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A comparison of the world’s leading fintech hubs: New York City

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Anthony Delanoix

Part three of this series by executive search firm 360Leaders, highlights the rise of fintech within New York City.

New York City has been America’s financial center since the 19th century, thanks to the relative independence it offered from the political spheres of Washington and the industrial output of Philadelphia.

Since then it has become the largest center for trading in public equity and debt capital markets in the world.

The NYSE and NASDAQ, the two largest stock exchanges both call NYC home. The city also leads the way when it comes to hedge fund management, private equity and the monetary volume of mergers and acquisitions.

The likes of Standard and Poor’s, bond credit rating business Moody’s Investor Service and Fitch Ratings all have headquarters here, making it one of the cornerstones of the global financial system.

As such, it has become a natural fit for fintech companies looking to not only disrupt, but collaborate with some of the world’s largest financial institutions.

High-tech employment in New York has been increasing rapidly. Since 2006, the city has seen 21 percent growth or nearly twice the national average.

The city’s tech sector employed 120,000 as of 2010, up 30% from 2005, according the New York City Economic Development Corporation.

Cornell University was awarded $100 million to help fund an engineering campus on Roosevelt Island. NYU’s also adding a tech outpost in Downtown Brooklyn.

Big Investment

The US attracts the lion’s share of fintech investment – it received 83 percent of global investment in 2013. In the first quarter of 2014, nearly $1 billion ($946 million) was invested in US fintech ventures, a new quarterly record, and 109 deals closed.

New York is quickly becoming the center of fintech innovation. In the first quarter of 2016, the city received more fintech financing than Silicon Valley for the first time ever: $690 million in deals compared to $511 million.

Big investors in the New York fintech scene include the likes of Bain Capital, Canaan Ventures, First Round Partners, IA Ventures, Bessemer Ventures and Norwest Venture Partners.

The VC industry has traditionally been the main source of funding for early-stage fintech companies, but now financial institutions are allocating hundreds of millions of dollars to invest in these companies themselves.

Major U.S. banks, along with global players such as Banco Bilbao Vizcaya Argentaria and HSBC, have developed in-house venture capital funds that invest directly in budding technology companies.

The size of these funds range anywhere from $50 million to $250 million.

Success stories

LearnVest, the personal finance platform founded by an ex-Morgan Stanley trader in 2009 provides customized financial planning and personal financial management tools online and via mobile.

It has raised $68 million in VC funding since its launch and was acquired by Northwestern Mutual for $250 million in 2015.

OnDeck, a small business peer-to-peer lending platform that analyzes social media and other unconventional data-sources to make credit decisions, has advanced more than $6 billion in loans worldwide.

It recently secured $77 million in VC financing and reached an agreement with BBVA through which the bank will refer small-business customers to OnDeck when they do not qualify for its traditional loans.

Betterment meanwhile, an automated investing service has over 120,000 customers worldwide. They have collectively invested more than $3bn with Betterment and in 2016 the company was valued at $700m.

Areas of expertise

Thanks to the close proximity companies in NYC have to large corporate and commercial banks, fintech companies have expertise in retail banking, markets and exchanges and wealth management.

Companies such as SecondMarket provide software for streamlining complex private securities transactions. Since 2013, SecondMarket has closed over $2.5 billion in transactions.

ACE Portal is a platform that enables brokers to list and manage private placement offerings and connect with investors.

On the markets side, companies such as Coinsetter offers investors a high-performance bitcoin exchange alongside companies such as TradeBlock that help companies use blockchain technology to optimize trading.

Challenges within New York Fintech

New York fintech deal-volume is skyrocketing, but Silicon Valley receives by far the biggest share of fintech dollars. This is in part due to Silicon Valley’s culture, where powerful VCs are famous for urging startup CEOs to relocate to the valley.

There’s also the issue surrounding the city’s sky-high living costs. New York City has the highest cost of living, especially for families, says the Economic Policy Institute.

Office space too, is extraordinarily high. The average office space costs $14,800 per employee, compared to $13,032 in San Francisco and $6,080 in Boston respectfully.

The future

Living and office costs aren’t expected to get cheaper anytime soon, but many have reconciled it’s the price to pay for being in a city with access to the world’s biggest financial players as well as an incredibly dense, tech-savvy audience.

The financial industry more broadly is increasingly learning how to work more closely with startups. Banks are building their own innovation labs and accelerators to bring in not only new ideas but different ways of thinking of testing and building new products.

The New York FinTech InnovationLab, co-founded by Accenture and the Partnership Fund for New York City, has been helping early and growth-stage fintech companies accelerate product and business development by introducing entrepreneurs to top bank and venture capital executives through a 12-week program.
So far, the Lab’s 31 alumni companies have raised a total of $296 million in financing after participating in the program, means that for New York fintech, the future looks brighter than ever.