Best Country for Fintech Startup
In recent years, there has been significant investment in fintech. The industry has seen a historically high rate of fintech business creation due to increasing demand for innovative digital products and services. The United States and the United Kingdom have been popular destinations for fintech startups, attracting the most investments. While your situation might not make it easy for you to launch your fintech business idea in these countries, other potentially favourable jurisdictions are fast becoming the hubs of trailblazing fintech innovation. We have prepared this article to tell you about them, so continue reading.
What is the State of Fintech?
At the moment, “established fintech markets” are mostly in Europe and North America, which are nations with legacy institutions, financial infrastructure, and legislation to support the expansion of the sector. Regulators in the US and the UK were crucial in enabling the development of both nations' Fintech ecosystems, allowing startups to compete with established players by separating themselves from traditional financial services. As a result, the market for single-product offerings became competitive and innovative, but it also had relatively low user growth and penetration (in comparison to Asian counterparts), mostly due to data privacy concerns.
The most diverse group is "developing fintech markets." The financial infrastructure in these Fintech ecosystems is comparatively new (or undeveloped), and the regulatory frameworks are constrained. Early Fintech solutions in these economies frequently emerged from non-financial actors (especially telecoms and e-commerce), and only now are we witnessing deeper expansion driven by regulatory reform to guarantee that these solutions become a major component of the financial systems.
Fintech Unicorns and Global Performance Trends
It is logical to say that 2018 was a record year for the birth of Fintech unicorns by comparing it to previous years. The rise was mostly the result of China having a bumper year, being the first nation to develop the same number of firms valued at over $1 billion as the United States. This could be because a smaller number of extremely large enterprises dominate the Chinese Fintech sector. While US unicorns frequently seek global development, Chinese fintech companies are often domestically oriented. There is therefore more room for competitiveness.
A total of 77 Fintech unicorns have been founded since 2014. 20 achieved unicorn status internationally in 2019 (compared to 22 in 2018). Since 2017, there has been a steady increase in the number of unicorns in Europe, and we have also noted the rise of more than $1 billion in fintech businesses in South America and Asia.
Fintech Funding and Investment Trend
Between 2010 and 2019, the overall value of investments in fintech businesses globally grew rapidly. It reached $215.1 billion. However, investment in the sector dropped by more than a third in 2020, totalling $127.7 billion. According to Statista, the funding increased again in 2021, reaching $226.5 billion.
Among the fintech companies in the United States, the largest in 2021 was Stripe, a San Francisco-based provider of payment processing services and financial infrastructure for businesses. Its valuation in the same year was 95 billion dollars, while Klarna, a company that offers Buy Now, Pay Later (BNPL) services, came in second place.
Essential Procedures for Launching a Fintech Startup
In the course of preparing to launch your fintech startup, irrespective of the jurisdiction you are considering, the following are the most important things you must know and do to succeed:
Choose your niche
It is important to research and analyse the market, competition, and consumers before entering a sector and launching a fintech startup. Select a niche and understand the demographic qualities of your target customers.
You can choose from a variety of fintech subdomains. The options include payment processing, cross-border money transfers, budgeting services, mobile banking, trading and investment, and digital currency-issuing and funds management.
Get the appropriate licence(s)
In Europe and many other jurisdictions, if you want to provide payment services to consumers, you must obtain one or more licence(s). There are two popular options. You can apply for a licence as an Electronic Money Institution (EMI) or a Payment Institution (PI).
The most significant differences between an EMI and a PI in the EU are in their coverage and start-up capital requirements. While a PI licence will give you the authority to render payment services, an EMI allows you to add the issuance of electronic money to your payment solutions. Also, in terms of start-up capital, in Europe, a PI licence will cost you about €125,000, while an EMI licence costs around €350,000.
Know the regulations
The fintech sector is one of the most regulated. Hence, it is generally not an easy line of business. If you want to succeed, you must try to know and cooperate with the various regulatory authorities and comply with their rules and standard requirements.
In the UK, Europe, the United States, and many popular jurisdictions for fintech businesses, typical regulations include Know Your Customer (KYC) compliance, anti-money laundering (AML) policies, and PCI DSS (data security and payment safety) adherence.
