North America-UK financial & professional services: Markets, Investors and Opportunities 2018
Manchester Boston Scotla SanLondon Francisc ami Atlan
Disclaimer: North America – U.K. financial and professional services: markets, investors and opportunities 2018 is published by the City of London Corporation. The author of this report is Transatlantic Business Britain. This report is intended as a basis for discussion only. Whilst every effort has been made to ensure the accuracy and completeness of the material in this report, the author, Transatlantic Business Britain, and the City of London Corporation give no warranty in that regards and accept no liability for any loss or damage incurred through the use of, or reliance upon, this report or the information contained herein.
May 2018 Š City of London Corporation PO Box 270, Guildhall, London EC2P 2EJ. www.cityoflondon.gov.uk/economicresearch
North America-UK financial & professional services: Markets, Investors and Opportunities 2018
North America – UK Financial and Professional Services
Contents
Foreword 3 Section 1. Overview 4 Introduction 5 U.K. strengths and expertise are well placed 6 Purpose of report 7 Section 2. Trends in North America Financial Services Markets Changes and opportunities in technology and FinTech Changes and opportunities in banking Changes and opportunities in insurance Changes and opportunities in asset management
8 10 12 13 15
Section 3. City to City – Mapping North America U.K. FPS Opportunities
18
North American Cities 20 Atlanta 21 Austin 22 Boston 22 Chicago 23 Charlotte 23 Miami 24 New York City 24 San Francisco 25 Seattle 26 Toronto 26 Vancouver 27 U.K. Cluster 28 Birmingham 29 Cardiff 29 Leeds 30 London 30 Manchester 31 Northern Ireland & Belfast 32 Scotland 32
2
Markets, Investors and Opportunities 2018
Foreword
The U.K. and North America have enjoyed a deep, long-standing and successful trade and investment relationship which continues to thrive. The U.K. is the U.S.’s largest partner in services trade and combined the U.S. and U.K. have directly invested more than
a leading role in developing the U.K.’s FinTech expertise and provides a strong and rich ecosystem for innovation, but other cities across the U.K. including Manchester, Belfast, Edinburgh and Leeds are also providing strong nurturing environments
$700bn in each other’s economies. The U.K. is Canada’s second-largest source of services imports (after the U.S.) and in 2016 U.K. services exports to Canada totalled £3.4bn. We share a common language, business culture, support for good regulatory practices and desire to innovate. As such, the North American Financial and Professional services markets offer an unrivalled opportunity for U.K. FPS businesses looking to expand their operations globally. The opportunities are broad across the sector, ranging from FinTech to Insurance and Cyber to Asset Management and they should be considered on a city by city basis to reflect different hubs in both North America and the U.K..
for the development of FinTech in the U.K. There is therefore an opportunity for U.K. cities, and specifically U.K. FinTechs, to explore collaboration with relevant FinTech hubs in North America such as San Francisco, Chicago and Toronto.
FinTech is a great example of potential U.S. – U.K. collaboration. FinTech is transforming how financial institutions operate and consequentially North American businesses are looking to develop and implement new technology solutions to bolster business competitiveness and client engagement. As a global financial centre London is taking
Commissioned by the City of London Corporation, this report looks at how North American cities offer different Financial Services opportunities for the U.K. export market and looks to establish links between U.S. and U.K. cities across all the major FPS sub-sectors. The report forms part of the City of London’s ongoing programme of engagement and collaboration with North America. The City of London Corporation’s North American strategy, in conjunction with Her Majesty's Government, intends to boost the trading and investment relationship between the U.K. and North America and highlights potential future opportunities for collaboration between U.S. and U.K. businesses and cities.
Deputy Catherine McGuinness,
Alderman Charles Bowman,
Chairman of Policy and Resources
The RT Hon The Lord Mayor of London
3
North America – UK Financial and Professional Services
Section 1.
Overview Scale matters - The North America FPS market has huge scale combined with relatively
Technology is a global megatrend, accelerating change in FPS business. It is
low barriers to entry, providing a range of opportunities for U.K. FPS firms.
breaking down barriers in U.K.-North America FPS markets, creating opportunities for agile SMEs and entrepreneurs, both in high-growth areas like FinTech and cyber, alongside the more traditional sub-sectors like banking, insurance and asset management.
North America is one of the U.K. FPS sector’s biggest combined markets. Significant bilateral flows of foreign direct investment in FPS mean that both markets play a key role in investing and partnering with FPS firms, offering opportunities to build on existing relationships and develop new links. U.S., Canadian and U.K. FPS firms have data sets, distribution and customers making them very attractive as partners, while the scale of the opportunity in North America will often call for partnerships to navigate geography and regulation. With a west coast facing Asia, a south east which acts as a key hub for Latin America, and the NAFTA free trade zone between the U.S., Canada and Mexico, North America offers routes to markets beyond its own shores.
4
The U.K., U.S. and Canada have an abundance of cities with strong capability and expertise in a variety of types of FPS. The city to city ecosystem delivers a multistranded cross border ‘mix and match’ set of opportunities based on technology, capital, specialisms, scale and talent allowing businesses to configure for opportunity with precision. Existing U.K. links with the U.S. and Canada, combined with specialised pockets of FPS excellence in regions across the U.K., create a broad-based opportunity for a U.K. ‘technology wave’ in FPS exports.
Markets, Investors and Opportunities 2018
Introduction This report looks at the current and future opportunities for U.K. financial and professional services (FPS) firms in the U.S and Canada, and the characteristics of cities in the U.S,, Canada and the U.K., as hubs for FPS. The cities featured in this report are example cities where capital, creativity and expertise collide, creating the best possible conditions for international FPS companies to connect and prosper. North American FPS businesses are the U.K. sector’s biggest market, with the U.S alone accounting for 21% of U.K. financial and insurance services exports, and Canada accounting for 1%1 in 2016, with exports to the U.S and Canada valued at £15.2 billion and £2.29 billion respectively2, showing strong potential to increase FPS trade to both markets. The U.K., U.S. and Canada are the single largest investors in each other’s economies. As of the end of 2016 cumulative value of U.K. financial services investments in the U.S. measured £46 billion which is 10% of total U.K. investment in the U.S.3 The economy of the United States is the largest in the world. At £13.5 trillion (Canada £1.1 trillion) it represents a quarter share of the global economy (24.3%; U.K. 3.85% China 14.8% Canada 1.4%), according to the latest World Bank figures. Growth forecasts
1 ONS, Pink Book, 2017, available here: https:// www.ons.gov.uk/economy/nationalaccounts/ balanceofpayments/adhocs/008172tradeinservicesbyco untryandtypeofservice2014to2016 2 ibid 3 www.Selectusa.gov/data
into the medium term help amplify strong fundamental and structural attractions for the U.S. and Canada. GDP forecasts range from approximately 2.5% and 2.0% in 2019 for the U.S. and Canada respectively4 with regional variations favouring many of the cities we cover in this report. Specific policy changes in the U.S., such as tax and proposed structural reform have provided huge fiscal stimulus with predicted ‘downstream’ effects including in infrastructure and its financing, based on strong private sector involvement. Current U.K. North America FPS export volume and the flow of inward investment, and the potential for growth in the future all justify substantial focus as one of the largest market opportunities for U.K. FPS in the foreseeable future. The Lord Mayor’s visit to four U.S. cities in June 2018 and the publication of this report underline the City of London’s strategic commitment to growing U.K. North America FPS exports and FDI. The huge existing trade in FPS between the U.K. and North America takes place on nonpreferential terms already, demonstrating the potential to expand and build on these existing relationships. Post Brexit, North American markets offer new opportunities and while it is highly possible that in the future new trade and investment deals may be struck with the U.S. and Canada, the opportunities described in this report are not
4 OECD – http://www.oecd.org/eco/outlook/ economic-outlook/ IMF – http://www.imf.org/en/Publications/WEO/ Issues/2018/03/20/world-economic-outlook-april-2018
5
North America – UK Financial and Professional Services
Introduction
UK Overview predicated on the need to make any such assumptions. The report also proceeds on
The U.K. offers significant opportunities for American and Canadian firms to increase
the expectation of broad continuity in local domestic development, implementation and maintenance of prudential regulatory structures in the U.S. and Canada.
scale and innovate, with the U.K.’s centres of excellence in FinTech, cyber security, asset management, banking and finance and insurance offering an instinctively international business environment to deliver U.K. and global market ambitions.
