Luxembourg has lengthy been a serious monetary centre in Europe, with almost 130 authorised banks. It can also be the second largest market on the planet – behind the US – for funding funds, with greater than €5.6bn in internet property being managed within the nation.
It isn’t shocking that an growing variety of fintech firms are selecting Luxembourg for his or her European headquarters. The small European nation is exclusive due to the language expertise not solely among the many folks working for the totally different firms, but in addition among the many regulators.
The three official languages are French, German and Luxembourgish. But functions and contracts might be written in English – and nonetheless be absolutely recognised by the courts.
Switzerland affords comparable language benefits, and the flexibility to make use of English. But one factor that Switzerland doesn’t have in comparison with Luxembourg is entry to the European market. When an organization will get a banking license in Luxembourg, the license might be “passported” to all different EU nations.
As a part of an general technique to seize a bigger a part of the worldwide market share for fintech, the federal government of Luxembourg has helped arrange The Luxembourg House of Financial Technology (LHoFT), a not-for-profit collaboration between authorities and the non-public sector.
The LHoFT goals to drive digitalisation in monetary providers and guarantee the way forward for the monetary providers {industry} within the nation. Not solely does the collaboration assist to incubate greater than 80 startups in a facility within the centre of Luxembourg, however it additionally helps “the new kids on the block” acquire entry to high executives in established corporations and to authorities officers.
One firm that joined the LHoFT and benefited from Luxembourg as a gateway into Europe is Tryolabs – an enterprise that was created in Uruguay by a bunch of synthetic intelligence (AI) consultants 12 years in the past, when there have been only a few sensible functions of AI. As the market grew, the corporate constructed a enterprise growing customized options based mostly on pure language processing (NLP), pc imaginative and prescient and predictive fashions. The startup helped clients remedy issues with provide chain administration, manufacturing, retail and e-commerce.
More just lately, Tryolabs found the rising demand for AI within the finance {industry} – principally round automating inside processes to scale to greater volumes of knowledge. It utilized AI to processing very excessive volumes of information and selecting out probably the most related info.
Two large areas the place these sorts of options are in rising demand are anti-money laundering (AML) and know-your-customer (KYC).Another space the place info is necessary in asset administration, using a method generally known as Alternative Alpha, the place different knowledge sources are used to raised perceive markets to supply extra helpful insights to determination makers.
Tryolabs just lately started constructing options that use NLP to course of information sources and sum up the items of knowledge most necessary to the consumer. Rather than examine all of the totally different information shops all through the day, brokers can now learn a abstract to get the appropriate info in 10 minutes.
“We had been working for almost nine years, mostly in the US, with US companies,” says Ernesto Rodriguez, co-founder and COO of Tryolabs. “About 4 years in the past, we started seeing extra alternative in Europe and began working with European firms. We noticed an excellent market alternative, however knew we would wish a extra formal presence within the EU.
“We chose Luxembourg as our gateway to the European market. Through the LHoFT, we developed a great network of fintech companies, banks and insurance companies, and ended up working with some of them.”
The three pillars of the LHoFT
Three pillars drive the actions of the LHoFT. The first is cooperation and ecosystem improvement – connecting folks, ensuring the totally different stakeholders are in contact with each other and aligned. The LHoFT gives a method for folks from the monetary {industry} to identify new applied sciences, new firms and new options. Likewise, it helps folks from expertise firms perceive the normal monetary {industry}, the most recent challenges, and the sorts of options being sought.
The second pillar is information. The LHoFT runs a collection of academic programmes – a mixture of webinars, reside seminars and entrepreneurial workshops. It runs boot camps, particularly on monetary inclusion and on early-stage fintech improvement.
The third pillar is analysis and tasks. The LHoFT conducts analysis and publishes the important thing findings, generally in collaboration with different organisations in Luxembourg or overseas. LHoFT additionally instigates and helps develop quite a lot of industry-wide tasks associated to monetary expertise.
For instance, the LHoFT works with {industry} gamers in Luxembourg to develop a centralised know-your-customer (KYC) facility. They additionally plan to develop a centralised, standardised due diligence platform to hurry up the method of procurement for all {industry} gamers.