Estimate and raise the needed funds
You must be financially prepared to launch and run a business, since launching a fintech start-up is not cheap. That is why you need to calculate the initial costs and raise the funds to meet them. So, you must think about fundraising and know how to succeed in doing it. For instance, you can raise money from family and friends through crowdfunding and venture capital.
Besides, to help your startup become properly structured, you must first create a business plan; you might need to hire a professional for this task. Your licensing costs and start-up capital should also be in the plan.
Another factor to consider is the initial years' capitalization volume. Also, rapid business growth, acquisition of new technologies, and new partnerships with other stakeholders may also result in an increase in operational costs.
Open a digital bank account
You might be lucky enough to find that your home country is the best jurisdiction for the establishment of your fintech company. But even if you have to go offshore, either way, opening a bank account is necessary for proper financial management.
You will be spending a significant amount of money to get your fintech started at home or abroad. Therefore, you need to carefully choose an account that will help you have a pleasant payment experience.
There are many payment systems and neobanks that can help you with a reliable and safe business account for international transactions. They offer easy account opening procedures, cheap exchange rates, free debit and credit cards, and other attractive perks. The best among these financial institutions include the following:
- VIALET (ideal for cross-border fiat and crypto payments).
- Wise, Monese, TransferGo, and FairFX (best for fast international peer-to-peer money transfers and currency conversion globally).
- Monzo, N26, and Soldo (which are neobanks that offer IBAN accounts and international money transfer services across and beyond the United Kingdom, the European Union, and Europe).
- Capital One, and Square (neobank and financial service companies for digital banking services and loans in the United States and beyond)
- Intergiro, and Stripe (all-in-one business finance and payment processing service providers for companies in the Nordic countries, European Economic Area, and other regions).
- Sticpay, Statrys, and Mercury (for international payments to and from Asia and beyond).
Now, various documents are required to open an account with a payment service provider or neobank. In most cases, you will need to provide any government-issued valid identity document, such as your passport or driver’s licence, and your residential address, which can be confirmed through the presentation of a recent utility bill or any other acceptable document.
Best Jurisdictions for Fintech Startup
The best jurisdictions for fintech startups are those that offer the most conducive environment for a tech business to begin and grow. They have favourable legislation, appropriate regulations, friendly tax regimes, stable socio-economic and political systems, and adequate infrastructure for business.
Below is our list of the best countries where you can launch your fintech startup today.
The United States of America
The year 2020 saw the emergence of the United States as the world’s leading jurisdiction for fintech startups thanks to its thriving fintech sector. The big names to mention among startups in this country are the likes of Stripe, Robinhood, and Coinbase. Furthermore, companies like Venmo, Square, and PayPal have simplified the payment process and made digital wallets and mobile payments commonplace.
The United Kingdom
The United Kingdom has long been the industry leader in fintech, and its capital city, London, unquestionably continues to be a top destination for fintech businesses. The UK has firmly established itself as Europe's unicorn fintech capital thanks to billion-dollar businesses like Transferwise, Monzo, Revolut, and Funding Circle.
Numerous foreign businesses have landed in Hong Kong, together with local talent searching for their own source of funding. Hong Kong is a booming ground for fintech startups because of its strong business culture, government backing, and abundance of investment sources. And Hong Kong would be your greatest option if you want to profit the most from investigating fintech businesses.
The ability to access the Chinese business market, which is the largest consumer market in the world, is another important benefit that Hong Kong provides to fintech companies. For business owners who want to gain the most from incorporating their firms, this is a game-changer.
To add to what we have said concerning this jurisdiction, below is a comment from Bertrand Théaud, founder of Statrys:
You're trying to make the best choices for your company as a business owner. And one of the most important decisions is where you will incorporate it. With its convenient location in Asia and its status as an international financial hub, Hong Kong is the perfect place for companies looking to maximise their potential.
Let's look at some of the reasons why Hong Kong is such an attractive location for businesses:
- Setting up a company in Hong Kong is easy and straightforward: This can usually be done within seven days — not weeks or months.