Geographic scale, and cross state regulatory complexity particularly for cross state taxation, are also challenges to be overcome for North America market access, while the U.S. and Canada are themselves very different. And although FPS exporters will most typically deliver products via digital distribution mechanisms that don’t require physical logistics, partnering with an established North American player, particularly for the U.S. is often a good option because of their existing distribution and compliance models. In practice too, partnership is a credible investment exit route, allowing in effect for a reverse of a brand or technology into a North America scale partner.
6
The U.K.’s existing reputation as an FPS hub, with access to specialist talent pools, sophisticated and globally referenceable rule of law, competitive corporate tax rates, language, ease of doing business (#7 World Bank Survey) and cultural attractiveness continue to underpin overall investment credentials. These illustrate the potential U.K. FPS to build on its current competitiveness by expanding trade and investment with North America. Alongside the existing competitiveness of U.K. FPS firms, supportive government policy has been key to accelerating future growth prospects for the North America U.K. FPS channel. This is based on investment in digital platforms like ‘Open for Export’, but also collaborative approaches to capacity building alongside major foreign North American investors, to strengthen the base of potential FPS exporters and boost prospects for inward investment. This represents an increasingly market driven and networked approach involving U.K. cities alongside the global power of London, which offers an additional ‘national cluster’ advantage.
Markets, Investors and Opportunities 2018
Summary of findings As this report shows, U.K. strengths play to U.S. opportunities across the cities we describe
We ‘match’ this with a description of how the U.K. FPS ecosystem is building on a
as some of the key geographic locations where demand exists for U.K. FPS expertise. To inform the report, a cross section of senior opinion formers in the FPS world were asked for their views on prospects for U.K. FPS in North American markets and the continuing attractiveness of the U.K. as an investment location for FPS business, and the report’s themes and conclusions reflect their views. This report highlights the scale of opportunities available and the vibrancy of the city to city and nation to nation financial ecosystem shared between the U.K., Canada and the U.S.
winning combination of local advantages and London’s global scale and magnetism. Although continental geography and multiple, regulatory conditions (often localised at state level) and risks (for example the consequences of legal liability) should not be underestimated as challenges. North America FPS markets represent a great opportunity for entrepreneurs and exporters.
In Section 2 we reference the scale of activity and the trends, dominated by technology, driving opportunity in North America. In Section 3 we summarise the opportunities which exist in a non-exhaustive selection of U. S. Canadian and U.K. cities, and provide a prompt for specific opportunity identification by exporters and or investors to consider new matches across compatible combinations of specialism and geography.
“ Current U.K. North America FPS export volume and the flow of inward investment, and the potential for growth in the future all justify substantial focus as one of the largest market opportunities for U.K. FPS in the foreseeable future.” 7
North America – UK Financial and Professional Services
Section 2. Trends in North America financial services markets North American financial markets are amongst the largest and most liquid in
Above all, the trends show that technology is a driver of rapid change in FPS markets,
the world5, offering scale and a range of opportunities across different sectors for U.K. FPS firms looking to expand. In 2016, finance and insurance represented 7.3 percent (or £1.03 trillion) of U.S. gross domestic product.6 Canadian finance and insurance activity contributed £69.3 billion to GDP and employed over 720,000 people in 2016. Foreign direct investment in Canada’s financial and insurance industries reached an accumulated £70.1 billion in 2016.7
and common opportunities emerge, such as the ability to deliver improved customer service by offering intuitive user-friendly digital applications, or to enable faster claims processing, or to deliver enhanced returns by deploying artificial intelligence (AI) or algorithms as a superior ‘passive investment’ style by asset management firms.
Table 1 looks at the themes and challenges across three of the biggest sub-sectors of opportunity in the U.S. and Canada, banking, insurance and asset management, as perceived by many of the industry representatives whose views helped inform this report.
5 https://www.selectusa.gov/financial-services-industryunited-states 6 https://www.selectusa.gov/financial-services-industryunited-states; 7 https://www.statista.com/statistics/434554/ leading-banks-in-canada-assets/
8
This section highlights developments in the rapidly growing areas of technology, FinTech and cyber, identifying the opportunities these changes create in banking, insurance, and asset management, as well as highlighting how these fit with key U.K. strengths and expertise.
Markets, Investors and Opportunities 2018
Table 1: Themes and challenges by sub-sector, City of London Corporation analysis
Banks
Insurers
Theme
Challenges
Customers
Loss of control of customer experience by disintermediation
Regulation
Cost and complexity
Technology
Legacy complexity and cost of improvement
Cyber
Interconnectedness in banking system with added customer interfaces
FinTech
Competitor or partner?
Talent
Winning with diversity/AI
Business model and
Pressures on sales growth, bottom line, underwriting losses and premiums
performance Customers
Disintermediation
Regulation
New fiduciary standards
Technology
Innovation/disruption commoditising aspects of traditional business model
Cyber
Risk and opportunity
InsurTech
Competitor or partner?
Talent
Winning with diversity/AI
Asset
Business model and
Risk based allocation cutting across/within asset classes
Managers
performance
Factor investing identifying additional drivers of value over and above standard ‘passive’ benchmarks Moderation in long term investment returns and profit declines Aging demographic shifting from accumulation to withdrawal Pricing pressure from passive investing
9
North America – UK Financial and Professional Services
Changes and opportunities
Changes and opportunities in technology and FinTech New technology is transforming financial institutions, often through external partners or providers, while empowering start-ups and technology giants. There is a strong appetite in North America for FinTech solutions as tools to drive profitability in competitive markets.
to peer network, new digital advisory and trading systems, AI and machine learning, peer-to-peer lending and funding platforms like crowdfunding.
Technology accounts for a growing share of FPS firms’ spend. According to the Canadian Bankers Association8, in 2015, Canada’s largest six banks spent £5.77 billion on technology – an amount forecast to increase to £8.5 billion by 2018. Earlier this year the largest U.S. bank by assets JP Morgan Chase reported forecasted 2018 technology spend at £8 billion9. Bank of America, the second largest bank, has 34 million digital and 12.2 million mobile customers in the U.S.10
reach their customers, for example through digital applications that can offer new customer friendly benefits of simplicity, look and feel, alongside access to faster and more streamlined services like mobile payments. Technology offers firms the opportunity to achieve huge potential cost savings through increasing their efficiency and reducing their cost base, through improvements in the use of data and analytics to process re-engineering.
