Recent Irish Venture Capital Association (IVCA) figures show that only 3-10pc of an average of €400m of venture capital (VC) funding for start-ups has been invested in fintech companies over the past three years – highlighting an opportunity for such companies to avail of significant untapped VC potential.
David Dalton, Head of Deloitte’s financial services practice in Ireland, says that one of the reasons why fintech companies have not secured a bigger piece of the VC pie is the relative lack of expertise of the sector within the broader VC community.
“Local VC firms have been very technology focused and have yet to develop specific fintech expertise but that will potentially change. I wouldn’t be surprised if specialist fintech VC firms are established over the next couple of years with larger scale funds and strong international connections,” he says.
“The Government is keen to encourage investment into the fintech sector and greater levels of VC.”
In a less direct way, more investment in fintech needs to come through increasing the number of large financial services firms carrying out research and development in Ireland with a strong technology focus, Dalton notes.
“The Citi Innovation Lab is a good example of this and there are some others in the space such as Marsh & McLennan, Aon and Deustche Bank.
These are important investments in the broader ecosystem.
“A lot of the banks are realising that it is important to be aware of what early stage fintech companies are doing and how they may disrupt them. They are actively tracking such ventures and working directly with them in the areas they’re focused on. There is a need to promote greater
awareness of fintech generally.”
With this in mind, Deloitte in the US has developed a platform called Bridge, which tracks all early-stage innovators in the space. It currently features 25 Irish companies.
“This is one of the tools that will help to build the symbiotic relationship between large financial services firms and fintech companies. There are about 200 new fintech start-ups globally a month. We are seeing most activity around payments, data and analytics and lending and Deloitte in Ireland has tracked around 70 Irish companies to date. Two areas I see growing in Ireland going forward are fintech activity in funds administration and blockchain technology that supports the bitcoin currency,” says Dalton.
“It is all to play for from Ireland’s perspective in the fintech sector. We have to be cognisant that many others badge themselves as fintech locations as well. It is really important to figure out the areas where we have something a little bit different to other locations and focus on those areas.”
In Ireland today there are around 5,000 people employed directly in the fintech industry and a recent analysis by Deloitte predicts that this
will double by 2020.
According to the analysis, the main focus areas for Ireland that can shape the success of the country’s fintech sector over the next five to 10 years, aside from investment, are connectivity, talent, innovation, investment and cyber security (see analysis here http://www2.deloitte.