Is Ireland the new home for European FinTech?

With the UK out of the European Union, questions have been raised on whether it can keep its position as the leader of FinTech in the region. Other European countries which have established strong FinTech sectors are all gunning for the top spot. Given Ireland’s location, countries like the US might see it as a key gateway into the European market.

The country has already started to attract FinTechs looking to ensure trade is not impacted following the UK’s exit from Europe. Starling Bank is currently in the process of launching a new office in Dublin so that it can continue operations and offer its current accounts across Europe after Brexit. Research from EY last year claimed that Ireland is the most popular destination for financial services firms looking to relocate due to Brexit.

Ireland’s FinTech sector has received a lot of attention from investors. Since 2014, more than $1bn has been invested into FinTech companies in the country. Last year saw a new record for the total investment in the country after it hit $356.6m. Investors are clearly seeing the appeal of the market, but whether appetite grow in tandem with the UK’s exit from the EU is unclear.

John Meehan, partner at Arma Partners (a financial advisor to the digital economy), said, “Whilst not as large as the UK and German markets, [Ireland] is an extremely attractive hub, particularly for B2B FinTech, with companies forced to have an international growth strategy from day one. Given the heavy focus on developing innovative, market-leading technology, we see a higher level of earlier stage M&A than we do in other core markets as strategics seek to acquire technology where they can level their sales infrastructure.”

Like Ireland, Germany has been one of the popular destinations for the new European FinTech hub. The country comes as an obvious choice as it is the second largest financial technology sector in the region, after the UK. Over the past five years the UK FinTech sector has seen over £12bn invested, and Germany has seen $5.4bn in the same time.

A common opinion on the impact of Brexit is that companies will leave the country and set up offices in EU-based countries to make use of the trade deals and closer networks. Countries are pitching themselves as the place for London companies wanting to continue hitting EU markets. A report from the Telegraph recently revealed UK banking unicorn Revolut is moving the responsibility of its European payments from London and to Ireland and Lithuania to continuing getting access to the European passporting rights post-Brexit. It’s not just UK companies which could be drawn to a place like Ireland. US companies looking to enter the EU market, might see the country as a good gateway.

Charley Cooper, managing director at R3 said, “Brexit will undeniably be a key factor that will prompt further growth of the Irish fintech sector, with more corporations looking to move their business overseas amidst political and economic uncertainty. However, the greatest evolution of the Irish FinTech sector will be prompted by wider, macro tech and business issues that change the landscape of all fintech sectors, not just Ireland.”

No one can predict what will happen once the UK leaves the EU, but regardless, Ireland is positioning itself as a key market for FinTech. Enterprise Ireland, which is the Irish Government’s trade and innovation agency, recently completed research which claimed Ireland’s FinTech exports increased by 17% in 2018 to €829m. Enterprise Ireland has been very supportive of FinTech growth in Ireland, having made 28 investments in 2018.

Technology and software related jobs are very popular in Ireland and have helped the country build up a strong talent pool of FinTech talent. The appeal of the country as a technology hub can already be seen with the fact Google and Facebook, among others, have opened their European headquarters in Dublin and the International Financial Services Centre has also attracted a lot of smaller companies. However, Facebook’s recent announcement to hire an additional 1,000 staff to its London office shows the city is not entirely without a future.

Blockchain company R3 is one of the businesses to have also been drawn to the country because of its FinTech opportunity. The company opened its second European office in Dublin last year. Charley Cooper, managing director at R3, said, “What makes Ireland unique is its accommodation of established tech behemoths and startups, both in equal measure. For the former, Ireland’s status as a driver of RegTech in Europe makes it extremely attractive for larger tech companies that are keen to see regulatory measures that accommodate robust innovation.” Nurturing this collaboration between regulators and technology companies is the best way for Ireland to position itself as a FinTech hub.

The market has done well at bringing tech and financial services workers together with financial institutions, which, Arma Partners’ John Meehan believes has helped the country establish a strong B2B FinTech scene. He added, “In addition, M&A activity in Ireland since the dotcom era has seen capital and entrepreneurial know-how recycled and reinvested into the market, providing a reliable source of funding and innovation for each successive generation of FinTech companies.”

The country’s funding might not be as much as the UK’s or Germany’s, but it is still growing. Enterprise Ireland has been one of the organizations helping to push this, having backed 28 companies in just 2019 alone. But, to meet the same levels of funding as other countries, FinTechs may need to look outside of the country.

“At the heart of the evolution of Ireland’s FinTech sector will be its outward-looking nature. Ireland’s domestic market is small, and the local sponsor community of venture capital and private equity investors is comparatively sparsely funded. Irish FinTech companies have therefore come to rely heavily on developing cross-border capabilities and on foreign investment.”

As we begin this next decade, Ireland has clearly got a lot of potential for growth. Meehan believes this will be heavily based on Ireland’s companies deepening their international outlook for both the markets they tackle and the firms they partner with. One of the sectors which looks set to continue to grow over the next decade is the B2B payments space, he said.

Ireland’s FinTech sector is largely dominate by three sub-sectors, marketplace lending, payments and RegTech. Together, these industries are responsible for over 88% of the FinTech investments into the country. The country’s strong payments space is prepped by the likes of big players like TransferMate, a B2B cross-border transaction company which has raised €51m in funding.

Last year also saw a number of established payment companies acquired. Payzone was acquired by AIB Group and First Data Corp in a deal which valued the business at €100m, and Prepaid Financial Services Ireland was bought by EML Payments in a deal valuing it at £226m.

R3’s Charley Cooper added, “Again, much of Ireland’s strength in this space comes from within. Ireland’s domestic banks are increasingly supporting the increased use of digital methods: for example, Allied Irish Banks ran promotions in 2018 to help raise the profile and usage of mobile payments among its customers.”

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