Three main waves of technology disruption are taking place across all FPS categories, and many of these developments, grounded in internet and data innovations, originated in North America as places of high concentrations of intellectual property (IP), capital and well placed entrepreneurs. Cities like San Francisco, and in other cities covered in this report, indicate the record on financial services sector digital innovation is more mixed: Technology enables FPS firms to offer new types of products to their customers, which better suit their needs. Examples of innovations include cryptocurrencies and blockchain technology transactions between parties that are recorded across a peer
8
FinTech developments can also offer opportunities for smaller firms like high-growth SMEs, where technology platforms can make accessing geographically large markets like the U.S. and Canada much easier. This also explains the emergence of new entrants as barriers to entry are destroyed by technology and related disintermediation. By the same score, reduced entry barriers allow scale players to ‘cross-sell’ across traditional demarcations for example between banking, insurance and asset management. Financial services incumbents are aware also of the power of huge data and technology rich organisations like Google or Amazon to deliver FPS – JP Morgan’s increase in its technology spend is openly attributed to this dynamic11
https://cba.ca/
9 Going ‘digital everything,’ JPMorgan ramps up tech spend by $1.4 billion – https://www.washingtonexaminer.com/ going-digital-everything-jpmorgan-ramps-uptech-spend-by-14-billion 10 ibid
10
Technology can improve the way FPS firms
11 Going ‘digital everything,’ JPMorgan ramps up tech spend by $1.4 billion – https://www.washingtonexaminer.com/ going-digital-everything-jpmorgan-ramps-uptech-spend-by-14-billion
Markets, Investors and Opportunities 2018
Taken together, developments in financial technologies have the potential to fundamentally change the way businesses can provide – and consumers can use – FPS. Looking at increasing FinTech adoption across the U.K. and North America, rates of U.K.
activity generated in the U.S. capital markets we break down city by city in Section 3 is a powerful driver of funding across not just the U.S., but for the U.K and Canada also and is a significant part of the U.K. FPS opportunity in North America. According to the U.K.
adoption are the highest globally, (with the exception of China and India), at 42% in 2017. This is an almost three-fold increase on its 2015 rate of 14%. The U.S. and Canada have the slightly lower adoption rates of 33% and 18% respectively12, demonstrating the huge potential for the U.K. to play a role in increasing FinTech adoption across North America.
Department for International Trade (DIT), for the FinTech sector, in 2015 there were over 60 deals totalling US$50 million or moreU.S. and the U.S. facilitated over $7.3 billion in investment across 351 deals. There was a 72% rise from 2014’s FinTech funding total in the U.S.13
Whether as a supplier of consumer-friendly applications, complex coding and data services or software U.K. FinTech is well placed to provide the creativity and technical capability to develop and support Canadian firms’ digital transformations. This is supported by a policy environment which itself constitutes a positive ecosystem attribute, potentially exportable as a ‘RegTech’ package to support deployment of FPS innovation locally in North America. The regulatory sandbox operated by the U.K. Financial Conduct Authority (FCA) allows businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers, closely overseen in tests using a customised regulatory environment. U.K. innovators require capital and represent strong investment grade funding opportunities for venture and other sources of capital whether in the U.S. or Canada. Unsurprisingly,
12 http://www.ey.com/gl/en/industries/financial-services/ ey-fintech-adoption-index
Changes and opportunities in Cyber Cybersecurity is a key opportunity area. The rapid rise in digital technologies inevitably exposes system vulnerabilities, for example Blockchain is web-based, and commercially available FinTech applications now range from personal identification to asset verification and contracting. The increase in digitisation brings opportunities alongside challenges for data security and user privacy as the quantity of hackable data increases exponentially. Cybersecurity is one of the fastest-growing areas of the innovation economy and is projected to reach almost £126 billion in global spending by 2020, and the global cyber security market is projected to double to £178 billion per annum by 202614. North America represents a huge opportunity for U.K. cybersecurity firms, for example New York City, is investing £22 million to grow its
13 Department for International Trade webinar, exploring Financial Technology opportunities in the United States: Department for International Trade www.gov.uk/government/organisations/ department-for-international-trade 14 https://www.nycedc.com/industry/cybersecurity
11
North America – UK Financial and Professional Services
Changes and opportunities
Changes and opportunities in banking cybersecurity ecosystem. For New York that adds up to 107 cybersecurity companies and 6,000 related jobs, and £0.66 billion in venture capital funding for cybersecurity in 2017 alone.15
As of the end of 2016, the U.S. banking system had £12.4 trillion in assets. The five largest Canadian banks have assets of £2668.5 billion as at April 201719 and Canada is consistently listed as having the soundest financial system in the world. A major challenge for banks is to
Global FPS related cyber expenditure was £16 billion in 2016, while U.K. total cyber exports overall totalled £1.5 billion in 2016, but this is expected to exceed £2.6 billion by 202116. The U.K. ecosystem – with 800 or more17 companies, combines technical expertise and a world-leading research base with a history of cyber security excellence and leadership on developing global standards – making it an industry ripe for export opportunities – especially in delivering resilience to financial system products and services.
digitise banking services as quickly as possible or risk being left behind. This is true across all main activities, lending, trade, payments processing and foreign exchange.
The U.K. is the third largest supplier of cyber security services in the world and is the largest cyber security market in Europe. The U.K.’s domestic market for cyber security is valued at just over £3.5 billion. Cyber premiums globally now amount to £2.2 billion, 90% of demand is in the U.S. and London has an approximate 28% share of premium income. The U.K. Cyber Security Export Strategy18 – which includes a specific focus on FPS cyber opportunities -sets out commitments from DIT to support U.K. cyber companies, which will help underpin a specific market entry proposition for key markets such as North America.
20 21
CASE STUDY Starling Bank20 is a London based mobile only bank with differentiation around a customer friendly money management toolkit with an open platform ‘back end’ approach allowing for integration across customer owned and other apps.
CASE STUDY Monzo Bank21 another rapidly growing smartphone focused consumer friendly app London based bank with instant notifications, built in budgeting and free payments abroad.
15 ibid 16 https://www.gov.uk/government/news/ government-announces-support-for-cyber-securitycompanies-to-protect-uk-and-allies
12
17 ibid
19 https://www.tfsa.ca/financial-services/banking/
18 https://www.gov.uk/government/publications/ cyber-security-export-strategy
21 https://monzo.com/about/
20 https://www.starlingbank.com/
Markets, Investors and Opportunities 2018
Changes and opportunities in insurance For U.K. banks expanding in the U.S, digitisation offers a route to potential cost effectiveness gains offsetting global scale disadvantages – but their U.S counterparts are also spending huge amounts on technology. For U.K. service providers to banks a first mover advantage
In 2015, the U.S. insurance industry’s net premiums written totalled approximately £890 billion. According to to National Association of Insurance Commissioners data23, premiums recorded by life and health insurers accounted for 45 percent, and premiums by
is available and exportable by using their knowledge of developing APIs and revenue streams, based on the U.K. experience of the transition to ‘open banking’, involving delivery of a ‘transparent’ interface between customer and bank information. For U.S. markets, these interfaces may not be needed to deliver regulatory compliance but could deliver an increased consumer value proposition.
property and casualty insurers accounted for 55 percent. Additionally, about one-third of all reinsurance sold worldwide is bought by U.S. firms.24 Three Canadian life and health insurers – Manulife Financial, Great-West Life Assurance Co. and Sun Life Financial Inc. – are among the world’s 20-largest life and health-insurance firms. Additionally, there are over 100 life and health insurance providers in Canada with total assets of £416.2 billion. With over £427 billion in long-term investments in Canada, the industry is one of the country’s most important sources of long-term capital and employment.25
For all banks externally driven process and system integration using digital means is gathering pace, representing an opportunity targeted not just at FPS companies but at corporates more generally. Ncino22, with an office in London but originating in the broader Charlotte ecosystem is a good example of a lending bank orchestration platform helping bank customers on the whole lending journey. A cloud-based operating system offers CRM, loan origination, workflow, enterprise content management and real time reporting capability, integrated into a bank’s core and transactional systems.
