By Jack F. Clarke, Financial Services and FinTech Market Advisor at Enterprise Ireland
The UK is the largest export market for Enterprise Ireland clients (€7.9 billion in 2018). The market grew by 4% in 2018 with all sectors recording growth most interestingly, fintech grew by 17%.
The very strong growth in fintech is in no small part a result of the IFS2020 strategy document, that has driven growth in the Irish financial services sector. The strategy document gave a clear mandate to the government agencies – Enterprise Ireland, IDA and Science Foundation Ireland – to grow and harness the financial services acumen within the economy.
Enterprise Ireland client companies have remained committed to the UK market and it’s short/medium-term growth potential. This commitment manifests itself in a number of ways; more companies are opening UK offices than before, more companies are applying for regulation with the FCA to mitigate the end of the equivalency regime that governs all EU member regulators and finally, more people – roughly 100,000 employed in the UK by exporting Irish companies.
Collaboration from Fintechs and large Financial Institutions (FI) is the trend we are seeing with more Irish companies achieving strategic partnerships with UK based firms.
Looking a little closer at that number of 17% growth in Fintech exports we can see a number of interesting trends. Namely, Ireland has developed a strong cluster of Regtech firms. Geraldine Gibson, AQ Metrics CEO has described the current climate as an ‘Era of unprecedented regulatory change.’ This has certainly been a driving factor in the widespread adoption of Regtech software.
On the larger side, companies like Fenergo are gaining global traction with their client lifecycle management software solution. Corlytics, another Irish Regtech firm views regulatory compliance as a risk, an approach that resonates with many in the finance world.
In fact, 15% of all fintech exports to the UK last year came from the Regtech cluster. That is quite a significant amount for a subsector that didn’t really exist 10 years ago.
There is no doubt that the largest driver of fintech growth from the Irish market is in the FX and payments sector. Market giants like Fexco, Monex and the quickly growing Transfermate are driving very large export numbers in the sector. Irish companies have been at the forefront of the Direct Currency Conversion (DCC). Transfermate, a spin out of Taxback is very quickly gaining traction in the UK market and were very busy in 2018 adding an e-wallet functionality for users and announcing a strategic partnership with ING.
Growth in FX and payments was in the region of 40% last year. An eye watering figure that will enhance the reputation of the companies in that sector internationally.
Some challenges for clients in the market remain and can be grouped as follows:
- overall Brexit uncertainty in terms of evolution of UK sectors and UK customer response in the short and medium-term
- possibility that Brexit will make our least challenging export market more complex to trade with than has been the case to date
- all of the other known challenges that start-ups, SMEs and early mid-cap companies face when starting in a market or seek to maximise their potential and market share (understanding the market, how it is structured, competitor mix, best route to market etc)
Now, more than ever before, Enterprise Ireland’s presence and activity in the UK is critical for client success, particularly as the UK will continue to be the market to start in and achieve scale for the majority of clients due to its proximity, common language and business culture.
The results we are seeing now is the culmination of many years of hard work and the many wonderful entrepreneurs who drive exports in this sector.
Enterprise Ireland’s response in the marketplace is threefold:
- assist clients accessing growth opportunities in their sector or adjacent sectors/sub-sectors
- work with clients on a cluster basis to maximise impact and on an individual level to address specific needs
- assist clients to expand their customer reach and diversify their geographic footprint in the UK
We are on the wave of a technology boom. The wave hasn’t broken yet, advances in quantum computing, AI and ML will drive innovation in the next 5 years. By then, Ireland will have a new strategy -Ireland for finance 2025- to work off. If it is as successful as the last document, Minister Michael D’Arcy, chief patron of the strategy can be very proud of his work.
The strong tech focus of the Irish economy coupled with the large numbers of professionals working in Ireland’s International Financial Services Centre, (IFSC) means there will always be a fertile breeding ground for innovative Irish Fintech firms to sprout up and flourish.
UK financial services remains a pillar of the UK economy and is an industry that should be protected as much as possible throughout any Brexit process. According to the British Venture Capital Association, £32bn has been invested in over 2,500 companies in the past 5 years.
Sustained economic growth, rising interest rates and higher investment incomes are among the positive factors bolstering results in the insurance industry – another major export subsector for Irish fintech.
Compliance, Regtech and Security continue to grow as the regulator expands the reach of sandboxes and as new legislation such as open banking comes into effect.
Now, more than ever before, it is of the greatest importance to demonstrate the value Ireland places in maintaining the closest possible trading relationship and business ties between Ireland and the UK. This is best achieved through partnership and collaboration.
Dynamic regions need dynamic partners – Ireland is the highest growth economy in the EU and has characteristics which make it a strong partner for collaboration and knowledge exchange:
- most innovative SMEs in the EU
- Irish workforce ranked as most productive workforce in the world by OECD
- 1st in the EU for getting economic value out of research
- 10th in global rankings for quality of its scientific research
With such strong historic, cultural and heritage ties between Ireland and the UK, we are hoping that Brexit can embolden companies to drive cross-border collaboration, partnership and investment.
Enterprise Ireland will use its presence here to ensure that the UK remains a strategic and successful market for its Irish company base. The new strategy should give a mandate to companies to grow and innovate in this market.