If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?
Currently Bermuda’s Government and regulators have provided a vigorous legislative framework for fintech companies to use as a solid and reliable foundation to develop fintech products and services. Beyond this, the regulatory framework in Bermuda provides comfort to potential and existing fintech clients, which increases certainty in a developing industry. Furthermore, fintech companies that opt to domicile in Bermuda will also benefit from the jurisdiction’s low-tax regime and ongoing support of the Government of Bermuda.
The Cayman Islands greatest strengths, for entrepreneurs looking to establish a Cayman Islands entity to develop fintech and/or a physical presence in the Cayman Islands are:
- No direct taxation;
- Legal framework which promotes investment in fintech;
- Proximity to the United States of America and on the same time zone;
- English common law legal system and political stability;
- Short time frame to establish a business/entity; and
- Low establishments and operating costs.
Cyprus’ greatest strengths, from a fintech investment perspective comprise the following:
- Proximity to key markets and geographies which are forging ahead in fintech and crypto development, including Israel, Middle East, Russia and Belarus.
- Legal system is derived from English common law. English and commonwealth legal precedent is of persuasive effect in the court of Cyprus. In this way Cyprus is able to benefit from recent jurisprudence developed in other countries.
- EU and European Monetary Union Member State, full application to the EU acquis in Cyprus. Is likely to operate as a bridge to the UK within the Eurozone/EU following Brexit.
- Low set up and operating costs. English language, with a multilingual highly trained workforce.
- Extensive network of Bilateral Investment Treaties, with approximately 30 countries.
- Favourable domestic tax system:
- Corporate Income Tax rate of 12.5%
- Standard VAT rate of 19%
- Extensive network of Double Tax Treaties, with 52 countries
- Generous withholding tax exemptions.
Denmark ranks high in the Ease of Doing Business Index which, combined with a strong tech savvy population and the FinTech-oriented legislators, provides for a strong environment for FinTech startups to develop and thrive.
The Danish FSA has recently established both a dedicated fintech-team as well as a fintech sandbox initiative, where selected companies have the op-portunity to test their innovations in a secure environment with the support of the regulators.
Several organizations from different interest groups are working progressive-ly to provide a digital infrastructure and business environment that lead the way for fintech entrepreneurs. Among these are Copenhagen FinTech Lab and Digital Hub.
Copenhagen FinTech Lab is the leading fintech hub in Denmark and founded by industry interest groups. The hub's vision is to combine the visionary ideas of entrepreneurs, the experience of the financial sector, and the research from the universities in order to build a thriving fintech ecosystem for the benefit of all stakeholders.
Digital Hub is a PPP incubation hub between the government and several NGO focusing on Big Data, AI and IoT.
Finland has a good track record in boosting the development of fintech and welcoming startups.
According to the Digital Economy and Society Index 2017 (DESI), published by the European Commission, Finland has the second most advanced digital economy in the EU. Finland scored highly in particular for its human capital and digital skills, integration of digital technology and digital public services.
From a legal perspective, founding a company is not subject to hard bureaucracy and also e.g. a foreign payment institution authorised in the EEA may provide services in Finland by setting up a branch or providing services across the border.
The national implementation of PSD2 respects the harmonisation and Finnish payment service legislation does not set material additional requirements or restrictions for payment service providers. Same applies to the legislation on processing of customer (i.e. the payee or end user) personal data. Processing of HR data is, however, strictly regulated.
Finland is a good choice especially for fintech entrepreneurs, as the Startup Permit described below makes it easy for entrepreneurs to come to Finland to establish a fintech startup.
As mentioned above, French FinTech firms raised significant funding in 2016. SME loan crowdfunding platform Lendix raised €12 million, KissKissBankBank €5.3 million, Ulule €5 million, Tiller €4 million and Wynd €30 million. Compte Nickel has developed a bankless, no-overdraft account that takes five minutes to open at a newsagents; the startup, valued at €200 million, was acquired by BNP Paribas in 2017.
Furthermore, more than 380 projects presented by start-ups, SMEs and large undertakings have already received the “excellence label” delivered by Finance Innovation. Finance Innovation supports and advises more than 1,000 businesses.
