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Fintech Hubs: Shining The Spotlight On New York

In order for a city to be classified as a “hub”, it should consist of the following aspects (Stanford Social Innovation Review):

  1. A collaborative community with entrepreneurial individuals at the centre.
  2. Attract diverse members with heterogeneous knowledge
  3. Facilitate creativity and collaboration in physical and digital space
  4. Localize global entrepreneurial culture

It’s therefore not a term that any city can just loosely adopt. New York, however, can rightfully claim its definition as a fintech hub as it has all this and more, including capital, talent and demand.

So how did “The Big Apple” turn into “Silicon Alley”?

International Financial Centre

The number one reason fintech is thriving in New York is simple, it’s the close proximity to a huge potential customer base of financial institutions.

The city has long been one of the world’s greatest financial centres with two of the largest stock exchanges: the NYSE and NASDAQ. The ‘big three’ credit rating agencies, namely S&P, Moody’s and Fitch, also have headquarters here.

Additionally, the city’s got a strong presence when it comes to trading in debt capital and public equity. Hedge funds, private equity firms and high monetary value M&A’s are also common here.

With this financial pedigree comes a lot of financial talent. Attracting and retaining top employees is important as these are the people that will drive modernisation and come up with innovative technologies to make financial services as frictionless as possible.

And it seems New York has a big global attraction. There’s close to 60,000 people working in the New York fintech sector.

This is the foundation that allows fintech innovation to thrive in New York, a strong financial market coupled with an enthusiastic and talented workforce. It’s logical for fintech companies to start-off and settle here. New York has a lot of opportunities to collaborate with, and disrupt, the globe’s leading financial institutions.

Collaboration and disruption

New York is the leader when it comes to fintech and financial partnerships. This is mainly due to traditional financial institutions looking for innovative technologies to move them forward. Naturally, they don’t want to lose out on the tech revolution happening all around them.

One such area is the banking sector. Many legacy banks are in desperate need for innovation to keep up with the times. Fintech companies are jumping on this opportunity, either through disruption or forming partnerships for mutual benefit.

JPMorgan, New York’s biggest bank, spends about $9 billion a year on technology and innovation. In early 2016 it partnered with OnDeck, a small-business loan provider, to help process loans more quickly and cost-effectively.

In February this year, it also signed a deal with Roostify, an online mortgage processing platform, to ease the process of applying for a mortgage

Similarly, in 2016 Bank Of America teamed up with Viewpost, an open business network for small businesses, to provide the bank’s customers with a cash-management, payments and invoicing solution.

But just as there is collaboration there’s also disruption. The slowness of traditional financial institutions to adopt change creates many opportunities for fintech startups to exploit.

CommonBond is a student loan solution that aims to make loans more affordable for students and Bond Street, a small business loan provider, is revolutionizing small business lending through technology, data, and design.

On the other hand, Betterment is taking on the wealth management sphere by using technology to achieve better returns and has about $9 billion in assets under management.

New York Fintech accelerators

Fintech accelerators are intensive business development programs, aimed at startups to turn their ideas into a successful business. Through these support programs, New York is ensuring that it retains its reputation as a city for innovation.

The FinTech Innovation Lab was originally launched in New York and is a 12-week program that helps early-stage startups to test the value that they are able to give. It provides support to fintech companies through mentoring and insights by VC’s and senior financial figures.

Techstars and Barclays RISE are both designed to accelerate the growth in young startups and are supporting NewYork to stay a prime location for fintech startups.

Startupbootcamp Fintech New York is the leading accelerator program and much more intense. Available to selected startups only, it provides access to over 100 industry experts and office space at the core of New York’s fintech industry.

These accelerators prove invaluable to the growth seen in the New York fintech scene and show that there’s a common understanding within the city to support startups to flourish.

Investment

One of the most important factors for fintech startups to succeed in any city is substantial investment. And New York has this in abundance.

3 of the top 10 global fintech deals of 2016 happened in New York (Reval – $280M, Payoneer – $180M and Zibby – $103M). That says a lot about investors’ mentality. They believe in the future of fintech.

Earlier this year, Nyca Partners raised $127 million for a fintech investment fund. This is after they already raised $30 million in 2014. Some of the companies they’ve supported include LendingClub, Affirm and Orchard.

First Round has raised $738 million in funds and investments include Nova Credit and Square

IA Ventures has raised $315 million and has invested in almost a 100 startups, including Transferwise and Octane Lending.

In 2016, the total fintech investment in New York reached $1.6 billion. This is another indicator that the city takes fintech growth very seriously and why it’s become a top fintech hub.

Conclusion

There are much more fintech success stories coming out of New York.

LearnVest is a personal financial planning platform that raised $68 million in funding since it launched. The company was acquired by Northwestern Mutual for $250 million in 2015.

Oscar, known as the “Uber of health care”, is a health-insurance platform. The company reached a valuation of more than $2 billion and generates revenue of around $200 million a year.

These success stories are a testament to New York’s reputation as an incubator for innovation. Through a strong financial market, talented employees, opportunity for collaboration and disruption, support programs and generous investment, New York can rightfully stake its claim as a global fintech hub.