International Finance
Fintech Magazine November- December 2019 Issue

Ireland: Is the Silicon Valley of fintech facing a Brexit windfall?

As the Brexit uncertainty drags on, Ireland’s time to snatch the European fintech innovation hotspot tag might have come

In Europe, the continent’s entrepreneurial dynamism currently seems to be concentrated in its islands at least as far as technology-driven innovation is concerned. While Malta is making a major play to be a blockchain innovation hub in Europe as International Finance reported earlier, Ireland seems to have found in Brexit an opportunity to buttress its claim to be Europe’s ‘Silicon Valley of fintech’.

The KPMG Pulse of Global Fintech report published early this year showed that there is an increasing interest in Ireland from fintech companies looking to establish a European presence. One report showed that 55 fintech companies established a base in Ireland creating at least 4500 jobs in 2018.  “In 2018, we’ve seen a lot of financial services companies and fintechs establish operations or grow their footprint in Ireland” Anna Scally, Partner and Fintech Lead, KPMG in Ireland, said in a press release.

Scally also added that traditionally these companies might have built their businesses in the UK but are choosing Ireland because of the Brexit uncertainty. She noted that many of these companies were at that time working with the Central Bank of Ireland to obtain licences that would enable them to continue to deliver their products and services across the European market in the event of a hard Brexit.

AssureHedge is an example of how Irish fintech companies are leveraging Brexit to their advantage. The company offers a range of hedging instruments to help clients prevent unexpected currency losses — and is making its products available to smaller corporations, SMEs and new entities.  AssureHedge’s differentiator with respect to competition are products that also help clients to benefit should the rate move in their favour.

An AssureHedge spokesperson told International Finance that Brexit might be Ireland’s opportunity to grab the European fintech hotspot advantage from London. “Ireland has strong competitive advantages and is uniquely positioned to be a significant global fintech hub. Our vibrant tech talent-based ecosystem and low tax rates make us a highly attractive destination for international fintech firms.

As a currency hedging fintech, AssureHedge expects to gain from Brexit. Brexit has heightened many businesses awareness of the need to hedge currency exposure to protect profits. “As Brexit drags on, we have seen an increase in the level of understanding businesses now have to their hedging needs. With this increase in the potential customer base and our unique offering in the marketplace, Brexit offers a unique opportunity for Assure Hedge to capture a greater market share sooner than might have been possible in less turbulent market conditions,” the AssureHedge representative told International Finance.

In the view of J.F. Clarke, Market Advisor for Financial Services at Enterprise Ireland, there is a possibility that Brexit could give Ireland a competitive advantage in financial services. The reason is that regulatory changes around Brexit will give the Irish business ecosystem a boost — and reroute companies seeking to trade in the EU to Ireland.  With Brexit, Irish companies will be able to operate and move easily across Europe compared to UK companies as the Common Travel Area shared between the two countries predates the EU.

The main factors supporting Ireland’s fintech growth have been in place for a number of years.  “Brexit has, however, increased the interest of investors in Irish firms, creating a broader range of players to support early-stage and Series A growth potential and, following recent clarification around the common travel area, Brexit has heightened interest in Ireland as an EU-based headquarters location.  It remains a story built around people, and Ireland, has over the past several years, attracting international talent to drive the fintech sector forward.  Our stability should continue to encourage and promote that flow of talent,” said a spokesperson from Corlytics, a growing Irish fintech.

A spokesperson for Carne, a global provider of fund management solutions from Ireland told International Finance that the company is enjoying the twin benefits of being English-speaking and Brexit-proof — although it operates within Europe, mainly concentrated in the UK, Ireland, and Luxembourg.  Ireland’s wealth of fintech talent from around Europe has helped Carne to meet its diverse technical requirements.

Ireland’s fintech scene has over 400 companies employing roughly 37,000 people in the sector. An enabling technology ecosystem and a skilled workforce are certainly empowering Ireland’s fintech sector. Ireland’s academic institutions have developed excellent manpower with a sophisticated set of skills and access to both the EU and the UK marketplaces to lay the foundation for fintech innovation.

The government of Ireland’s national financial services strategy, also known as IFS2020, has supported financial services businesses and helped scale up exports.  In addition to these, there has been a strong presence of international financial services institutions operating in Ireland including fund administration and middle office services that boosted the quality of skills available before Brexit.