Catastrophes may still be difficult to predict, but digital modelling of outcomes are giving more precise measurement, insight and resilience into risk, enabling insurers to deliver sharper premium pricing dynamics. Complex risks like climate change can be broken down with specific data points based on precise information points like micro satellites, or even human behaviour via real person observations. This is an opportunity for technologists but also others. With clients also able to develop their own analytics, the challenge is to deliver a truly differentiated service in broader aspects of risk management and mitigation advice, or in new areas, like cyber, reputation and
23 NAIC (National Association of Insurance Commissioners) www.naic.org 24 https://www.selectusa.gov/financial-services-industryunited-states 22 https://www.ncino.com/
25 https://www.tfsa.ca/resources/pdf/TFSA_Insurance_ Fact_Sheet_2018.pdf
13
North America – UK Financial and Professional Services
Changes and opportunities
regulatory and political risk management. As well as insuring new types of risk in more efficient ways, AI is also enabling faster processing of claims payment, offering efficiencies across the insurance subsector. The U.K. is a global leader in its adoption of FinTech within the insurance sector – 43% of practitioners report using FinTech, the second most-developed global market after India (at 47%).26 The London Insurance Market27 is an example of use of both AI and cybersecurity expertise as tools to innovate at a product development level. London has had deep specialism, liquidity and a track record of timely claims processing, and developments such as AI allow for machine learning algorithms to be applied to client data thus allowing for more precise product development. Earlier this year Willis Towers Watson, headquartered in London, reported that it would boost its cybersecurity capability when it announced a tie up with IBM and an expansion of the company’s global advisory services by integrating IBM Security’s suite of services – from security testing and technical assessments to incident response and cyber resiliency services.28 An example of an insurer addressing a specific new risk category is Flock29 a company that has worked closely with global aviation insurers and partners in the U.K. to build a scalable underwriting platform,
capable of using real-time data to insure drone flights just about anywhere on earth. According to Flock CEO Leon Klinger – ‘An entry to the U.S., the biggest drone market on earth, will allow us to serve a large, rapidly growing, and diverse customer pool.’ Example: Following on from floods of 2012 the city of New York is conducting city wide mapping of physical permeability to predict future flooding risk with greater accuracy. The mapping exercise involves the use of digital analytics and machine learning, as well as U.K. professional services expertise – coming from Arup – and the knowledge generated will help with both flood risk mitigation, risk awareness and insurance premium accuracy. A climate related risk here is generating a spectrum of opportunities where U.K. professional and financial service expertise is well placed to contribute. Phinsys Group30 is an example of a digital suite of insurer process integration products across from accounting to compliance which is attracted to the North America market because of its scale. Richard Tyler CEO – ‘In terms of cities, our immediate priorities are Boston, Chicago, Hartford and New York as these are established insurance centres. We’ll also be looking at Miami as this is a gateway into the LatAm market and possibly other cities like Dallas/Des Moines where there is an indigenous market.’
26 http://www.ey.com/Publication/vwLUAssets/ ey-fintech-adoption-index-2017/$FILE/ ey-fintech-adoption-index-2017.pdf 27 https://www.londonmarketgroup.co.uk/lmg-overview 28 https://www.willistowerswatson.com/en/press/2018/04/ willis-towers-watson-expands-cybersecurity-services-viacollaboration-with-ibm-security 29 https://flock.com/uk/
14
30 http://phinsys.com/uk/
Markets, Investors and Opportunities 2018
Changes and opportunities in asset management London Insurance market31 – 52,000 interconnected risk professionals, every day of the week, the London Market pays over £36.9 million in claims, Accounted for 28% of global cyber insurance premiums in 2015 – 73% growth. Over £67.2 billion of Gross Written
Across both traditional and technology driven growth areas, asset managers continue to seek competitive advantage by accessing new investors, improved distribution channels and client service, new products and M&A. Significant North America-facing opportunities
Premium in 2015, Aviation: 60% global market share; Energy: 52% global market share; Marine: 33% global market share.
derive from a combination of scale and technology, for example with pension autoenrolment. U.S. asset managers are currently meeting the pension management needs of over 60 percent of the global retirement market, and total U.S. pension assets were approximately £19.2 trillion at the end of 2016.
Global developments in technology offer opportunities for the U.K. to share its application of technology in insurance, to build cross-border links. For example, building on Cardiff’s expertise in insurance data management and claims processing, local insurance ecosystem players can deliver cost effectiveness directly to major insurance company clients in the global insurance hubs like Chicago, New York and Toronto or via insurtech collaborations.
According to Andrew Evans, Co-founder and CEO, Smart Pension32, “The U.S. retirement market is the biggest in the world and therefore an exciting and natural home for Smart Pension’s state-of-the-art technology’, with the differentiation derived from a digital platform that enables employers of all sizes to set up a pension scheme in minutes. Policy trends can sometimes add helpful geographic targeting, so for Smart Pension this means that States like Illinois who are seeking to increase retirement savings are of particular interest. If insurance assets and mutual funds are included, U.S. asset managers held nearly £37.6 trillion of long-term conventional assets under management in 2016, or over 47 percent of the global total for these funds. In 2016, 253 venture capital funds raised £30.7 billion, a ten-year high, to deploy into promising start-ups.33 140 Canadian hedge-fund management companies
32 https://www.autoenrolment.co.uk/about-smart-pension 31 London Matters 2017 https://www.londonmarketgroup.co.uk/lm-2017
33 Source Stanford University (www.stanford.edu) and NVCA (National Venture Capital Association – https://nvca.org )
15
North America – UK Financial and Professional Services
Changes and opportunities
manage over £20.2 billion in assets34 – Canadians invested over £800 billion in mutual funds as of May 2017. Canadian venture capital investment and private equity activity is buoyant, with 2016 and 2017 showing significant year on year growth35. These are
and increase financial inclusion, for example by repackaging student loan debt or to provide more specific risk modelling of low wage earners and pricing access to finance more accurately.
important flows of North American capital available to U.K. FPS, whether as providers of technology and expertise to manage capital assets effectively, or as innovation rich but capital hungry start-ups with a differentiated product on offer to strengthen an incumbent’s market position. With global critical mass levels of assets under management by Scottish asset managers and a growing technology capability, the Edinburgh Glasgow ‘corridor’ is well placed for the North America FPS opportunity.
For the last decade the global financial system has been characterised by low interest rates, high liquidity and a search for yield, creating a shift into market-based financing. Demand for new ranges of liquidity instruments, like the development of crypto asset classes (including but not limited to currencies) and tokenised capital markets activity offer new cross border dimensionality and opportunity. Increasingly leading hedge funds in the asset management space incorporate systematic strategies that trade using algorithms, as the industry moves away from discretionary methods towards technology-based trading and analysis of big data.
According to EY in their 2018 report on trends in wealth management36 the global volume of net investable assets of high-net-worth individuals (HNWI+) will increase by around 25% to almost U.S. £51.7 trillion by 2021. Holistic wealth management is emerging as a new kind of digitalised business model, such as Nutmeg, the first U.K. based online wealth manager to reach more than 1 billion pounds in assets under management (City AM Nov 21, 2017), or Cardiff based Wealthify37, covered in Section 3, alongside lending platforms based on crowdfunding, peer to peer lending and lending clubs, like Funding Circle. Associated with these platforms, there is a growing interest in building tools that can be socially inclusive
34 https://www.aima.org/global-network/ aima-in-the-americas/canada.html
The annual list of all time 20 best performing hedge funds compiled by LCH Investments38 now includes three pure systematic ‘plays’, Citadel (Chicago), DE Shaw and Two Sigma (New York), while Bridgewater (Westport, Connecticut) the top performer since 1975 now incorporates a systematic element. Systematic trading uses a predefined trading strategy ‘coded’ in a way that allows trades to be managed, limited and executed on a broker’s trading platform without discretion. The approach readily lends itself to the use of software supported by data analytics and machine based learning of the kind that, for example, are a key specialism being developed in Northern Ireland.
35 Canadian Venture Capital association – cvca.ca.com 36 http://www.ey.com/Publication/vwLUAssets/ ey-wealth-management-outlook-2018/$file/ ey-wealth-management-outlook-2018.pdf 37 https://www.wealthify.com/
16
38 http://lch-investment.com/
Markets, Investors and Opportunities 2018
There are huge opportunities available for the development of technology to add new synergies and new platforms to the combination and use of streams of capital that flow through pensions, insurance and banking assets. Technologies that can strengthen a business at front, middle or back office are all likely to be in demand. Product level differentiation and availability of risk capital are then often the key factors defining the combinations of marketplaces and entrepreneurs, like tie up combinations between San Francisco and the Bay Area, so strong in Venture Capital and entrepreneurs, whether from Shoreditch, Austin or Vancouver, or elsewhere. Across the U.K., in the cities we cover at Section 3 post and more, specific and different combinations of technology and innovation, specialist talent, and an installed base of critical mass FPS firms, many of them American, are seeing increasing levels of activity designed to meet the demand we describe above.
