The Decentralization of US Fintech Hubs
However, these signs of the times are hardly a death knell for fintech. Many technology IPOs, including those of fintech unicorns, were wildly inflated by the 2021 venture capital (VC) bonanza. The cuts and layoffs making headlines today are corrections and reality checks after a period of explosive and unsustainable growth – not an indication that fintech is about to decline in prominence.
Instead, the fintech industry continues to push the boundaries of what is possible in the financial industry. As the industry matures, fintech headquarters are no longer limited to traditional financial centers (ie New York City) and technology megahubs (ie the Bay Area). They are spreading to cities where they can access the tech and finance talent they need to build scale at wages that don’t break the digital bank.
Rapid growth
The already expanding industry got a boost when the use of digital finance increased massively during the outbreak of COVID-19. People didn’t leave their homes to visit bank tellers, and in April 2020, digital banking adoption increased 200 percent, according to Fidelity National Information Services.
Many also had time to kill on the newfangled trading platforms. Adoption of digital finance remained high as consumer preferences shifted over the long term and VCs and traditional financial services companies poured billions into the sector.
Fintech investment funding more than doubled in 2021 from pre-pandemic levels. That year, Coinbase went public with a valuation of $86 billion, followed by Nubank, Robinhood, and Toast, all unicorns valued at or above $20 billion.
While funding declined throughout 2022 due to inflation, interest rates, the war in Ukraine, disruptions in the crypto industry, and other macroeconomic factors, it still ended the year above pre-pandemic levels.
The fintech industry continues to push the boundaries of what is possible in the financial industry.
America the Fintech-Savvy
The US dominates the fintech market. US deal financing represented 40 percent of all deals globally, with Europe a distant second with 27 percent of deal value. With 78 percent of American consumers now preferring to manage their finances online, fintech isn’t going anywhere anytime soon.
The ability to access finance and technology talent is a key factor in the success of US fintech companies, as well as traditional financial services firms competing with their own fintech offerings. As a result, the fintech landscape has spread across a wider range of market types, including moderate-scale markets with lower business and living costs.
Several factors govern where US fintech companies decide to set up their headquarters. The type of fintech solution (i.e. payment vs. banking) and, most importantly, workforce recruitment strategy are among them.
Broadly speaking, the geography of the industry now falls into three categories: core hubs, an established second tier and emerging growth markets.
Core Hubs: The Bay Area and New York City
New York and the Bay Area form the core hub. These are the most established and successful fintech epicenters in the world, home to a host of leading fintech companies supported by robust technology and financial infrastructure.
Fintech headquarters important in these core hubs include Paypal, Robinhood, Intuit, Credit Karma, Mercury, FalconX, Square, Stripe, Plaid (Bay Area); and Lemonade, MoneyLion, Chainalysis, Ramp, Guava (NYC).
More than half (45 percent) of the US headquarters of fintech companies with more than 100 employees are located in these two metropolitan areas alone. New York has a financial services industry and related occupational concentration that is at least twice the US average. The Bay Area has a concentration of technology that is at least twice the average. While growth is slower due to their already established nature, these markets secure a significant portion of VC investment in fintech. At least 20 fintechs in New York City have reached unicorn status.
Core hubs cover virtually every fintech category among their ranks. That said, New York’s growing specialties include decentralized finance, with ConsenSys, Fireblocks, Gemini, NYDIG and Paxos all headquartered in the area. New York is also a leader in democratizing access to financial services, with Guava, MoCaFi, Goalsetter and Petal focused on financial equity.
The fintech landscape has spread across a wider range of market types, including moderate-scale markets with lower business and living costs.
As a historic financial center, the home of Wall Street, New York has the infrastructure to provide an incubator environment for fintech companies. Innovation Lab, an accelerator co-founded by the Partnership Fund for New York City and Accenture, is one of many examples.
The Bay area also covers the spectrum of fintech sub-sectors, but its emerging specialties are artificial intelligence (AI), analytics and banking. The popular digital bank for startups, Mercury Technologies, is headquartered in San Francisco.