- Low taxes: Hong Kong offers some of the lowest tax rates in Asia (Corporate income tax 16.5 %)
- A financial hub: Hong Kong offers a wide range of payment services and solutions to manage your money. For example, setting up a Statrys multi-currency account can save you on currency conversion fees when dealing with multiple currencies.
- Hong Kong is a free port: It has a free trade policy and does not maintain trade barriers.
Besides this, another good thing is that you don't need to be physically in Hong Kong to open your company—you can do everything online with the help of a HK company secretary.
One of the first steps, when you incorporate in Hong Kong, is to appoint a company secretary. Know that this is a mandatory step. The company secretary will act as your company representative and help you incorporate and ensure that your business fully complies with all statutory laws and regulations per the Hong Kong Companies Ordinance. There are around 6000+ company secretaries in Hong Kong; if you need to find one, you can check our listings with reviews from our clients.
Luxembourg has become the European centre for some of the biggest e-payment and e-commerce businesses in the world, including PayPal, Alipay, and Amazon. A door to the EU for foreign fintechs is currently seen to be in this small country. The regulatory framework there is recognised for being creative and fintech-friendly.
The advantageous tax regulations of Luxembourg make it a hotbed for private investment, perhaps increasing its attraction to future unicorns. In addition, the nation provides a variety of public and private funds, such as the Digital Tech Fund and the Luxembourg Future Fund, to help fintech startups at various stages of growth.
Lithuania, being a relatively young participant among fintech businesses, is gradually rising to the top in terms of becoming a fintech leader. A well-thought-out strategy at every level of digital finance platforms and digital payment innovation is one of its most distinctive features. Over 170 fintech businesses and other startups are based in Lithuania, which allegedly has the fastest Wi-Fi in all of Europe. Start-ups find the nation's business-friendly environment, which includes low corporation taxation, to be excellent.
Switzerland, the second-most financially rich nation in Europe, has all the advantages in fintech and is best known for Zug, which it refers to as its "crypto-valley." This city is experiencing rapid growth and is soon to become a global leader in the development of fiat and digital currencies.
Switzerland is one of the most advanced nations in terms of fintech. Even though there are not that many accelerators, companies like Crypto Valley Venture, Capital Blockchain Valley Ventures, and Spectral Capital are still expanding. The country places a strong emphasis on luring new creative firms and professionals.
Singapore is a fintech hotspot that stands out for having strong fintech businesses in the areas of lending, insurtech, and digital payments. Additionally, the nation is home to approximately 20 fintech accelerators.
Future growth of the fintech sector will be aided by businesses like TenX, Quoine, and Kyber Network. The government routinely makes significant investments in the fintech industry, which is now a major commercial centre in Singapore. Singapore is increasingly referred to as the fintech hub of Asia.
The United Arab Emirates
Almost half of the fintech firms in the Middle East and North Africa (MENA) region are now based in the UAE, making it the largest fintech centre in the region. The UAE Central Bank announced the establishment of a new fintech office in 2020 with the goal of elevating the country to the status of a premier regional and international fintech centre.
As of today, the United States of America has the highest number of fintech startups globally. Most fintech unicorns in the US are based in California and New York.
The city currently with the most fintech startups is San Francisco, California, United States. It is followed by London (United Kingdom), New York, Singapore, and Sao Paulo.
Emerging markets like China and India, which have a high fintech adoption rate, are speedily pursuing long-time leaders, the USA and UK. So, fintech can take hold of them rapidly.
The best degrees for fintech are finance, business management, and data science. Information technology management and software development can also be added to the list.
Artificial intelligence (AI) is the next big development in the fintech sector. Financial institutions are using it to manage massive transactions and automate payment processes. AI also offers excellent consumer convenience. For example, chatbots and other intelligent systems are being employed to assist users and reduce the workloads of customer service departments.
Even though the United States and the United Kingdom presently lead all other countries in terms of the best fintech jurisdictions, it seems like it is only a matter of time until other nations will overtake them. Many other countries are becoming attractive to fintech businesses at all stages of growth because of their distinctive combination of fintech-friendly policies, robust talent pools, and new markets. Therefore, take them into consideration when planning your fintech startup.
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