Public-private investment poises Delaware for fintech prominence

Economic Forecast: FinTech

WILMINGTON – Build it and they will come.

That’s the idea behind the $38 million FinTech Center announced by the University of Delaware in November in partnership with Discover Bank and Delaware Technology Park. The project aims to prepare hundreds of new technologically skilled financial services workers beginning in 2021, but the question remains: Will those workers stay in the state for their careers?

Delaware has been a banking center of the United States for nearly 40 years, ever since Gov. Pierre duPont IV signed the Financial Center Development Act in 1981 that axed restrictions on interest rates and gave tax breaks to the nascent credit card sector. Today, names like Chase, Barclay, M&T and WSFS dominate the Wilmington skyline, but in an increasingly modern and competitive marketplace, Delaware is once again competing for C-suite attention.

While major financial hubs like New York City, San Francisco, Boston and Chicago will continue to outpace the First State, other small cities like Cheyenne, Wyoming, are now clamoring for jobs that may once have considered Delaware as well.

That’s one reason state officials are stressing how serious Delaware is in supporting fintech, or financial technology, services.

Earlier this year, Delaware Prosperity Partnership, the state’s nonprofit economic development agency, published a report on the state of the fintech industry in Delaware, and the challenges it faces to grow it. Among the issues recognized in the report was a need for a ready workforce, a modern regulatory structure and a stronger connection to venture capital.

Addressing workforce

University of Delaware President Dennis Assanis had been working on addressing the first issue: workforce. Recognizing that many of UD’s business and computer science grads were being employed at banks in the state, he said the university had explored for about a year the opportunity to start a new program that would target fintech.

The University of Delaware expects its future FinTech Center to create a pipeline for fintech workforce. | PHOTO COURTESY OF UD

“It’s absolutely incumbent on us as the flagship state university to try to innovate in financial services,” he said. “We’ve been looking for the next big play [at STAR Campus] and fintech was the obvious space.”

John Collins, co-founder of First State FinTech Labs, a state nonprofit that advocates for fintech growth, called the UD center an “amazing development.”

“There are very few institutions that has this degree of literal infrastructure investment,” he said. “It’s going to bring together a lot of folks under one roof.”

Among the partners on the project is Discover Bank, which is providing the loan that underpins the $38 million project. In addition to funding, Discover will reportedly explore ways to partner with UD on research related to its fintech needs, including cyber-related technologies, and consumer data analytics, applications and behaviors. Assanis called the addition of Discover “invaluable,” saying it allowed the partners to do more faster.

The presence of Discover in the venture, the result of connections through DPP, will also further announce to the public that the state is serious about the industry, DPP President and CEO Kurt Foreman told DBT. 

“There are a lot of communities around the country who say they are focused on industry X, but you have to prove it to the market that you really are committed,” he said. “Having our flagship university’s program working with an international partner will help differentiate us.”

The presence of big-name partners in the FinTech Center will also help UD attract top talent to the program’s faculty, adding yet another reason for students to consider the university when applying, Assanis said. That search for leaders will be aided by the opening of the new Newark rail station, which could allow professors to live in a larger hub like Philadelphia and still commute in, he noted.

“We want to be the place for fintech,” he said.

Play in the sandbox?

Delaware earned a reputation for being agile in its regulatory framework for credit cards, but it’s not leading the pack in fintech.

While Congress and the executive branch assess options at the federal level, states are taking the lead in introducing innovative regulatory approaches. In 2018, Arizona became the first state to propose and pass into law a so-called “regulatory sandbox” for fintech innovation, followed in 2019 by Wyoming and Utah. A “sandbox” is a regulatory framework that allows the testing of new products in a live market, but with government safeguards.

Sandboxes have found success in the United Kingdom, where a preliminary report on the first round of participants found that 75% of companies completed testing and 90% obtained investment during or after their sandbox test.

Sandboxes do have critics, however, as a report from the FinTech Working Group of the United Nations and the University of Cambridge called them “neither necessary nor sufficient for promoting financial inclusion,” and while they do offer benefits, “they are complex to set up and costly to run.”

That report is more favorable toward “Innovation Offices,” or single points of contact established by governments to facilitate and support fintech innovation.

Collins, of First State Fintech Lab, who has supported the use of sandboxes to promote innovation, said that they are just one possible tool for governments.

“The most important thing is to have high-level political attention on the issue,” he said. “We need to continue to be dynamic and nimble, because it’s only going to become more competitive and global with the internet’s advancements. We certainly don’t want to get involved in a race to the bottom.”

Foreman, of DPP, agreed, and added that public officials needed to examine how Delaware could keep pace with its competitors when it came to regulation.

“If one place makes it easier to test an idea than it may make it more appealing for prospects,” he said.

Convince them to stay

Gov. John Carney recently told Delaware Business Times that he’s increasingly hearing about the importance of fintech, convincing him that the industry will be a driver of Delaware’s future.

In a visit to Ntirety in Glasgow, Gov. John Carney voiced his support of pursuing fintech growth. | DBT PHOTO BY JACOB OWENS

“When I was meeting with a regional leader of one of our big banks here, one of the first things he said was that they’re really a tech company disguised as a bank,” Carney said. “That really stuck with me, because it underscored the importance of tech talent, not just for strictly tech-play companies but for our financial institutions as well.”

“Those [fintech] employees aren’t just credit analysts, they’re programmers, cybersecurity experts, data analysts, etc.,” he added.

With nearly 50,000 banking employees in the state, many of whom are working tech-related positions, Carney said there was a concurrent opportunity for the state to convince them to live in Delaware as well.

“Young people in particular are looking more for a way of life than just a job,” he said, noting his administration is invested in trying to add amenities that would appeal to young professionals and families. “There’s a real premium on tech workers and the workers of the future. We’ll be successful as a state if we’re able to take advantage of those opportunities.” 

By Jacob Owens

jowens@delawarebusinesstimes.com