Government support critical for Irish fintech

So far, the Irish government has played a pivotal role in supporting Ireland’s fintech industry. Enterprise Ireland has also been helping Carne to expand its business for over many years now, according to its spokesperson. This is especially true in helping the company to locate centres of operational excellence outside of Dublin, where it has been attracting a diverse highly skilled workforce.

The IFS2020 strategy and the new 2025 strategy have put in place a framework to coordinate between agencies and government departments. Clarke explained that Enterprise Ireland assists fintech companies planning to set up or scale up their existing businesses. A long term view of the fintech situation gives international clients certainty — positioning Ireland as an ecosystem with unique capabilities to support fintechs.

In fact, IDA Ireland, an agency designed to streamline foreign direct investment provides critical support to  foreign fintech startups seeking establishment in the country, compared to Ireland’s rivals like Malta, Clarke said.

Regtech Ireland’s stronghold

In one of 2019’s biggest rounds of Irish fintech funding, regtech Fenergo raised $66 million in July. Led by CEO Marc Murphy, Fenergo is one of Ireland’s fastest-growing companies. It now has a dozen offices spread across the world. J.F. Clarke told International Finance, “Being a small territory has enabled Ireland to develop a more effective and collaborative business network. In turn, this has played a significant role in Irish businesses meeting legally binding targets and attracting bigger and smaller businesses alike to look at investing in Irish fintechs.”

According to Colm Heffernan, COO, Fenergo, Ireland has demonstrated a unique ability to create progressive entities that draw from a diverse pool of talent stimulating global digital growth.  Even though one might notice a particular strength in regtech or compliance in Ireland— the truth is that it is the pedigree of software innovation that works as the foundation for Ireland’s fintech innovation.  Fenergo helps solve regulatory challenges for financial institutions by streamlining the end-to-end client lifecycle management processes for investment, corporate, commercial, and private banks.

Regtech and identity tech are particularly strong fintech sub-sectors in Ireland. After the financial crash of the late 2000s, a raft of new legislation governing financial services was introduced across the world. This, in turn, necessitated the industry to remain vigilant with the new laws in the picture.  Irish entrepreneurs have been proactive in identifying the role technology can play in this regard leading to the rise of a robust regtech and identity tech sector in the Irish fintech ecosystem.

Irish companies such as Corlytics have devised regulatory technology solutions that are globally perceived as rigorous in their approach to compliance. The reputation of the Irish regtech sector is rapidly growing on a global scale.  Regtech has reinforced its role in the country “from a combination of experienced market professionals, entrepreneurs, and an academic network that supports both technical and

subject matter development. The clustering effect also helps support startup companies, as firms, at different stages, tend to help and support each other. We have been building the fintech sector for a long time, but there is now real global momentum,” a Corlytics spokesman told International Finance.

Corlytics’ system tackles 80,000 regulatory notices a year. Its cloud-based service collates, structures, and organises data in a manner that helps clients manage their regulatory risks effectively. The company uses leading data techniques such as AI and machine learning coupled with the expertise of legal and financial subject matter expertise to deliver solutions covering EMEA, North American, and APAC regulations.

Fenergo, on the other hand, differentiates itself from its competitors through financial industry expertise, pre-packaged future-proofed data solutions, and community-based product development model. With that, clients are empowered to build a robust product development roadmap to address their regulatory and technology needs.

It has built a regulatory community with 20,000-plus risk and compliance experts that convene on a regular basis to thrash out regulatory and compliance challenges.  In fact, these sessions ensure that the Fenergo Regulatory Rules Engine is able to track all known and planned regulations — and allows teams to explore upcoming regulatory risks.  To accelerate growth, Fenergo continues to invest in R&D ($10 million in FY18) so that its solution can respond to market demand. Showing the truly global scope of Irish fintech innovation, the company’s coverage extends over 70 regulatory jurisdictions worldwide.

Irish fintech aspirations are all global

Scaling up a global fintech startup from Ireland is a challenge but there is persistent support from the government through Enterprise Ireland, IDA Ireland, and the embassy network — all aimed at delivering a global clientele base to Irish fintechs. The Irish by large carry an innate ambition to be global which is perceived as an advantage to companies such as Corlytics, a leader in regulatory risk intelligence, a Corlytics spokesperson told International Finance.