17
North America – UK Financial and Professional Services
Section 3. City to City: Mapping U.S.- U.K. Financial and Professional Services opportunities VANCOUVER SEATTLE
VANCOUVER Co-operative banking Trade tech logistics and finance
CHICAGO Banking Insurance Asset management Technology Cyber Professional Services High IP environment
SEATTLE Technology Trade logistics and finance
CHICAGO
SAN FRANCISCO
CHARLOTTE Cyber Fintech opportunity
SAN FRANCISCO Asset management Technology Asia ties
ATLANTA
AUSTIN Technology High IP environment
AUSTIN
ATLANTA Note Banking includes payments systems and mutual lending Asset management includes venture capital Professional Services includes back office
18
Banking Technology Cyber Professional Services
Markets, Investors and Opportunities 2018
In this section we highlight the strengths of selected North American cities and U.K. cities. This provides an initial map and match tool to complement market research and to bring to life the geography behind the trends we discussed in Section 2.
TORONTO Banking Insurance Asset management Technology Cyber Professional Services National resources exchange
SCOTLAND
BOSTON
Asset management Challenger banks
Banking Insurance Asset management Technology High IP environment
NI & BELFAST
TORONTO
BOSTON
Technology Cyber
LEEDS
SCOTLAND
Mutual banking Dotforge Fintech
NEW YORK
NEW YORK Banking Insurance Asset management Technology Cyber Professional Services High IP environment
CHARLOTTE
MIAMI
NORTHERN IRELAND
BELFAST
LONDON LEEDS
MANCHESTER
MANCHESTER
Professional Services Super computers and digital infrastructure Challenger banks
Banking Insurance Latin america hubbing Trade tech logistics
BIRMINGHAM
CARDIFF
Banking Insurance Asset management Technology Cyber Professional Services High IP environment
LONDON
CARDIFF MIAMI
Insurance Start-ups growth
BIRMINGHAM Professional Services Bank relocations
19
North America – U.K. Financial and Professional Services
North American Cities
The role of cities as high-productivity clusters of complementary services is reflected in the fact that over the next 15 years, the 259 largest U.S. cities are expected to generate more than 10 percent of global GDP growth – a share bigger than that of all such cities in other developed countries combined.39 Half of Canada’s GDP comes from six cities; Toronto, Montreal, Vancouver, Calgary, Edmonton and Ottawa, and 20% alone from Toronto.40 For FPS markets in North America, this delivers a series of interlinked city centric markets connected and fed along pathways of specialism, technology and talent, all of which offer huge potential for U.K. FPS business – often based on partnering with scale players using their existing cross continental and city distribution systems. Through geographic proximity and economic integration in NAFTA, Canadian FPS firms have frictionless access to the U.S. marketplace.
CASE STUDY Barclays Techstars41 in New York – New York is the U.S. location for the Rise initiative, launched originally in London to create an innovation centre FinTech co-working space. Rise in New York is a partnership between Barclays & Techstars – a seed accelerator founded in Boulder, Colorado in 2006 – that brings the two networks together into one accelerator programme designed to help businesses deliver breakthrough innovations in FinTech. Entrepreneurs get access to a leading world bank and to Techstars’ mentor & investor relationships and successful applicants gain introductions to bank decision makers, mentoring from leading entrepreneurs and FinTech industry experts, potential investment of £120K, access to technology advice, workspace, pitching opportunities and access to the Techstars network of alumni.
North American
39 Mckinsey Global Institute https://www.mckinsey.com/featured-insights/ urbanization/us-cities-in-the-global-economy 40 Metropolitan Gross Domestic Product. www.statcan.gc.ca
20
41 https://www.techstars.com/programs/ barclays-nyc-program
Markets, Investors and Opportunities 2018
ATLANTA
OPPORTUNITIES Focused payment processing FinTech, tech power and back office processing scale
KEY PLAYERS Ecosystem strengths around payment processing, data analytics and related FinTech includes global giants like First Data, Equifax, NCR, Worldpay, FIS and Global Payments, IBM, Dell, Verisign, and VMware AirWatch, as well as disrupters and entrepreneurs like Kabbage, Paymetric, Greensky, ControlScan, GroundFloor, and Cardlytics
CASE STUDY quifax42 which has recently expanded its U.K. operations by building out capability in Leeds, employs more than 2,200 employees in Atlanta with the number expected to reach close to 3,000 over the next five years. It’s a major FinTech player in the identity, fraud prevention, and analytics fields.
KEY FACTS Georgia is the epicentre of payment processing, supporting 118 billion transactions annually; 70% of U.S. financial transactions pass through Georgia43 The state’s FinTech companies generate an annual revenue of more than £53.17 billion – this represents £1.5 trillion of purchase volume each year, supporting nearly 4 million merchants.44 FinTech drives more than £22 billion in annual revenues, employs more than 40,000 people, and processed £3.7 trillion in transactions in 2015 alone.45 6 of the 10 largest U.S. payment processing firms are Georgia-based; More than £153.6 million in investments and 1570 jobs created in Georgia’s FinTech sector since 2013; 115 information security companies in Georgia, which generate 25 percent of the worldwide security revenue market; 16,250 technology companies employing 198,000 high-tech workers; 30,000+ people employed by Georgia-based FinTech companies; £1.5 trillion in purchase volume processed by Georgia FinTech companies; Georgia FinTech companies serve 3.9 million merchants.46 Talent and innovation, Cutting-edge work being fostered at Georgia Tech’s Worldpay FinTech Accelerator program at the Advanced Technology Development Centre. Georgia has become a leading centre for network and cyber security – industry cluster generates nearly £3.7 billion in annual revenue.47
43 Sources https://www.metroatlantachamber.com https://www.selectgeorgia.com 44 ibid 45 ibid 46 ibid 42 https://www.equifax.com
47 ibid
21
Boston
North America – UK Financial and Professional Services
BOSTON AUSTIN
OPPORTUNITIES Tech, innovation enabling IP and emerging venture capital ecosystem.
KEY PLAYERS Dell Technologies, National Instruments, HID Global, Dimensional Fund Advisors, Hanger, Whole Foods and Indeed have corporate headquarters in Greater Austin. Long history in data centre operations and related technology and services. Industry giants, including AMD, IBM, Cisco, Citigroup, Dell Technologies, Hewlett-Packard, Home Depot, Intel, and Oracle, have facilities in Austin ranging from headquarters and R&D operations to manufacturing and mission-critical enterprise data centres. Dell Technologies has two global data centres, comprising one of the largest storage-area networks in the U.S.48
KEY FACTS Forbes study named Austin the number one city for tech growth – Austin’s tech scene has grown by an incredible 73.9 percent – more than any other major city in the U.S. including a 36.4 percent increase in STEM jobs in the city adding up to just over 86,000 Austonians.49
OPPORTUNITIES Insurtech, Venture capital, and abundant innovation enabling IP.
KEY PLAYERS Home to notable financial institutions such as Fidelity Investments and State Street Corp, along with numerous hedge funds and private equity firms. Fidelity Investments helped popularize the mutual fund in the 1980s. Powerful centre for venture capital with critical mass representation of U.S. VC scale all located in or around Boston.
KEY FACTS According to the U.S. Chamber of Commerce, Boston has positioned itself as the U.S. city best prepared to find success in the evolving digital economy.51 Strong ‘Insurtech’ ecosystem. Boston is home to a multitude of accelerators and incubators. MassChallenge was launched here, and the region hosts the DCU Centre of Excellence in FPS and the FinTech Sandbox.
TALENT AND INNOVATION Boston intellectual ecosystem boasts 54 universities, a world class FinTech VC community, a vast array of networking events and some of the best attended technology conferences in the US.
Ranks third amongst the 100 largest metros for the share of jobs that require high digital skills and is No.13 on Global Startup Ecosystem Ranking and 5th highest U.S. city in the ranking – Startup Genome.50
TALENT AND INNOVATION The University of Texas at Austin home to over 20 research units devoted to computers and information science, including the Texas Advanced Computing Centre.
