Top five tips as your fintech company explores European expansion
Much like its emergence to address the challenges of the 2008 financial crisis, the fintech platform has been a resilient and important resource during the coronavirus pandemic.
Social distancing and other safety measures imposed during COVID-19 ushered in more demand for ecommerce and other digital financial services. Some US fintech companies are using this opportunity to grow their footprint in the European Union.
US fintech companies recognise the potential buying power of the European Union’s 550 million people and a border-free access to markets across 27 countries. A host of new disruptors including Square, Stripe, Plaid, Remitly have joined such established ones as Mastercard, Visa and PayPal in opening overseas offices in France, Germany, Ireland and Scandinavia. This strategy of diversifying revenue streams gives these long-standing and emerging companies greater exposure to clients and customers in one of the wealthiest economies in the world.
In making the critical decision to expand to Europe, here are five important considerations for your fintech company in seeking the right location for your overseas operations:
With the global economy now disrupted due to the coronavirus, due diligence is essential to finding the optimal hub for your European office. Fintech companies in general want stability for the long term. Their aversion to risk is why they often choose stable countries such as Ireland, France and Germany. The Scandinavian countries, Switzerland and Ireland were named the most stable in the world, according to World Atlas.
Another important measure of stability is the longer-term viability of a country’s GDP growth. Some of Europe’s larger economies like Germany and the UK have had lower levels of GDP growth, while emerging Eastern European nations like Romania, Poland and Hungary are enjoying higher levels of GDP growth. For example, Malta had the largest projected GDP growth, followed by Ireland, according to the most recent data released by the European Economic Forecast of the European Commission. The EU has introduced a €750 billion recovery package, which sets aside resources to help businesses in Europe rebuild after COVID-19.
- Right location, right talent
The EU is ripe with young, well-educated, diverse talent, and many of its countries offer no restrictions on providing the equivalent of green cards or H1B visas for foreign talent. Consider the recent activities of Mastercard, which first opened its EU office in Dublin in 2008. In February 2020, the company announced a major expansion, including the hiring of 1,500 people over three years, adding to its existing 650+ employees.
And while talent is important, productivity is essential to running a streamlined, profitable organisation. European countries are the among the most productive in the world. According to World Population Review, Ireland, with a high concentration of multinationals, has the most productive workforce, followed by Norway, Switzerland and Germany.
- Innovation & collaboration
It is important to ensure that your European location invests in innovation and values collaboration. As of January 2019, 21 EU Member States and three countries in the European Economic Area (EEA) had established more than 60 digital innovation hubs, according to Europa, the EU’s official website.
Innovation hubs & Technology Centres in the EU include Fintech Contact Point in Belgium, Innovation Hub in Cyprus, the RegLab in Liechtenstein, Insurtech Hub in Romania and the Centre for Applied Data Analytics and Machine Intelligence (CeADAR) in Dublin, Ireland.
Government-funded training programs, attractive R&D tax credits and other business-friendly programs are available to fintech companies expanding to Europe. One helpful resource for U.S. fintech firms launching a European office is the “cluster” concept. This collaboration of companies, government organisations and universities direct their energies to specific technology areas. In the fintech sector, AI, blockchain, cybersecurity and machine learning are among the focus areas.
- Understand the regulatory landscape
According to a report by the European Supervisory Authorities (ESAs), five EU member states have regulatory sandboxes that help companies better understand the regulatory and supervisory parameters of their respective locations. Dozens of other jurisdictions are offering similar programs. The Central Bank of Ireland, for example, established an Innovation Hub in 2018 that allows fintech firms to engage with the Central Bank outside of existing formal regulator/firm engagement processes.
- Ensure a solid ecosystem
Artificial Intelligence (AI), cryptocurrency, blockchain, alternative lending and other new technologies are disrupting the traditional financial services model. Make sure your chosen European location is tech-savvy and familiar with this fast-moving environment.
More broadly, examine the location’s complete offering, from available tech talent and trade routes to tax laws, residency requirements and asset protections. Fintech companies like PayPal, Stripe and Mastercard, along with a host of newer disruptors like Remitly, Coinbase and Payoneer, are finding new opportunities throughout the EU.
The best European fintech location should balance all the needs of your company – financial, technical, regulatory etc – and be well-positioned, forward-looking, progressive and confident in its abilities to provide a vibrant, supportive ecosystem in which will allow your fintech company to grow and flourish.