Latest News

Fintech Jurisdictions – The rise of Chicago

Chicago has many names – Chi-town, Windy City and Second City and now it’s looking to add fintech hub to that repertoire. Chicago was recently ranked among the top five global fintech hubs by Deloitte and the Global FinTech Hubs Federation, thanks in part to native institutions like FinTex’s strong advocacy.  

Despite the buzzword that has become ‘global fintech hub’, there is no smoke without a fire as fintech and financial services companies account for 14 percent of the 50 fastest-growing companies in the region, according to Crain’s 2017 Fast 50.  Big investors such as Jump Capital, Pritzker Group Venture Capital, MATH Venture Partners, Chicago Ventures and CME Ventures have pumped money and resources into this ecosystem. The apparent success of Braintree, Avant, Envestnet, Morningstar, Discover, Allstate and many more, suggest there must be something more than pizza and long cold commutes in the Windy City.  TFT set out to find what it is about the Windy City that is catching the beedy eyes of investors and entrepreneurs? 

Chicago has caught industry eyes before in 2017 when the Global Financial Centres Index ranked Chicago as the competitive financial centre of the world (alongside cities such as London, Singapore, Hong Kong, Sydney, Boston, and Toronto).  Moreover, some have dubbed Chicago as ‘the capital of the derivatives industry’ with commodity futures trading as far back as 1848. 

 It’s not surprising that Chicago boasts five major financial exchanges, including the Chicago Stock Exchange (CHX), the Chicago Board Options Exchange (CBOE), the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), and NYSE Arca.  Other financial notables are the Federal Reserve Bank of Chicago, Chicago Board Options Exchange, Chicago Mercantile Exchange, Citadel, Discover, DRW Trading, JPMorgan Chase, Morningstar and Northern Trust. 

2017 brought more hype to the landscape when Deloitte published The Connecting Global FinTech: Hub Interim Review 2017 with the Global FinTech Hubs Federation which catapulted Chicago onto our radar.  The Global Fintech Hubs Federation is a new initiative aimed at raising the profile of key Fintech friendly localities.  Global FinTech Hubs Federation states,  “We want to encourage global engagement, best practices, and knowledge sharing, as well as build bridges between all FinTech hubs for entrepreneurs and investors to connect.”  

“We want to encourage global engagement, best practices, and knowledge sharing, as well as build bridges between all FinTech hubs for entrepreneurs and investors to connect.”  

Local stakeholders were obviously pleased for a slice of the Fintech pie. “Chicago has been the long-time nexus for financial services and technology in the region. The city’s emergence as a rising global FinTech hub is a natural extension of its deep roots in the financial services industry. It also demonstrates Chicago’s ability to attract and nurture business innovators” said Carl Allegretti, Chicago managing partner, Deloitte LLP.   Chicago’s Mayor Emanuel echoed this sentiment, “Chicago is quickly establishing itself as an emerging global centre for financial innovation.”

 

However, is there anything to this famed Deloitte report other than a big marketing budget?  Far from comprehensive the report does try and draw in factors considered important by VCs and entrepreneurs.  The report considers both hard and soft data to compare the status of 44 global hubs on the basis of the FinTech sector development in that location.  The report pulls in the World Bank Doing Business Index, the Global Innovation Index and the Global Financial Centres Index and also considers indicators based on self-assessments from Hub Representatives that indicate the strength of each component part of their Fintech ecosystem.  

Fast forward to 2018, tech heavyweights like DocuSign and Salesforce, as well as  food giants like Kroger and Pizza Hut came shopping for Chicago tech companies to snatch up the cities growing talent pool.  Some of the most  notable mergers and acquisitions in the fintech space were GTY Technology Holdings’ acquisition of  CityBase, a Chicago startup that provides online payment technology and other digital services to governments, for $160 million and Accenture’s acquisition of Kogentix, a Schaumburg-based big data and artificial intelligence start-up.