According to a study conduct by EY , more than €2 billion have been raised in venture capital by startups in France in 2016. This enthusiasm of start-ups can partly be explained by French regulations. [See point 6. above]
France offering incentives in an effort to attract Fintech startups. Indeed, France is a country where there are more than 80 business incubator (private and public) and “accelerators” (business development program that supports founders and helps them turn their ideas into successful businesses). Among the most recognized, we can quote KAMET by AXA, 50 PARTNERS by le Loft, TRUFFLE FINTECH INCUBATOR by TRUFFLE CAPITAL, FINTECH & CORPORATE L’ATELIER by BNP PARIBAS etc.
We can still quote “Station F”, the Xavier Niel’s incubator with 34,000 m2 facility and the world’s largest start-up incubator. Created by the “Hauts-de-Seine prefecture”, in partnership with Paris & Co and several large companies (Société Générale, NewAlpha AM, Crédit), “Swave” is the last one. In conclusion, France joins the rank of the countries where there are the most incubators.
It should be added that the French policy seduces Fintech. More precisely, Fintech are charmed by Emmanuel Macron. The nascent industry, ranging from mobile payment apps to “cryptocurrencies” like bitcoin, is seen by governments and business alike as crucial to the future of financial services and of vital importance, therefore, to economic growth.
As previously announced, France has “comprehensive regulations” with respect to Fintech, with clearly defined rules for companies looking to scale up. Fintech can rely on a strong governmental and ministerial support. Moreover, Paris is home to a high concentration of financial institutions and asset managers. There is strong infrastructure established in payments, insurance and telecoms with large pools of talent available.
Source: Deloitte report: Connecting Global Fintech: Interim Hub Review 2017
This study confirms the government support and revealed France is one of the countries with the highest score on this issue. The same study revealed also a good grade in the category named “Proximity to customers”. According to the definition mentioned in the study, France has a potential of customers at the better level. The study mentioned above (question 2) shows that the lack of notoriety of Fintech is the reason of the low utilisation. Investors must be aware of this and must overcome this obstacle from the beginning.
A FinTech entrepreneur should begin his operations in Germany for two reasons. First, once the business model is set, it can be exactly determined which require-ments have to be fulfilled and which duties have to be applied with, in order provide the envisioned FinTech service. Second, Germany is part of the Europe-an Union. Once the FinTech service is established in Germany, it is easy to ex-pand the service into the whole European market.
Gibraltar has been very responsive to new commercial trends, and has been able to provide businesses with ‘speed to market’ – a very attractive proposition for entrepreneurs, especially given the culture of ‘no-compromise’ in terms of transparency: a must in order to maintain and further the high quality of the jurisdiction. The establishment of a very solid gaming industry confirms the ability to attract novel industries and to create fertile regulatory-ground on which these can sprout and grow.
Gibraltar has been at the forefront of legal development in financial technology, as one of the first jurisdictions in the world to provide a regulatory framework for DLT based businesses, and this has attracted numerous high profile Blockchain based businesses, including (but not limited to) crypto-exchanges, custodians and e-wallet services providers. The forthcoming Token Offering Regulations are intended to compliment the DLT Regulations, and together they will form a complete regulatory framework.
Gibraltar is also attractive to new businesses due to schemes such as HEPSS (High Executive Possessing Specialist Skills). Those individuals who are granted HEPPS status have a special fiscal status in Gibraltar whereby their gross assessable income is capped at £120,000 per annum which would result in a total tax liability of approximately £29,940.
On some fintech fronts, Malta is spearheading innovative and unique reforms, particularly in the blockchain sphere. Lately it has garnered an even faster momentum in pushing forward its status as blockchain Island by effectively quenching start-ups’ craving for regulation through the setting up of a robust principles-based regime targeting DLT platforms and related service providers. The new laws fill the legislative gaps in what currently is a legal vacuum rife with a felt desired of legal certainty. Furthermore, Malta has positioned itself as a reputable centre for financial services, with a comprehensive framework overseen by the MFSA - a solution-oriented regulator, fostering a culture of open dialogue and hands-on regulation. Malta’s attraction is further underscored by its favourable tax regime which, as a result of its extensive double tax treaty network, allows investors to achieve considerable fiscal efficiency using Malta as a base. It has a well-regulated banking sector, with several multinational banks offering bespoke solutions to clients, and boasts of a highly skilled, committed workforce with the majority of students opting to follow post-graduate courses related to ICT or financial services. Lastly, English is one of Malta’s official languages and Malta’s warm climate gives fintech entrepreneurs an added incentive to choose Malta as a place to set up shop.