48 https://www.austinchamber.com/index.php 49 https://www.forbes.com/sites/joelkotkin/ 2018/05/07/best-cities-for-jobs-2018-dallas-austinnashville/#37df6cbc1f0c 50 https://startupgenome.com/report2017/
22
51 https://www.uschamberfoundation.org/ innovation-that-matters
n Chicago
Markets, Investors and Opportunities 2018
CHICAGO
OPPORTUNITIES Full capability FPS ecosystem delivering global scale attributes with a pragmatic ‘get stuff done’ approach.
KEY PLAYERS 400 major corporate headquarters, including 34 in the Fortune 500.
KEY FACTS Chicago-based exchanges generated 4.9 billion in annual global derivatives trading volume with a notional value of nearly £1 quadrillion in 2017 Chicago-based Options Clearing Corporation clears all U.S. options contracts – 4.3 billion in 2017 (the third highest volume on record). Chicago accounts for one fifth (20%) of the world’s global derivatives trading market; 2X New York (10%) and matching all European exchanges combined (20%) Chicago futures and options exchanges collectively dominate exchangebased derivatives trading, with more than half of exchange-based derivatives trading in North America. Annual global derivatives trading volume is 40% more than New York.52
TALENT AND INNOVATION £1.25 billion raised in 2016 funding for start-ups including £400 million for FinTech and big data, and 55 exits in 2016.53
CHARLOTTE
OPPORTUNITIES FinTech.
KEY PLAYERS Home to Bank of America’s world headquarters the nation’s second largest financial institution by total assets, and to the regional headquarters for Wells Fargo’s East Coast the third largest by assets.
KEY FACTS More than 70,000 people work in the finance and insurance sector in the Charlotte area. More than 75 call centres and back offices with over 20 employing more than 500 workers. 40 FinTech firms, including homegrown LendingTree and AvidXchange, and a growing community of start-ups.56
TALENT AND INNOVATION Charlotte has been at the forefront of finance since the Federal Reserve’s decision to open an office in 1927.
300+ corporate R&D facilities, 1,800+ foreignowned firms, 2,500 local digital start-ups and is one of the highest-ranked tech hubs in the world, with a higher ROI than that of Silicon Valley. 13,854 tech companies, the tech workforce is more than 130,000 jobs strong.54 Home to the incubator 1871, ranked 1st in the U.S. on the UBI Global list of Top University Affiliated Businesses.55
52 www.worldbusinesschicago.com/economy/ 53 Chicago Start up report 2016 – www.builtinchicago.org 54 www.choosechicago.com/meeting-professionals/ 55 ibid
56 https://charlottechamber.com/
23
North America – UK Financial and Professional Services
MIAMI
OPPORTUNITIES FinTech, Latin America ties and wealth management, Trade tech logistics and finance.
KEY PLAYERS Florida is home to nearly 3,000 headquarters offices.
KEY FACTS Known as the financial capital of Latin America, Miami-Dade has the largest concentration of domestic and international banks on the East Coast south of New York City. Banks and FPS companies like Visa and PayPal are invested in Miami-Dade County. The city of Miami’s increasing reputation as a global hub and Florida’s large insurance and private banking sector, is supporting the state’s infant FinTech scene is predicted to experience strong growth, including as a hub for Latin America FinTech. Private banking, wealth management and trade finance are important components of the region’s financial sector, attracting institutions from Europe, Latin America and Canada serving individual, family and business customers.
New Y NEW YORK CITY
OPPORTUNITIES Full capability global FPS ecosystem, with increased spending and focused upgrade around city wide Cyber infrastructure planned.
KEY PLAYERS 45 Fortune 500 company headquarters – more than any other U.S. city.
CASE STUDY Barclays Rise.
KEY FACTS The New York Stock Exchange and the NASDAQ are two of the six major exchanges located in New York City and are the world’s first and second largest stock exchanges, respectively.58 The Federal Reserve Bank of New York is the largest of the twelve regional reserve banks and is responsible for the conduct of market operations, mainly the buying and selling of outstanding U.S. Treasuries for the Federal Reserve Bank in DC. Home to some of the top U.S. FinTech accelerators, including Barclays Techstars at Rise, FinTech Innovation Lab, & StartupBootcamp FinTech.59
INFRASTRUCTURE Miami International Airport (MIA) ranks first in the nation in the value of international freight and second for international passengers. “Soft infrastructure” includes the staff and facilities of government agencies and private companies such as customs brokers and freight forwarders that play a critical role in facilitating imports and exports.57 Miami’s increasing reputation as a global hub and Florida’s large insurance and private banking sector, with the state’s infant FinTech scene predicted to experience strong growth are opportunities.
58 www.nycedc.com 57 www.enterpriseflorida.com/industries/ financial-professional-services/ and https://fedconline.org/
24
59 Source – Department for International Trade webinar, exploring Financial Technology opportunities in the United States.
Markets, Investors and Opportunities 2018
York City
SAN FRANCISCO
OPPORTUNITIES Tech, Venture capital, abundant innovation enabling IP, links with Asia.
KEY PLAYERS Fortune 500 companies located in the region include financial service companies Charles Schwab Corporation, Visa Inc., and Wells Fargo and alongside technology companies.
KEY FACTS The San Francisco Bay Area is the one of the pre-eminent locations for venture capital in the world: According to the San Francisco Chamber of Commerce, Q1 2018 saw 28% of national VC investment and 87% of California’s VC investment going to the Bay Area. The Bay Area also had the most individual VC deals of any U.S. region, accounting for 357 deals out of the U.S.’s total of 1,158.63
TALENT AND INNOVATION The Bay area region produces more patents than anywhere else in the US.
KEY FACTS cont. New York facilitates growth across the full spectrum of FinTech, with payment technology leading the way – approximately 20% of 2015 FinTech deals were in payment companies.60 Key city for cybersecurity sector growth – Venture Capital (VC) investment in New York metro area cybersecurity firms in first 10 months of 2017 was £900 billion – ‘Cyber NYC’ initiative will create a cyber specific accelerator.61
TALENT AND INNOVATION 98 universities and colleges – the largest student population in the US.62
San Francisco is a primary destination for foreign direct investment from Asia and more than 75 consulates and numerous foreign trade offices. The region is home to some of the best attended FinTech conferences globally, including LendIt, Finovate, FintechU, Silicon Valley Forum and EmpireFinTech. Across the state, over £3.69 billion was raised in the FinTech sphere in 2015, and over 70 major brands have a tech scouting presence or innovation labs.64
60 ibid 61 www.cyber-nyc.com 62 www.nycedc.com
63 http://sfced.org/wp-content/uploads/2018/04/SFCEDQ1-2018-Quick-Facts-KG-Edits.pdf and http://sfced.org/why-san-francisco/ 64 Source – Department for International Trade webinar, exploring Financial Technology opportunities in the United States.
25
Seattle North America – UK Financial and Professional Services
SEATTLE
TORONTO
OPPORTUNITIES Tech, Asia trade ties, trade tech logistics and finance.
OPPORTUNITIES Full capability FPS ecosystem with particular strengths in natural resource derivative finance e.g. mining, energy.
KEY PLAYERS Amazon; Microsoft located in Redmond; Boeing Commercial Aircraft division.
