Fintech businesses, especially those in the digital assets sector, are a fundamentally different generation of global business. Unlike more traditional sectors, they are inherently decentralised, agile and borderless, enabling them to operate across borders with speed and efficiency.
While trying to conduct business in this fashion, global fintech leaders are also navigating the ongoing turbulence of the geopolitical landscape, the absence of any single standard for regulation and an uncertain macroeconomic environment. So far this year, the US has brought in a pro-crypto and blockchain Trump administration that has already put in place measures for lighter touch regulation alongside a vow to remove ‘Operation Chokepoint 2.0’, while the UK’s Financial Conduct Authority (FCA) is assessing the future regulation of crypto asset activities. For some, this lack of clarity makes business planning a near-impossible task.
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BVI Finance’s Destination Digital report, which surveyed 451 fintech executives, revealed that 94% of global fintech businesses view cross-border expansion as critical or important to their growth strategy, and 63% already operate through an entity in an International Finance Centre (IFC). Against this backdrop, how can they set themselves up for success?
It is essential, first, to incorporate in a jurisdiction or market that is able to facilitate the level of growth required. These businesses must be dynamic and fast-paced so therefore they must be able to access global markets and capital, favourable regulatory environments, skilled workforce as well as strong financial and legal frameworks.
The challenges facing fintechs
As with all businesses, many fintechs face challenges as they look to scale – research shows that nearly a quarter (24%) of global fintech executives see the fragmented and ever-changing regulatory landscape as a significant hurdle. Given the global anti-incumbent election wave we will continue to witness changes to regulatory landscapes. In the past eighteen months alone, the US, UK and South Korea legislatures have all changed, creating shifting policies and uncertain business environments.
When choosing where to incorporate, predictable licensing regimes, clear rule enforcement, and mechanisms for cross-border recognition allow businesses to make informed decisions and plan long-term. Something which is increasingly difficult in today’s environment where economic sanctions and sudden policy shifts are common. The importance of choosing jurisdictions with stable legal frameworks and neutral political postures has elevated.
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By GlobalDataWhat’s more, it is not just about the regulatory environment, the people who service these businesses are important too. Fintech businesses require jurisdictions with local experts with the ability to navigate compliance requirements, such as Anti-Money Laundering and Know Your Client, across multiple markets, all while facilitating their growth.
The role of IFCs in scaling fintech businesses
IFCs can check all the boxes above – access to capital, markets and specialist advisers – so it is no surprise that nearly two-thirds of fintechs, and roughly the same share of crypto-native firms, already maintain an IFC presence.
One-third (33 %) of survey respondents highlight access to international markets and banking services as decisive, while another 32 % point to a stable and business-friendly regulatory environment. IFCs provide the expertise to navigate complex compliance regimes as well as the access to international markets and investors required for international growth.
Fintech businesses face a myriad of challenges but it is clear that, amongst these, cross-border growth remains a business priority and IFCs are ready to provide the support needed to capture it. IFCs offer the expertise in complex cross-border compliance policies, helping businesses overcome logistical and operational hurdles. With roughly one-third of fintechs still evaluating an IFC entry, the next wave of sector growth is likely to flow to the jurisdictions offering the clearest, most comprehensive propositions.
Elise Donovan is CEO of BVI Finance
