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New Jersey’s FinTech Industry Balancing Challenges and Opportunities

From Wall Street to Main Street, technology is having a major impact on how individuals and businesses conduct their financial affairs, including everything from simple banking transactions to complex investment portfolio management. In the past few years alone, billions of dollars have been invested in FinTech companies in the United States, Europe and Asia as the financial industry races to keep pace with new advances and innovations, plus a changing and unpredictable regulatory landscape.

Collaborations among brick-and-mortar financial services firms and their technology partners are blurring the lines between traditional personalized service and a digital approach. The growing acceptance of online and app-driven banking and robo advisors providing online financial and investment advice using mathematical algorithms are having a dramatic impact on the financial community and the people they serve.

New Jersey’s proximity to the world’s financial center in Manhattan, and increasingly across the Hudson River for back office operations along the state’s own Gold Coast in Hudson County, has drawn many FinTech businesses eager to be close to the action. Whether they are based in Jersey City, Princeton or Red Bank, they share optimism about the future and concerns about existing and emerging challenges.

They also have the support of Choose New Jersey. Founded in 2010, the privately funded organization includes a prominent group of leaders from many of the state’s Fortune 500 and other top companies, labor organizations, associations and higher education institutions. Its mission is to encourage and nurture economic growth throughout New Jersey, according to Michele Brown, president and CEO.

“Choose New Jersey markets the state as a premier business location to both domestic and international businesses in key industries, including FinTech,” Brown says. “In April, our chief economic development officer and senior vice president, development, traveled to London to participate in the Innovate FinTech Global Summit, and meet with FinTech decision makers who have expressed interest in expanding their operations to the US. We also are planning business meetings with FinTech executives in Toronto this year.”

Trends

“Big Data” continues to drive the development of technology solutions in the FinTech industry, notes Joe Stensland, chief commercial officer, digital wealth, for Jersey City-based Scivantage. “In our case, it is essentially the increased use of data analytics to better understand the customer and then, in turn, better service them,” Stensland adds. “We do this with intuitive tools that make it easy to capture new insights while also making it easier for consumers to understand how they are doing and how they can do better.”

Within the financial services industry, Scivantage products like Wealthsqope, which allows financial services firms to deliver a unified digital client experience to its customers, and Maxit, a highly-automated, cost-basis system, are solutions tailored to brokerages, custodian and mutual fund providers.

Angelo Mendola, chief operating officer of Priority Payments Local in Red Bank, a financial technology and payment transactions company, says a big trend has been contactless payment technology. With contactless terminals, customers can make payments with just a swipe or tap. “In New Jersey, in particular, people move fast,” he adds. “Anything that can help consumers save time is typically attractive.”

As examples, Mendola points to Priority Payment Local’s MX Product Suite, a single-source, custom-built payments ecosystem that not only processes payments, but also delivers intuitive tools to help with billing and collections, sales tracking, customer engagement and retention, along with e|tab, a restaurant and hospitality mobile order software, Apple Pay, MX Retail POS terminals and other payment processing tools.

Mansi Singhal, co-founder of QPlum, LLC in Jersey City, believes the financial services industry is on the cusp of a major transition. “Many financial companies are transforming their businesses to turn to a systematic approach in their most revenue intensive areas,” Singhal says. “It is not just about being able to access all the information via your smartphone or laptop. We are moving towards the next step, where decision making is becoming more data-driven and systematic.”

Qplum is a digital wealth management firm and a robo-advisor, managing money for retail and institutional accounts using an artificial intelligence (AI) and a machine learning driven approach. Just as Google searches every page on the web to find the information you are looking for, QPlum searches every sort of data to find sources of returns for its investors.

Princeton-based Edison Partners has been investing in the FinTech industry for 30 years, with more than 40 of its 200 growth-equity investments in financial technology, explains General Partner Michael Kopelman. He notes three primary industry trends.

“The first is what we refer to as ‘Regulatory Tailwinds,’” Kopelman says. “Promulgation of Dodd Frank, Basel III, MiFID 2, etc., has forced financial institutions to adopt new technologies to remain compliant. A second theme we’ve actively followed centers around the troves of transaction data, which we call ‘data exhaust,’ that can be harnessed to deliver innovative approaches to trading, underwriting risk and managing portfolios,” he adds. “The third has persisted over the years for us and revolves around democratizing financial services, leveling the playing field on how financial products are consumed or how financial transactions are consummated.”

Challenges

Keeping ahead of the changing expectations of the end client, monitoring and understanding disruptive technologies that can enter the market quickly and change the dynamics of the industry – and the ever changing and somewhat uncertainty of regulatory policies – are the biggest challenges facing the FinTech industry, according to Scivantage’s Joe Stensland.

