
Between 2008 and 2013, New York has had $1.1 billion in fintech investment, including $430 million last year, making it the world’s second largest fintech center. In the first quarter of 2014 it had $151 million in investment – its third-highest quarter on record. New York fintech investment could grow to $950 million by 2018, according to the study, according to Accenture.
The growth trend in fintech is largely being driven by rising demand from the industry, its clients and customers, for mobile, analytic, cloud regulatory compliance, and data security solutions.
“As entrepreneurial costs go down, more and more institutions are focusing on how venture innovations can help them be more competitive and efficient,” said Bob Gach, global industry managing director of Accenture’s Capital markets practice and co-author of the report. “This is why many financial services companies are ramping up accelerators and innovation labs, and sometimes investing in fintech ventures directly,” he added.
In recent years, a growing number of global institutions have launched in-house fintech VC funds, some valued at hundreds of millions of dollars. Meanwhile programs like the FinTech Innovation Lab, supported by 15 major financial institutions, have gained momentum. Founded in 2010 by Accenture and the Partnership Fund for New York City, the Lab fosters fintech growth through a mentoring program that brings together the brightest entrepreneurs with top executives from the financial services industry. Its 18 alumni companies have raised $76 million since participating in the program; one participant was recently acquired for $175 million, according to Accenture.
Global investment in fintech ventures has increased at more than four times the rate of overall VC investment during the past three years;
Silicon Valley accounted for 32 percent of all global fintech financing and one-fifth of all deals in 2013. In the first quarter of 2014, the region saw $376 million in total fintech investment;
The US is the world’s largest fintech market, receiving 83 percent of global fintech investment, or $2.4 billion, last year. US fintech investment is expected to increase to up to $4.7 billion by 2018.
“New York has every chance of being the prime beneficiary of the fintech boom in the coming years. It offers entrepreneurs proximity to perhaps the largest potential customer base of financial institutions in the world. It has a burgeoning venture ecosystem, and one of the world’s largest financial technology workforces. But New York needs to build on its momentum and advantages, foster programs like the Lab, and create new champions by capturing the attention of entrepreneurs and VCs from all regions,” said Gotsch.