Israel is well known as the “Start-Up Nation” and the fintech sector is just one of the many sectors that helps Israel maintain its status as a world leader in this space. With around 600 companies, the Israeli fintech sector is recognized globally, attracts investors from around the world and servs hundreds of global financial institutions. The success and pristine reputation of the Israeli fintech ecosystem is credited to many factors, some of which are the technology strength of many entrepreneurs acquired during their mandatory military service with the Israeli Defense Force and studying in top ranked universities and research institutes, the governmental support available to Israeli start-up companies, many foreign financial institutions setting up bases and sandboxes for fintech companies in Israel as well as a strong investor base and dynamic community. Israel is also a prime testing ground for products in light of the early adoption patterns of the Israeli consumer and the centralized finance sector and thus enables fintech companies to easily test their product before scaling it abroad. Tel Aviv is also regularly ranked as one of the top cities to live and work in tech.
The Tokyo Metropolitan Government (the "TMG") released a paper titled "Global Financial City: Tokyo" Vision - Toward the Tokyo Financial Big Bang in 2017. While it outlines various measures to nurture domestic players and attract foreign players in the entire financial sector, the TMG gives particular importance to asset management and fintech businesses and sets its aim to attract 40 foreign asset managers and fintech companies toward the fiscal year 2020.
As a part of such measures, the TMG has been holding an annual "Accelerator Program - FinTech Business Camp Tokyo" since 2017. The TMG holds such program with the goal of inviting foreign startups with cutting-edge technologies and business models to come to Tokyo and deepen their knowledge of Japan's unique market and the various needs of local companies. Further, by providing local companies the opportunity to familiarize themselves with technologies possessed by foreign entrepreneurs, such program aims to cultivate business matching and attract foreign entrepreneurs to Tokyo.
In addition, the TMG opened the "Business Development Center Tokyo" which offers foreign entrepreneurs who are considering an expansion of their businesses in Tokyo a total support package covering all aspects from business through to lifestyle issues. For foreign companies planning expansion into the Special Zone for Asian Headquarters in particular, this center provides both business exchange support and specialized consulting services. Furthermore, the "Tokyo One-Stop Business Establishment Center" facilitates the incorporation of its ancillary procedures, such as taxes, social security and immigration, for foreign entrepreneurs considering establishing businesses in Tokyo.
Also at the national government level, the JFSA launched the "FinTech Support Desk" in 2015. This is a one-stop contact point for inquiries and exchange of information on fintech. It accepts a wide-range of inquiries on various matters in finance, from those who currently operate fintech businesses to others who intend to start fintech startups.
Mexico has become a suitable option for Fintech companies in the region for a number of reasons, such as: (i) the maturity of the entrepreneurship public programmes, grants and access to services through INADEM; (ii) telecommunication infrastructure in Mexico; (iii) the enactment of the Fintech Law and the first package of its secondary regulations; (iv) lower average wages and costs; (v) lower cost of basic in the region (such as electric power for crypto-mining projects); (vi) a strong banking infrastructure; and (vii) the existence of several venture capital funds aimed for Fintech companies.
British Virgin Islands
A fintech entrepreneur would chose the BVI as the BVI is a leading offshore financial services jurisdiction with the following advantages:
- British Overseas Territory status;
- political and economic stability;
- a growth oriented government which fosters a vibrant public/private partnership
- English legal system;
- robust financial services legislation with applicable light touch regulatory framework;
- reliable communication infrastructure;
- modern and reliable banking system;
- innovative, flexible, user-friendly legislation with minimal regulations;
- tax neutral jurisdiction; and
- internationally recognised reputation and respectability.
SSEK: One of Indonesia’s greatest appeals lies in the potential market it houses for digital products. The number of internet users in Indonesia reached approximately 123 million in 2018, placing Indonesia sixth in terms of most internet users worldwide. This potential market, accompanied by a sizeable consumer base and a rapidly growing middle class, has drawn investors to Indonesia.
Additionally, Indonesia is working to anticipate the rise of various fintech products by issuing regulations that are sufficiently broad in scope, such as the BI Fintech Reg and OJK Fintech Reg, and to facilitate foreign investments by integrating most licensing facilities.