In the globalisation context, Corlytics explained that having team members who worked closely with US banks has been an advantage, for its solution.

And Fenergo is thriving on the global fintech-regtech stage. Last year, Fenergo’s revenue growth in APAC rose 256 percent from the previous year. With offices in Tokyo, Singapore, Hong Kong, Sydney and Melbourne to support regional clients, Fenergo attributes its growth to unrelenting regulatory changes and intensifying regulatory scrutiny. Recently, the company partnered with TUNG-I, a Taiwanese solutions provider to drive growth in APAC, including Taiwan and China.

Carne, an older fintech company, similarly innovates with a global scope. Carne’s fintech solution CORR (Compliance, Oversight, Risk and Reporting system) has been designed to streamline the traditional processes of the financial services industry that have, up to now, been predominantly manual in nature.  “These governance and oversight functions exist globally and are comparable, so like many global tech firms the development is scalable, particularly by location,” a Carne spokesperson said.

Irish fintechs breach the US market but need more support

Older Irish fintechs have successfully breached the ultimate tech frontier market – the US. The Irish network in the US and its connectedness are established through Enterprise Ireland and IDA Ireland that has given Corlytics a range of entry points to the US. Also, partnering with early-stage Silicon Valley companies such as Digital Reasoning has provided opportunities for it to effectively compete with larger global incumbents.

AssureHedge will be expanding its operations to the US in the fourth quarter this year. “We have already made our first hire there in Chicago. This decision was made after an EI Fintech trade mission to Chicago last year,” the AssureHedge representative said.

Likewise, a major percentage of Carne’s clients are US-based or owned by US parent companies. Its fintech solutions are mainly designed to operate on a global scale — to support companies from its Irish operational support centres.

But it is questionable whether Irish fintechs entering the US have a level playing field in the US while jousting with well-funded US fintechs. “We strongly need government policy innovations to support indigenous fintech firms to compete for tech talent with the US tech giants. The US tech giants have lower tax rates and deeper pockets which then is utilised to increase the cost of employing the talent pool. This impacts indigenous fintech firms in obtaining talent which could have been used for the product and service offerings,” the AssureHedge spokesperson said.

Local VC funding limited and conservative

One aspect in which Irish fintechs lag their British counterparts is in raising venture capital funding. According to the Irish Venture Capital Association, VC investments in Ireland’s tech sector dropped to €430 million during the first six months of 2019. But funding increased over 90 percent to €233 million in Q2 2019 compared to Q2 2018.

The Irish VC sector is small and often conservative in its approach – but Irish fintech startups can easily access capital next door in the UK.  “Of course, the UK is a global hub for fintech and fintech investment. We strongly advise any Irish fintechs to engage with the London VCs as early as possible. Being an Irish firm does not put you at any sort of disadvantage to a UK firm, other than the 55-minute flight to get there,” the AssureHedge spokesperson told International Finance.

Ireland has, however, built a supportive business landscape where access to global talent is easy. The Corlytics representative said, “We are very fortunate, although we’re based in Dublin, our team of 35 people comes from 10 countries.” Ever since Apple’s arrival in Cork in 1980 — technology companies have been establishing their operations in Ireland — with Dublin becoming the headquarters for some of the world’s leading corporations. The fact that technology skills are transferable has added to the ease of locally finding highly skilled talent for Ireland’s fintech startups, the Carne spokesperson said.

Ireland confident of its position as the Silicon Valley of fintech

According to the Ireland Fintech Census of 2018,  32 percent of Irish fintechs foresaw global revenue growth of between 100 percent and 500 percent, while 17 percent of them anticipated growth of more than 500 percent in the future.

Although Ireland’s fintech leadership aspirations are well known, it has formidable challengers in Europe – both established technology innovation hotspots and upstarts. In Europe, the one country that rivals with Ireland in fintech innovation is the UK. “As long as Britain remains in the EU, it is the biggest market for fintech innovation. Aside from that, there are a number of countries with forward-looking attitudes to fintech. Estonia, Germany and Malta are some of the countries that have vibrant fintech ecosystems, that would appear to have government support,” Clarke said. However, “Ireland is well placed and confident in its capacity and skills to continue being the Silicon Valley of the fintech world.

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