I open up my daily FIA smartbrief inbox and I read the following:
Australia might be on its way to become a global financial-technology hub as the number of startups jump from fewer than 100 in 2014 to almost 580, with 59% based in Sydney, according to a report from The Committee for Sydney and KPMG. The report notes growth could increase if the region establishes a “clear incentive policy for International talent to come to Sydney to start a business.” (Then the link.)
But it got me thinking: If fintech is designed to disintermediate existing regulatory structures, how portable is it? Innovative P2P interfaces will need charters of some sort to operate if they do anything resembling deposit-taking; if you want to crowdfund securities, you will have to comply with applicable regulatory guidelines in host countries; payments infrastructure will be subject to the strict supervision of the local central bank; and so on.
From this perspective, it seems like the national trade benefits of competing for fintech (and offering some kind of regulatory or economic incentives) would have to lie in attracting firms that could develop underlying technologies that would then support applications abroad, or technologies that would be so efficient that they could draw other foreign market participants to your shores (say for better execution of trades, cheaper investment advice, etc.). Otherwise, offering incentives would not be logical, unless it lowered transaction costs that improved a country’s productivity, since a foreign fintech would ultimately have to comply anyway with local rules and regulations if it was seeking to service a country’s citizens.
Still, I wonder a bit about the extent to which agencies have fully thought out why they are competing for firms and what their economic objectives are. I’m certainly not against it as a theoretical matter, but without nuance it could be a matter of not just financial risk, but also of misdirected energy and effort.