It should choose ours because Portugal is becoming more innovation driven and events such as Web Summit have attracted numerous investors and start-ups to the Portuguese market. We currently see such trend evolving and many start ups taking advantage of an attractive work life balance kind of approach, while simultaneously benefiting from increasing initiatives aiming to increase investment in innovative areas such as fintech (please see, for example, the example of Portugal FinLab above.
Despite its complex regulatory scheme for fintech companies, the US offers significant opportunities for fintech companies. US consumers and institutions have demonstrated an appetite for new technologies to simplify access to financial services, and the maturity of US financial institutions has created a market for new and disruptive fintech offerings.
The government has reiterated on numerous occasions its policy to support and encourage technology innovation. This policy is implemented by, among others, sandboxes and accelerators set up on mainland of the UAE and in the Financial Free Zones.
Where the fintech product is well-tested and it is a new technology used to provide a service for which a license already exists, then upon the product meeting the regulatory requirements of the authorities, the service provider may obtain a license from the relevant authorities to conduct its activities in the UAE beyond the testing phase.
Another principal reason entrepreneurs consider initiating operations in the UAE is its advantageous taxation environment.
Ukrainian jurisdiction is attractive for running fintech business due to the low tax rates for individual entrepreneurs, the extended fintech community and its own school of blockchain developers. A wide ecosystem fintech is available in Ukraine that allows to find the required qualified specialists easily and implement the most innovative fintech solutions.
Switzerland is a stable country with a substantial and open economy in the middle of Europe but not in the EU; the fintech sector enjoys strong support by the business community. The country has a strong and mature financial market and strong service industries supporting the fintech initiative.
The federal government is very supportive of fintech and the immediate regulator Finma is recognised as competent and supportive. Furthermore, numerous networks were formed in the business community.
There is also strong support on the tech side: Google, IBM, Thomson Reuters, ETH (Federal Institute of Technology) all established research laboratories in and around Zurich, adding to the knowledge and technical innovation network. Zurich University just announced that it will create 18 new chairs for digital innovation studies.
The tax environment(s) are business friendly and tax rulings are available; flexible and employer friendly labour and corporate laws complete the picture.
This favourable environment is stable, as there is competition between cantons and universities to stay ahead of the curve and pressure by start-ups on established enterprises. Hence, Switzerland is and will remain a business-friendly and supportive environment for fintech companies.
India is now the largest user of mobile data in the world and smartphone ownership is rapidly rising. This has enabled mass adoption of digital technologies. India provides a unique opportunity for Fintech entrepreneurs to begin operations as the largest under-served population in banking and other financial sectors. India’s deep talent pool for software engineers and developers also makes it a ready base from which to develop fintech applications. Government support, especially in the payment segment has been significant with the financial incentives (which have been discussed above) being provided to individuals and merchants to adopt digital payments.
The UK has established itself as one of the leading jurisdictions in the world for fintech. It has a long history as a centre of financial services and as such has a deep network of institutions, knowledge and talent around all aspects of finance. It also has a long history of technological innovation and the creative arts, meaning that there is ample talent and networks available for people to share ideas and create new businesses; it is for this reason that the start-up scene in the UK – primarily but by no means exclusively in London – is one of the most vibrant in the world. As such it was extremely well placed from the outset to be a desirable destination for fintechs to grow – it already had the talent pools for the “fin” and the “tech” firmly in place. Countless accelerators and incubators are testament to this, and have acted as a focal point for some of the most prominent success stories.
However, there are a few additional factors that are often overlooked.
The first is political imperative. Uncertainty over Brexit has arguably spurred politicians and regulators on to introduce initiatives that will help the UK to remain at the forefront of fintech – the creation of the Open Banking Implementation Entity and the Open Up Challenge by the Competition and Markets Authority is just one example of this; the Tech Nation Fintech programme is another. Concerns over the effects of Brexit are likely to remain for some time, especially around immigration and passporting, but for any business operating in the fintech arena there are still significant advantages to setting up in the UK and taking advantage of that wave of political impetus.
The second is regulation. The UK has in the FCA a regulator that has shown itself to be both pragmatic and open to debate and engagement, which has helped numerous fintechs to bring their innovations to market far more quickly than would otherwise be the case – see question 6 for more detail on some of the measures that have been taken in this regard including the Regulatory Sandbox.