Furthermore, there is defiantly a commercial approach being enacted by local government and accelerators. FinTex, a significant player in the Chicago ecosystem, makes the bold claim, “ Chicago is exploding with talent, industry leadership, and start-ups, contributing to the Midwest’s 20,000 financial institutions & counting. This increasingly attractive business environment is a magnet for disruptive ideas and industry experts, making it the ideal epicentre for the FinTech community.” FinTex  aims “To foster a community of the leading organizations within FinTech & FinServ to spur collaboration, grow investment, and fuel innovation.”

FinTex also is the founder of Currency, Chicago’s FinTech Center of Excellence. Currency has relationships with academic institutions like DePaul, Northwestern, and the University of Chicago, as well the State of Illinois in an attempt to create a robust knowledge base for founders to tap-into.  The ecosystem is somewhat tight knit with a deep connection between knowledge hubs and cutting red-tape. 

“We’re delighted to see that the Chicago FinTech community – led by organizations like FinTEx along with 1871, Fintank, the Illinois Technology Association, and our exceptional universities – is being recognized on a global platform,” said Mark Tebbe, chairman of ChicagoNEXT, Chicago’s council of technology leaders. “Chicago’s financial services sector has a rich history of innovation, and is now following the path of others including healthcare and manufacturing to create new economic development opportunities for our legacy industries through collaboration.”

One particular centre in Chicago that has drawn in significant talent is the Polsky Exchange, an innovation incubator.  This University of Chicago affiliated incubator has over 3,400 members and is closely linked to New Venture Challenge (NVC) accelerator program which has graduated more than 230 startup companies and created thousands of jobs for the economy. NVC start-ups have achieved more than $13 billion in mergers and exits, and include household names such as Grubhub, Braintree/Venmo, and Simple Mills.  

According to EJ Reedy, Director at the Polsky Centre, “The Polsky Centre is a uniquely powerful proposition by bringing together the unique aspects of Chicago’s location with the intellectual capital and broad community support of the University of Chicago, we have created an environment that we believe will produce breakthrough results.”

In addition to the educational angle, Chicago has an active accelerator scene. One of the most prominent accelerators is FinTank. Launched in early 2017, the mission of FinTank “is to provide a physical location for FinTech startups to convene and market their ideas.”  Accelerators have played a pivotal role for cities lobbying to become fintech hubs.  

 

“Through my experience leading programming efforts at 1871, I realised that the fintech sector in Chicago really needed a physical location to serve as a focal point,” said Dr. George Vukotich, founder and managing partner of FinTank. “Chicago has so much promise as a fintech centre and FinTank is the missing ingredient to help pull things together.”

Chicago has so much promise as a fintech centre andFinTank is the missing ingredient to help pull things together.

Corporate sponsors include heavy-hitters such as Morningstar and AWS, and services offered cover important areas like vendors (e.g. Barchart and Rival Systems), legal (Lens Legal Group and Polsinelli), and finance (Burling Bank and Silicon Valley Bank).  This has been coupled with open meetings on such hot topics as blockchain, IoT, and AI and machine learning. 

There are some who don’t agree that Chicago should be called a fintech hub.  Business Insider slammed the city in 2013 as one of most – in fact the 4th most depressing big city in America. After looking through the statistics – its not very rosy when it comes to life outside those shiny accelerators and exchanges.  Other’s go as far to say that Chicago is a city of has-beens stuck in a prolonged Winter season of big companies leaving and investment rates being unstable.   Further, the Deloitte report flagged key weaknesses as risk averse culture, low levels of knowledge sharing and insufficient scale capital.

Chicago has demonstrated that it is a fintech leader in the US at least. The strong advocacy from core institutions has laid the building blocks for success however the funding has been volatile and lacks scalability.

Please follow and like us:

Related posts

UK Poised to Become Natural Global Home for Fintech in the Face of Brexit

thefintechtimes

Escrow-as-a-Service: Moving Towards a Global System of Trust

thefintechtimes

“You have to put your hand up for new opportunities”

thefintechtimes

Enjoy this blog? Please spread the word :)