New York City and its financial community have had a long-standing symbiotic relationship. Many of the world’s great financial institutions have been headquartered here, giving NYC the distinction of being the world’s financial center. But rapid technological change is threatening that designation.
A recent New York Times article titled “How Big Tech is Turning New York into a Silicon Valley Rival” proclaimed the coming of a golden age of tech jobs in New York City. The four tech platform giants – Amazon, Apple, Google and Facebook – are gearing up to collectively employ 20,000 tech workers, notwithstanding what would have been an additional 25,000 workers from Amazon’s headquarter loss.
The major tech firms are expected to grow to the point that they are among the largest private tenants in New York. According to Bloomberg, JPMorgan has long been the largest employer in the New York metro area. But big banks and money managers have long been moving employees out of New York to cheaper U.S. cities.
In the work processes of financial institutions, the rapid replacement of technology for labor has spawned an entrepreneurial start-up class of new “fintech” companies locating and growing in the city. They are competing with traditional financial institutions and even with central banks’ control of currencies.
In 2011 New York City’s government, under then mayor and now presidential candidate Michael BloombergMichael BloombergWhat Democrats need to do to avoid self-destruction Democrats' combative approach to politics is doing more harm than good Battling over Biden's agenda: A tale of two Democratic parties MORE (himself a fintech entrepreneur), recognized the growing significance of technology to its future. A competition to build a $2 billion graduate school of applied sciences was won by Cornell University and the Teknion (Israel’s Institute of Technology). The goal was to transform New York City into the world's premier technology capital, an ambitious goal that has now been met.
This past year New York has been recognized in the U.K.’s Savills Survey as the world’s global technology leader, having been ranked first over last year’s San Francisco, home to Silicon Valley. New York’s tech industry is one of the fastest growing areas of the U.S. economy. According to Forrester Research, the New York region is the largest tech talent market in the U.S. Its 333,000 tech workers beat out the San Francisco Bay Area's tech talent pool of 310,000.
Most critically, New York has the most computer-science graduates, at 7,631 annually, and nearly 100 academic institutions, a dominant position over San Francisco’s 25 and London’s 40. Tech:NYC, an advocacy group for the New York technology community, reports that 10 percent of the nation’s developers are located in New York City.
According to The Global Financial Centres Index, New York has surpassed London as the world’s most attractive financial center, even while New York’s traditional bricks and mortar financial sector is shrinking. In the Index’s most recent September 2019 26th ranking of financial centers, New York retains its first place in the index overall as well as in each of five competitive categories. London overall ranks number 2. San Francisco, while vying for supremacy as the tech capital of the world, ranks number 12 overall as a financial center.
The City University Graduate Center Economics Group reported that in 2017 the finance sector in NYC employed about 460,000 workers, a little less than 10 percent of city employment, with banking and securities comprising about three-fourths of the jobs within the sector. Since 2000, employment in the traditional finance sector has declined by about 30,000 jobs.
In July 2018, the Treasury Department released a report identifying improvements to the regulatory landscape for fintech companies. As of the third quarter of 2017, more than 3,330 new fintech companies were identified, 40 percent of which are focused on banking and capital markets. According to the report, global investments in fintech companies was accelerating, reaching $22 billion in 2017, 13 times what they were in 2010. In 2018, according to KPMG global, fintech investments reached another record of $111.8 billion while a research report by Innovative Finance and London & Partners, A Fine Year for Fintech: Global Trends from a UK Perspective, reported $110 billion was invested world-wide in fintech. Venture Scanners, a research partner of Forrester Research, reported that as of the third quarter 2019, $155 billion in venture capital was raised for fintech in the 61 countries and 2719 companies it follows in this sector.
This fintech opportunity has long been noticed in New York City. The Fintech Innovation Lab New York was founded in 2010 by Accenture and the Partnership Fund for New York City. Since then 44 other partners have joined. Its alumni companies have raised more than $1 billion, created over 1,100 jobs, defined 241 proof of concept businesses and created 69 companies of which five have been acquired.
But NYC and the entire country cannot be complacent. The federal government must support “regulatory sandboxes,” to assist fintech innovations. These regulatory sandboxes first gained government support in major overseas banking centers, including those in the U.K., Singapore and Hong Kong.
The U.K. financial services regulatory authorities are leaders in this area. Almost half of fintech respondents in E&Y’s 2019 Fintech UK survey are not regulated. A regulatory sandbox has provided a safe space where more than 375 applications have been received since the program was announced in 2016. Of these 375 applications, 128 were accepted to participate.
The supremacy of the U.S. dollar and a global financial network dominated by financial institutions and central banks has long been the backbone of global financial stability. Concerns about replacing that dominance with fintech innovations was recently expressed by the Bank for International Settlements in its 2019 annual economic status report Bigtech in finance: opportunities and risks. Farsighted leaders in New York City and in the federal government need to keep up the momentum while overseeing the transition of the financial sector to its digital-age future.
Allan D. Grody is president of Financial InterGroup Advisors, a New York-based management consultancy serving financial institutions and their regulators.