KEY PLAYERS Home to the head offices of Canada’s five largest banks, three of which rank among the world’s largest 25 banks by market capitalization, the Toronto region is home to over 40 per cent of all FPS headquarters employment in Canada and 7 of the 10 largest global hedge fund administrators.67
KEY FACTS The high-tech industry in Washington is heavily concentrated in a 10-kilometer radius of Lake Union just north of downtown Seattle the second largest IT industry in the world with synergistic sectors, including aerospace and related supply chain companies, ICT, and the clean-tech sector. Both Seattle and close by Portland have burgeoning FinTech ecosystems – home to companies such as Elemental, Janrain, Jive, Puppet, Simple, Jama, Urban Airship and Remitly (£73.8M in venture capital raised in five years).65
Canadian pension plans hold an estimated five per cent of the world’s pension fund assetsToronto-based organizations including Canada Pension Plan (CPP) Investment Board, Ontario Teachers’ Pension Plan and OMERS.68
TALENT AND INNOVATION One of the fastest-growing cities in terms of population across the US.66
KEY FACTS Toronto is Canada’s financial centre. The Banker magazine (2017)69 places Toronto second among North American centres and eighth in the world. The Toronto Stock Exchange is the third largest equity exchange in North America and ninth largest in the world by market capitalization. Its key specialisms are mining, oil and gas and clean tech and associated specialisms in engineering and geological expertise, banking, asset management, insurance, mining/energy & clean tech financing and risk management all flow. Toronto is the global centre for mine financing and related legal and accounting services.70
TALENT AND INNOVATION Financial services employment in Toronto has risen by 25 per cent since 2006.
65 Source – Department for International Trade webinar, exploring Financial Technology opportunities in the United States. 66 The U.S. Census Bureau on Thursday listed Seattle as the fifth fastest-growing large U.S. city by numeric population increase. http://q13fox.com/2017/05/25/ u-s-census-seattle-5th-fastest-growing-large-city-in-u-swith-nearly-21000-new-residents-in-1-year/
26
67 www.tfsa.ca 68 ibid 69 www.thebanker.com 70 www.tfsa.ca
Markets, Investors and Opportunities 2018
VANCOUVER
OPPORTUNITIES Co-operative banking, Asia ties, Trade tech logistics and finance.
KEY PLAYERS Vancity71, the member-owned financial co-operative headquarters is the largest community credit union in Canada as of 2017, with $26.4 billion in assets, 59 branches and more than 525,506 members.
Cooperative banking is a cornerstone of Vancouver’s banking system and includes such known and respected institutions as Vancity and Coast Capital Savings. The credit union system in BC is the largest among Canada’s English-speaking provinces.
Nearly 1,000 international companies have operations in British Columbia. This includes organisations like the Bank of China and the Agricultural Bank of China.
Vancouver is also developing an important niche in international treasury and financial functions, including factoring, import/export financing, foreign exchange and back-office support.72
71 www.vancity.com
KEY FACTS Financial services started as a critical business support function for mining and forestry. Local FPS companies operate in global markets, leveraging and facilitating Vancouver’s position as a global commercial gateway.
TALENT AND INNOVATION Strong cultural ties to emerging Asian economies. BC was the first foreign government to sell bonds into China’s domestic market, and in 2015 Vancouver became a Renminbi (RMB) clearance centre.
72 www.vancouvereconomic.com
27
North America – U.K. Financial and Professional Services
UK Cluster
If the continental geography of the U.S. represents a challenge to manage, then the smaller geography of the U.K. is delivering an increasingly agile and connected opportunity to leverage national cluster effects linking U.K. cities. Joining up the U.K. ‘offer’ across the country makes the most out of cost effectiveness advantages readily available, outside of London, with additional quality of life and talent pool strengths. For example, Belfast in Northern Ireland has a globally competitive finance software technology capability that has huge additional potential in U.S. exchange trading centres like Chicago, Toronto and New York.
CASE STUDY Citi is expanding the network of its Global Innovation Labs with the opening of a new hub in London. The London Lab will also host the EMEA operations of Citi Ventures, the team in charge of venture capital investing and external partnerships driving innovation, as well as Citi’s D10XSM Program, an internal strategic growth model that enables Citi employees to take new business ideas from concept to launch. The London Lab will support Citi’s Markets and Securities Services business globally with a focus on building competitive advantage for clients through solutions leveraging advanced technologies, including data science and visualization as well as high performance computing. Citi established its first innovation Lab in Dublin in 2009 and has also been a key part of the development of a technology driven FPS proposition for Northern Ireland in Belfast. Since 2005 Citi Belfast has developed a predominantly technology driven mixed office operations functionality which by 2017 represented 2400 discrete roles.73
73 www.citigroup.com/citi/news/2018/180212b.htm
28
UK
Markets, Investors and Opportunities 2018
Birmingham
Cardiff
KEY STRENGTHS Largest concentration of professional service firms outside of London, the region is the largest centre for major accountancy firms.
KEY STRENGTHS Insurance technology support; Insurtech opportunity; Motor finance; Start-ups growth.
KEY PLAYERS Deutsche Bank; HSBC.
KEY FACTS National HQ relocations by Deutsche Bank and HSBC (move will relocate 1,200 jobs from London to a new 210,000 sq. ft development in Birmingham’s Enterprise Zone).
KEY PLAYERS Major U.K. insurer Admiral located in Cardiff; cluster of retail and motor finance operations that includes Barclays Partner Finance and Lloyds Banking Group’s Blackhorse Finance. Motonovo Finance and GMAC are also leading motor finance companies based in Cardiff. V12 Retail Finance, meanwhile, is one the U.K.’s biggest broker platforms. Strong expertise in insurance technology support.
TALENT AND INNOVATION One of four U.K. cities with 9,000 or more strong workforces for banking and insurance.74
CASE STUDY Wealthify is digital consumer friendly wealth management platform created by Investment experts and software engineers.76
KEY FACTS Nixon Williams research77 shows that the number of start-up FPS businesses in Wales increased by 11.2% in 2015. The number of FPS businesses in Wales jumped from 2,400 to 2,695 – an increase of nearly 300 – between 2014 and 2015.
HS2’s high speed rail link arrival driving catalytic effect.75
TALENT AND INNOVATION Innovation Point’s Digital Dozen, Barclays Eagle Lab and NatWest’s Entrepreneur Accelerator in Cardiff.
74 Source – www.greaterbirminghamchambers.com 75 www.greaterbirminghamchambers.com
Cardiff 76 www.wealthify.com/about-us 77 www.nixonwilliams.com
29
London
North America – UK Financial and Professional Services
Leeds
London
KEY STRENGTHS Mutual and cooperative banking, emerging FinTech
KEY PLAYERS Leading FinTech firms include the European headquarters of payment processors TSYS, online investment brokers TD Direct Investing and global technology company Nostrum Group.
KEY FACTS A leading hub for financial, professional and business services contributing £19.8bn GVA to the national economy and employs over 300,000 people including the largest pool of banking talent outside of London.78 Leeds City Region was also recently announced as the home of the first FinTech accelerator outside of London – The Dotforge FinTech Accelerator.79
TALENT AND INNOVATION Bank of England’s only note issuing centre outside of London. Leeds City Region was recently named a ‘Financial Centre of Excellence’ by UKTI.
KEY STRENGTHS Full capability FPS ecosystem delivering global scale in the world’s most international FPS hub Competitive strength for emerging FinTech based on an innovative and supportive policy and regulatory environment with the world’s leading Regulatory Sandbox to encourage and accelerate innovation in the sector Availability of capital, with London’s tech sector recording £2.5 bn of VC investment, more than four times as much as the second placed European location80.
KEY PLAYERS Home to 60% of European headquarters for the top non-European companies and its office hours overlap with countries that account for 99% of the world GDP. Highest concentration in the world of global financial institutions across banking, capital markets, insurance, and asset management. 40,000 FPS companies are based in London. Over 250 foreign banks and more head offices of banks in London than in any other city in the world. Around half of European investment banking activity is conducted in the capital. Canary Wharf home to both Europe’s largest banking cluster and the continent’s biggest accelerator space for FinTech companies, Level39.81 London is the second largest global fund management centre after the U.S. and ahead of Japan. 36% of assets managed in Europe are managed from the U.K. which is more than the sum of the next three combined.82 The London Market is the world’s leading market for internationally traded insurance and reinsurance. It is the only place where all the world’s twenty largest international insurance and reinsurance companies are active.83
80 www.londonandpartners.com 81 ibid
30
78 investleedscityregion.com
82 Investment Association – Asset Management in the U.K. 2016-2017 www.theinvestmentassociation.org
79 ibid
83 www.londonmarketgroup.co.uk/lmg-overview
n
Markets, Investors and Opportunities 2018
Manchester
KEY FACTS
KEY STRENGTHS Back office/shared services/technology hubs with journey up tech value curve underway; App creation (eg Pingit); high performance computing and digital infrastructure
KEY PLAYERS Major players: The Co-operative Bank; Barclays; HSBC; BNY Mellon; RBS. Bank of America Merrill Lynch in Chester – key location for the bank’s credit card business MBNA; Williams and Glyn; Ford Credit; Bank of London and Middle East; Swinton; Cooperative Insurance; Aon
By any of the measures used by established indices such as Z/Yen’s Global Financial Centres Index84 or The Banker’s annual rankings or the PwC Cities of Opportunity report85, London ranks first or second as a global international FPS centre.
