Fintech-The Great Enabler Of Smart Cities
By Ingrid Vasiliu-Feltes, MD MBA
Futurist, Globalist & Chief Ethics Officer
The global smart cities market is expected to reach $820.7B by 2025, grow at a CAGR of 148% and generate an estimated $1.56T in business opportunities. Several organizations have published smart cities related indexes and have issued rankings. Each of them use different methodologies and indicators in their efforts to better capture important domains defining smart cities. Ironically, none of the major published global indexes have fintech as an indicator. At the same time, there are other unrelated agencies issuing indexes and rankings for cities with most fintech investments, most fintechs startups, best fintech ecosystems or most innovative fintechs. When performing a comparative analysis of those reports, one can identify several interesting findings.
However, before highlighting some of the valuable insights from that comparison we must first clarify the definition of a smart city.
One of the broadest definitions specifies that a city can be labeled as “smart” if it leverages technology to increase efficiency, improve citizen experience and optimize quality of life. The key domains for smart cities include: smart governance, smart energy, smart buildings, smart mobility, smart technology, smart healthcare and one would have to add that smart fintech is inherent.
The World Economic Forum’s Global Future Council on Cities and Urbanization published an August 2020 paper highlights the variability in definitions, however clarifies that most include “ the use of new technologies to find efficient and affordable solutions to urban problems. Given that by 2050 68% of the global population is expected to live in urn areas those problems will only continue to exacerbate without swift mitigating actions.
One of the frequently quoted Smart Cities Index is developed by the Institute for Management Development (IMD) and Singapore University For Technology and Design (SUTD) that gathered data from 109 countries in April and May of 2020.
The cities were ranked by a few priority areas such as: affordable housing, fulfilling employment, unemployment, health services, basic amenities, school education, air pollution, road congestion, green spaces, public transportation, recycling, security, citizen engagement, social mobility and corruption. Fintech notably was not included, however it is evident that funding for all these indicators isa foundational defining element.
The top three cities ranked highest globally according to these criteria were: Singapore, Helsinki and Zurich.
On the fintech front, The Global Fintech Index 2020 ranked San Francisco, London and New York as the top 3 globally. This report aims to identify where the best place is to start a fintech company, where are the emerging fintech markets and what does it take to build a successful fintech hub. Another global report published by Financial Services Zug (IFZ) of the Lucerne University of Applied Sciences identifies the cities with the most robust fintech ecosystems and uses a combination of entrepreneurship, innovation and financial indictors which fit into four domains: political, economic, social and technological. According to this methodology, the top three cities were: Singapore, Zurich and Geneva. Startup Genome also ranks fintech ecosystems and uses different indicators, however also ranked Sillicon Valley, New York, London, Singapore highest globally.
So what insights can be derived regarding the relationship between smart cities and fintech? It is definitely a complex bilateral relationship and given that Singapore ranks high in both arenas it is worth examining its characteristics. As recent report published by Oliver Wyman and SFA highlights, more than 40% of SE Asia’s Fintechs are based in Singapore, the government has dedicated more than 200 MN towards growing the fintech ecosystem, there are more than 100 incubators, 40+ labs, 150+ venture capital investors and close to 30 corporate investors. Additionally, the market has shown a steady growth since 2015 and has rebounded even after an initial pandemic decrease. The diversity of the fintech ecosystem is also quite impressive in Singapore, with Wealth Management and Capital Markets, as well as Payments and Remittances occupying the highest percent of the overall portfolio. As illustrated in the Startup Genome report, Singapore also ranked as top in total early stage funding at $1.4BN and its total fintech ecosystem value is estimated to be $21BN. In the Global Smart Cities Index report Singapore stands out for high ranking in health, safety, activities, work, school, and governance. Those all require funding and given the impressive fintech landscape it is tempting to draw the conclusion of a close correlation.
So what opportunities do other cities have to improve their smart cities and fintech ecosystem rankings?
By designing a state of the art strategic roadmap that is comprehensive and includes some of the major drivers of success for development of innovation, entrepreneurship and finch ecosystems it seems that one can have the optimal trifecta which also yields improvements in smart city indicators. The European Union has started this journey of urban development with the launch of their digital Single Market strategy. The key impact domains such as transportation, energy sanitation, healthcare and government services all require significant funding and can only be maintained by a synergistic vibrant fintech ecosystem. Some of the elements of success described are the hybrid use of emerging tech, development of stakeholder consortiums, choosing a multi-channel approach.
The Fintech ecosystem can serve not only as a great enabler, but also as a connector and gateway for smart cities development by riding the financial divide, connecting stakeholders, and promoting the development of alternate funding mechanisms for smart cities. Purpose-driven banking, impact investments, green and blue fintech are all trends that can greatly enhance smart cities development. By supporting sustainable and inclusive societies that use technologies in a responsible way green and blue fintech can augment many of the indicators used to calculate performance in the Global Smart City Index.
Similarly, an emphasis on smart cities development can further galvanize fintech innovation and fuel what has been called “the next smart revolution” by industry experts. Digital Only Banking, Mobile Payments, Contactless Payments, Payment Gateways, e-Wallets, Digital Insurance, Crypto-Exchanges and Crypto-Currencies are only a few of the innovative trends that have influenced the global landscape.
We must also address the tremendous challenges faced by numerous cities around the globe the are having difficulties with both smart city and fintech development. Some are socio-economic, such as digital divide, suboptimal financial inclusion, lack of access to mobile banking and lending, as well as low levels of digital literacy or fluency remain barriers that will need to be overcome by all stakeholders.
Others are related to cyber-security threats and ethical dilemmas that unfortunately increase in tandem with large scale adoption of all emerging technologies.
Last but not least, ultra-developed smart cities and fintech ecosystems will also require a sophisticated data governance, revised regulatory frameworks and a legislative overhaul.
Over the next year we can certainly expect the percentage of “digitally active” citizens defined by “digital identities” living in “smart fintech-powered” cities to increase. It is also likely that the accelerated tech adoption and scaling of key emerging technologies will persist in the post-pandemic economy, as well as the increase in fintech adoption rates. We will certainly witness an increased convergence of emerging technologies with IoT, 5G, AI, blockchain and digital currencies accelerating entrepreneurship, innovation, transformation and therefore hopefully leading to exponential enhancements of global smart city ecosystems.