“The fast-paced changes of technology in general are changing the way consumers access and absorb information. Think of Amazon Prime and how it has turned retail sales on its head with its almost instant delivery policy,” Stensland continues. “This one online retail giant has completely changed the dynamics of the retail buying experience and our expectations of how delivery should happen.”

Stensland says this has created ‘an arms race’ among financial firms as consumers come to expect this type of service in all aspects of their lives, including how they receive and absorb their financial data. “Financial firms are just starting to adapt to consumers’ expectations by rethinking how they deliver not just the everyday positions, balances, order history information online and via mobile devices, but also going a step further to provide more information, transparency and insight to retain current clients and acquire new ones,” he says.

“Amid the effort to overhaul the digital experience, financial firms are confronted with a challenging regulatory environment,” he adds. “For example, last year most financial services firms dedicated time and budget preparing to comply with a raft of new regulations, especially the Department of Labor’s Fiduciary Rule, which required many firms to dramatically alter their business model or operations. Now, those same regulations are under question and could be delayed, once again requiring firms to adapt and adjust how they operate.”

Mendola of Priority Payments Local, believes maximizing efficiency and growing revenue are the biggest challenges facing his clients in businesses as diverse as auto dealerships, restaurants, medical and doctor’s offices and eCommerce. New technologies can help them achieve both. “In business, every dollar counts. Many merchants get a ton of phone calls from payment processing companies on a weekly basis and they don’t always want to hear what we have to say because they think we are all the same. As a result, we are constantly educating merchants on how Priority works, emphasizing our transparency with no hidden fees and the benefits of our reliable, secure and award-winning payment technology,” he concludes.

Mansi Singhal of QPlum agrees that transparency was an issue for asset and wealth management as well. “The biggest challenge our clients face is lack of transparency from the industry. They have been left in the dark for so long that they feel the need to do everything on their own,” she states. “Investors often don’t realize the difference between investing and trading. They might spend all their time trying to find out the best mutual fund or the best ETF or the best stock. That is an impossible task and causes investors to underperform the market. The lack of scientific rigor and transparency has prevented investment management from becoming a utility that is accessible to everyone.”

The biggest challenge in the FinTech industry probably stems from the cyclicality of the financial services industry, in Edison Partners’ Michael Kopelman’s opinion. “A downdraft in market will undoubtedly change buyer behavior. We also have to worry about the regulatory uncertainty surrounding the new administration. With the new regime, a cloud of uncertainty has been cast over many sub-segments of the industry, as questions persist around everything from future capital requirements for institutions to the DOL Fiduciary Rule for advisors to the Consumer Financial Protection Bureau’s ultimate influence.”

Why New Jersey?

Joe Stensland says Scivantage has been in Jersey City since its inception in 2000, and has found the access to the region’s financial firms and the educated workforce talent to be a big plus in doing business. “New Jersey is quickly becoming a large player along the ‘Acela Corridor’ for FinTech. From Connecticut to Washington, DC, you have access to all the major financial services firms,” he adds. “Obviously, Wall Street represents the financial capital of the world. But outside of New York (CT, NJ, PA) many of the firms are building out their back office and operational centers and we are seeing the major Disaster Recovery companies open locations throughout the region. The access to these firms is bringing a surprising number of tech startups and FinTech companies to the NY/NJ area.”

Mansi Singhal says Jersey City, QPlum’s home, is a city of freedom, diversity and young, hard-working families, and has the largest density of technology-minded people in the Greater New York region. “That’s why Jersey City is the best place for the FinTech revolution,” she states. “We have started a Data Science–FinTech meetup in Jersey City that has become one of the most active FinTech/DataScience groups in the area.”

In addition to its prime location, there are other factors that favor the growth of the FinTech industry on the New Jersey side of the Hudson. “New office space in New Jersey is being designed with flexible, modern footprints and other amenities that appeal to an innovative millennial workforce. What’s more, Class A office space on New Jersey’s Hudson River waterfront is roughly half the cost of space in Manhattan – averaging $42.00 per square foot compared to $78.00 per square foot – making it an attractive option for many companies,” notes Choose New Jersey’s Michele Brown. “A number of technology incubators and co-working spaces are providing a supportive environment for emerging fintech companies.

“FinTech companies also can tap into a steady stream of talent thanks to the finance and technology-focused programs at New Jersey’s world-class universities, including Stevens Institute of Technology, New Jersey Institute of Technology (NJIT), Princeton University and Rutgers, the State University of New Jersey.”

Success in New Jersey seems to breed continued success, Michael Kopelman concludes. “Many of the entrepreneurs and executives we’ve backed in the FinTech sector have repeated the cycle again and again, creating an ecosystem of talent in the region. New Jersey has done a nice job providing incentives to emerging growth businesses to operate in the state. We love the ability to tap into a dynamic talent pool and scale a business more capital efficiently than other regions of the country.”

 

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