AccessPay89 another winner of a place on the recent DIT Trade Mission to NY FinTech week – provides secure cloud-based automation of payment processing cash management and treasury functions designed for finance professionals, corporates, large enterprises and banks.
The London Stock Exchange is the world’s leading international exchange with more than 600 international listings, while 70% of global Eurobond turnover is traded in the city. World’s largest foreign exchange market and is the top location for OTC interest rate derivatives.
TALENT AND INNOVATION Vast talent pool: more than 360,000 people work in London’s financial services; 50,000 for overseas-owned companies86. London is ranked the largest FinTech hub in the world, generating revenues of £6.6 bn per annum and ‘The U.K. is a world leader in FinTech and by some estimates home to around 1,600 FinTech companies’. FinTech hub employs 44,000 people, more than any other FinTech hub including Silicon Valley or New York.87 Pioneered breakthroughs and new business models in carbon trading, Islamic finance and RMB trading88.
KEY FACTS KPMG has ranked Manchester as the most costcompetitive business location in Europe since 2010.90 Insurance – home to the largest general insurance community outside London and a growing broker base.
TALENT AND INNOVATION Barclays opened Rise its FinTech accelerator Manchester location in 2015 and has one of its main global technology centres instrumental in the development of the Pingit91 mobile application close by. Shared Service Centre Cluster Manchester is one of Europe’s leading Shared Service Centre locations resulting in a highly developed industry structure. With over 45 Shared Service operations in the area and a further 15 across the North West, there is an established network of expertise and talented labour. The N8 High Performance Computing centre at the University of Manchester operates Polaris, one of 250 most powerful computers in the world. More than £3.5billion has been invested in digital infrastructure to support ambition to become top 20 global digital cities by 2020. Manchester also can carry the whole of the U.K.’s data provision in the event of the London internet exchange going down.92
84 www.longfinance.net/programmes/ financialcentrefutures/global-financial-centres-index 85 www.pwc.com/us/en/library/cities-of-opportunity
89 www.accesspay.com
86 http://business.london/invest/sectors/financial-services
90 www.competitivealternatives.com/highlights
87 www.londonandpartners.com
91 www.pingit.com
88 ibid
92 www.investinmanchester.com
31
Sco
North America – UK Financial and Professional Services
Scotland
KEY STRENGTHS Edinburgh Glasgow corridor; wealth management cluster; potential for FinTech wealth management applications (AI trading and consumer facing application); Challenger banks, Back office/technology hub with journey up tech value curve underway.
KEY PLAYERS Challenger Banks – Sainsbury’s Bank, Tesco Bank and Virgin Money Headquartered Edinburgh95 Banks: Head office of Royal Bank of Scotland (established in 1727); Glasgow: Clydesdale Bank’s headquarters. Bank of Scotland (part of Lloyds Banking Group). Insurance – Headquarters Standard Life, Scottish Widows and AEGON UK. Major operations – Prudential, Royal London and Aviva. Asset Management: Close to £1trillion of assets are now managed from Scotland – 25% of assets managed in the U.K. are managed by Scotland headquartered managers.96 Blackrock Edinburgh97; Baillie Gifford manages money on behalf of 11 of the 20 biggest global pension funds.
Northern Ireland & Belfast
KEY STRENGTHS Trading technologies; Software development; Cyber ‘cluster’.
KEY PLAYERS Citi, the Allstate Corp, Liberty Mutual Chicago Mercantile Exchange, Visa and Tullett Prebon, indigenous firm First Derivatives.
CASE STUDY First Derivatives93 from Newry scopes, designs, develops, implements and supports mission critical data and trading systems across front, middle and back-office operations. Niche market position in domain knowledge of capital market asset classes; works with leading global financial institutions to enable client proprietary and 3rd Party systems cope with the demands of high volume, complex trading in increasingly regulated markets.
KEY FACTS Belfast ranked as the top destination for financial technology investment projects and Europe’s leading location for new software development projects (2003-2017, Source FT FDI Markets.94 Specialisms include trading technology, data analytics, predictive modelling, software development and cyber security. Number one international location for U.S. cyber security firms.
TALENT AND INNOVATION Capital Markets Collaborative Network includes Northern Ireland’s two universities Queen’s University Belfast and Ulster University and global companies both with Trading Room dynamic learning environments.
Northern Ireland 93 www.firstderivatives.com 94 www.fdimarkets.com
32
95 www.scottish-enterprise.com/knowledge-hub/articles/ insight/201617-sdi-annual-results 96 Investment Association – Asset Management in the U.K. 2016-2017 www.theinvestmentassociation.org. 97 www.sdi.co.uk/knowledge-hub/articles/case-study/ financial-services/blackrock and www.blackrock.com/uk
otland
CASE STUDY Case study IDCo – 98 IDCo based Edinburgh a recent winner of a place on the DIT Trade Mission to NY FinTech week. Builds validated trusted digital passport/identities which can be activated across 5500 banks in 32 countries.
KEY FACTS Aberdeen Asset Management’s technology expertise based in Edinburgh and Aberdeen. JP Morgan European Technology Centre in Glasgow is one of two Strategic technology hubs in Europe with more than 1,000 technologists supporting and designing global systems. Morgan Stanley Glasgow has its 2nd largest back office centre in Europe with functions including Technology & Data. Talent and innovation FinTech accelerator launched Feb 2017 at Royal Bank of Scotland’s Entrepreneurial Spark business hub in Edinburgh.
Markets, Investors and Opportunities 2018
Conclusion
Strong trade and investment links have developed between U.K. and North American FPS firms, offering a strong base from which to strengthen these ties, alongside the development of new links. Technology, through its influence and shaping of areas of FPS, including banking, insurance and asset management, as well as the high-growth area of cyber security, creates huge opportunities for U.K. firms with competitive advantages in these areas, in addition to increasing the number of firms looking to partner and making market access easier. The fast pace of adoption of Fintech and other new technologies by U.K. firms, and the scale of the North American market, particularly in key sub-sectors like wealth management and insurance, present a range of opportunities for FPS businesses across the U.K.. Cities like Belfast, Leeds and Manchester have globally competitive financial software development capabilities and computing infrastructure industries; Glasgow, Edinburgh and Cardiff are using technology to change the face of traditional sectors like banking, insurance and wealth management; while Birmingham acts as a key hub for relayed professional services and accountancy firms. The North American market offers U.K. FPS firms the opportunity to leverage the expertise they’ve developed in their city hubs, either through expansion or partnering with firms in key FPS hubs across the U.S. and Canada, accessing new pools of talent and innovation ecosystems, as well as accessing wider markets through trade agreements like NAFTA and gateway city hubs like Miami. Highlighting these opportunities offers the chance to develop these links between the U.K., U.S. and Canada at the city to city level, to strengthen and boost the competitiveness of all three economies.
98 https://theidco.com
33
North America-UK financial & professional services: Markets, Investors and Opportunities 2018
Transatlantic Business Britain is focused on the transatlantic economy and the businesses that create prosperity between Great Britain, Canada and the United States of America – see www.transatlanticbusinessbritain.org