When it comes to talent, there’s a one-two punch involved in core markets: The availability of high-quality talent is greater than anywhere else, but the costs and wages are also higher than anywhere else.
Looking ahead, these areas will continue to provide a fertile ecosystem for fintech start-ups and emerging and mature businesses.
Established second tier: Los Angeles, Chicago, Boston and Philadelphia
The established second level comprises markets with moderate growth with populations of over 4 million. They host 17 percent of all US fintech headquarters.
Fintech headquarters important in these second-tier locations include StartEngine, Scratch Financial, BlackLine, FloQast (Los Angeles); Avant, Enfusion, M1 Finance, Zero Hash (Chicago); Evertrue, Flywire, Toast (Boston); and Envestnet, cred.ai, Picwell, Benefix (Philadelphia).
These markets have strong concentrations of technology and financial services activity, with moderate to high growth for tech occupations and a financial services industry concentration that is up to 50 percent more than the US average. Many of these cities have active accelerator scenes and prominent universities that feed fintech talent. For example, Boston benefits from the “Brainpower Triangle” of Tufts, MIT and Harvard.
Emerging growth markets: Atlanta, Charlotte, Denver, Dallas, Salt Lake City
Emerging growth markets, which include both large population centers and more moderately sized metros, are seeing moderate to high growth rates for financial services and high to very high growth rates for technology occupations. Fintechs in these regions often see investment from local VCs and financial services companies. Home to startup communities and deep-tech talent pools, these areas account for most of the cross-state fintech job creation, which since 2016 has been concentrated in the South and Southwest.
A large market, Atlanta has been a hub for payment processing and embedded finance since before the dot com boom. Fintech headquarters in Atlanta include Kabbage, Momnt, CharityVest, Bluefin and CoreCard. “Transaction Alley,” a series of businesses along Interstate 85, processes approximately 70 percent of payment transactions in the United States, and Atlanta has significant talent depth in information technology (IT). Georgia Tech, Georgia State, the Atlanta University Center Consortium and Kennesaw State University are all nurturing fintech talent.
In Charlotte, jobs in the financial services industry are more than twice the national average and have grown at a rate of more than 30 percent over the past five years. Technical occupations increased by 67 per cent in the same period. Fintech headquarters in Charlotte include LendingTree, AvidXchange, Paymentus and Finzly.
In addition to being a banking hub, Charlotte is home to the fintech operations of major financial firms. This includes the fintech division of Bank of America, which is headquartered in Charlotte, as well as Wells Fargo and Ally.
Emerging growth markets are seeing moderate to high growth rates for financial services and high to very high growth rates for technology occupations.
With its high concentration of IT talent – supported by the University of Denver’s Fintech Boot Camp – Denver is an attractive market for fintech startups and companies opening satellite offices. Fintech headquarters important there include Western Union, Techstars (Boulder), TIFIN (Boulder) and Maxwell Financial, a digital mortgage platform for lenders, which recently moved its headquarters to Denver from San Francisco. The region is also home to the fintech operations of Charles Schwab.
Dallas’ fintech headquarters include Bestow, Deposits, Apex Fintech Solutions and Gig Wage. The city is emerging as a fintech hub due to its growing tech talent base along with low taxes and affordable housing. Although it lacks the history of Atlanta, it is an emerging payment processing center.
Among the universities feeding talent into the region, UT Dallas offers a graduate certificate in fintech as well as a master’s degree in financial technology and analytics.
Salt Lake City has also seen high growth in both financial services and the IT industry. It boasts a pro-business regulatory environment, as well as incentives and programs that support the growth of startups, making it an attractive location for fintech. Salt Lake City’s fintech headquarters include Atomic, Divvy, AvidXchange and Lendio.
The core hubs, established second tiers and emerging markets discussed in this article have seen significant growth in fintech activity. As the sector continues to evolve, these cities – and perhaps new areas with similar fundamentals – are poised to harness fintech’s potential as a major economic catalyst in the future.