The third, more unlikely candidate, is taxation. The tax incentives and reliefs available to investors, outlined in our answer to question 8 above, provide a platform where investors are encouraged to put capital into growing businesses by reducing the risks to the investor should the business fail, which has undoubtedly contributed to the ability of nascent businesses to attract crucial early investment.
The last is engagement by major institutions, including the incumbent banks. The major UK banks have largely already gone through a process of learning to engage with small companies in ways that they have not been accustomed to doing in the past, and many have not only started to deploy fintech-like business models themselves (e.g. digital-only banks), but have also started their own fintech accelerator programmes which are aimed at fostering innovation with a view to long term partnership arrangements. Furthermore, five of the major banks and a group of major fintechs, led by Tech Nation’s Fintech Delivery Panel, have recently clubbed together to produce a guide for fintechs on the best way to engage with banks and how to avoid common pitfalls. This is to our knowledge the first time in any jurisdiction that major financial institutions have gone out of their way to guide fintechs on the best ways to collaborate with them, and signals significant further development of the fintech industry in years to come.
These factors and more – in spite of and arguably because of Brexit – make the UK an excellent place to build a fintech business.
The World Economic Forum has ranked the Netherlands as the world’s sixth most competitive country as a result of its solid performance and top ten ranking for “infrastructure, health and primary education, higher education and training, goods market efficiency, technological readiness, business sophistication, and innovation”. The Netherlands is also the third-most competitive economy in Europe.
According to the Dutch Ministry of Finance, the Netherlands’ financial sector is well positioned across Europe, with modern oversight legislation, stable business climate and qualification of professional population as key factors for the location of financial institutions. The financial sector is by far the largest sector in the Netherlands.
Furthermore, according to the European Digital Forum’s 2016 Startup Nation Scoreboard, the Netherlands ranks number 1 in the EU for its startup business climate. Factors that contributed to this position are the digital infrastructure, the, the highly educated, English–speaking workforce and the open corporate business culture.
The Netherlands has over 400 fintechs, mostly located in Amsterdam. The Netherlands, and Amsterdam in particular, is known for being a prominent hub for fintechs in Europe due to its strong entrepreneurial environment, its excellent (digital) infrastructure, its reliable and cooperative regulators and its access to a highly skilled workforce.
In light hereof, many leading trading firms (e.g. IMC, Optiver and Flow Traders), fiat-to-cryptocurrency exchange platforms and online lenders such as Spotcap and Funding Circle are located or active in the Netherlands. In the wake of Brexit, we have also seen an increasing number of trading firms relocating to the Netherlands. In that respect, it really helped that the AFM has a strong reputation as a market-friendly watchdog with a deep understanding of the equities and derivatives markets. Given its sophisticated payments ecosystem, the Netherlands is also home to many global PIs such as Adyen, Payvision and Global Collect.
We consider that there are three major strengths of China in its developing fintech industry.
Firstly, China is expected to remain dominant as the world’s economic engine in the upcoming 2-3 decades, bringing about a huge number of small-to-medium sized enterprises and middle-class families. Against this backdrop, traditional financial services are unable to meet the fast-growing needs of modern business activities (e.g., the rise of e-commerce), which will spur the booming of the fintech market.
Secondly, since the fintech industry is founded on Internet, China has the world’s most powerful network infrastructure which will boost the development of fintech market, e.g., with the widespread use of smartphone in China, more and more Chinese people begin to accept the way that handles banking affairs through Internet.
Lastly, but by no means the least important, the Chinese government’s efforts to strengthen oversight and supervision on the fintech market will provide powerful institutional guarantees to each participant therein. In addition, a series of incentive policies and preferential treatment introduced by Chinese government will also provide a motivated power source and encourage innovation within this market.
After the legislation of the Fintech Innovation Act in 2018, the financial regulatory agency in Taiwan, the FSC, generally holds a more open attitude than that before the legislation. Since fintech projects usually involve new and un- or under-regulated practices and constantly trigger compliance concerns of a fintech entrepreneur, the sandbox mechanism in Taiwan can significantly reduce the compliance risk for a fintech entrepreneur, thereby taking the place of an early market player.