As governments and regulators around the world compete to attract fintech start-ups to their cities, the points of difference have become marginal. Strategies to attract innovation should include financial rewards open to all, not only a select few.
Week after week there are news stories about delegations visiting dominant fintech hubs, pledges of funding from local governments to spur the creation of more start-ups, and offers of free office space and broadband. While none of these measures are detrimental to the creation of fintech hubs, they are not groundbreaking either.
An inherent problem with such policies is the subconscious belief that controlled inputs (i.e. free office space, subsidized accelerator places) leads to innovative outputs (i.e. the creation of fintech companies). This is contrary to what previous examples of innovation tell us.
In the 18th century the then British government offered a financial reward of £20,000 (£3.3m 2016) to anyone who could solve the problem of calculating longitude at sea and thus greatly improve the safety of long-distance sea travel. The prize was won by the inventor of the chronometer John Harrison, a self-educated carpenter and clock maker. The point here is that innovation can come from anywhere, and policies that do not encompass all potential sources of innovation are restrictive.
Governments and regulators should step back from accelerators that are heavily geared towards immediate commercial solutions and that already have strong ties with banks and venture capitalists.
Instead, they should focus their efforts on widening the potential sources of innovation by offering substantial amounts of prize money to anyone who can solve problems in the fields of artificial intelligence, predictive analytics, cloud services, and cyber security. Governments and regulators should seek to encourage skilled innovators with knowledge of the financial sector to collaborate with and draw upon the wider expertise in related industries.
By Sean Harrison, Retail Banking Analyst