“The LHoFT board exemplifies the cooperation we seek to encourage,” says Nasir Zubairi, CEO of The LHoFT. “The chairman of our board, Pierre Gramegna, is Luxembourg’s minister of finance. Other ministries are represented on the board – together with the ministry of economic system, and the ministry of state.
“They sit alongside the CEOs of 13 non-public sector establishments, broadly consultant of the normal finance sector in Luxembourg, together with banks, insurance coverage firms, the massive 4 advisory corporations, and tech corporations.
“Our philosophy is that the future is all about collaboration between the traditional finance sector and the fintech sector and getting companies to work together.”
The LHoFT performs a further function exterior of Luxembourg. It acts on behalf of Luxembourg internationally, representing the nation on key steering committees and councils round the world – together with the IMF steering committee for finance and expertise, and the blockchain knowledgeable coverage advisory board of the OECD.
The benefits of doing enterprise in Luxembourg
“One of the key ingredients that makes Luxembourg such a good place to start a company in fintech is the proximity with decision makers,” says Jonathan Prince, serial entrepreneur. “The LHoFT acts a catalyst to help make those connections.”
In 2010, Prince joined Mpulse, which in partnership with cell phone operators is now the primary participant in Luxembourg round micro-payments, with roughly 95% market share, in line with Prince. In 2012, he co-founded Digicash, a cellular fee resolution, in partnership with retail banks.
“Digicash has very high traction in Luxembourg,” says Prince. “This is one of the very few countries in Europe where mobile payment is used by most of the population. More than 40% of the entire population of Luxembourg is actively using our app – for remote payments such as invoices payments, in-shop payments and for money transfers between users.”
This is one of many only a few nations in Europe the place cellular fee is utilized by a lot of the inhabitants Jonathan Prince, entrepreneur
While Digicash and some different B2C options have met with success in Luxembourg, the scale of the inhabitants doesn’t provide an enormous alternative for something shopper based mostly. In some instances, the nation can function a proving floor, a springboard into bigger markets – comparable to France, Germany and Italy. But there may be way more alternative in B2B options, concentrating on the comparatively dense inhabitants of companies within the nation.
In 2017, Prince helped launch a B2B firm, Finologee, which affords regtech software program. “We are a platform operator,” he says. “We are ourselves regulated, and we’ve got a PFS [Professionals of the Financial Sector] license, which may be very particular to Luxembourg. A PFS license offers framework that makes it simpler for banks and insurance coverage firms to outsource to us. We function as an IT supplier to them.
“We serve different verticals, using different product lines around payments and KYC, and regulatory reporting. More than 50 financial institutions rely on us for some of their processes, including 35 banks that we help with conformance to PSD2 regulation. For KYC, insurance companies and banks use our products and platforms to onboard new customers or to update information on existing customers.”
From early adopter to internet exporter of FinTech
“As a country, our initial focus has been on attracting technology providers and being a customer of fintech,” says Zubairi at LHoFT. “The simple rational is that Luxembourg doesn’t have a lot of people to start companies. We have a small population of 600,000 people. We also have 200,000 people commuting in every day from France, Germany and Belgium. Even with this daily influx of people from outside the country, there just aren’t a lot of human resources.”
Nevertheless, the nation’s technique has paid off in some areas. The first section in Luxembourg’s strategy to fintech was to search for good expertise suppliers from overseas to point out them there’s a enterprise alternative and to point out them that Luxembourg is a good place to do enterprise. The inflow of recent expertise has impressed individuals who had been already in Luxembourg to hitch the fintech revolution and arrange their very own companies.
“The two big developing areas in Luxembourg are blockchain and regtech, because [the latter] aligns perfectly with the industry here,” says Zubairi. “We are Europe’s back office in many ways, and we collaborate closely with our EU friends. Because we handle of lot of regulation ourselves, it’s a natural place for people to develop software and services. Luxembourg now has around 35% of the EUs regtech economy.”
Prince add:S “RegTech also includes a lot of reporting. Financial institutions get a lot of pressure from regulators to have more control over their clients, and to report more to the regulator. Almost every month there’s a new regulation, with new obligations. So regtech is a hot area of fintech.”
Two particularly scorching areas in regtech are KYC and AML. For KYC, software program helps firms gather and analyse info on clients, permitting monetary establishments to raised determine dangers concerned in sustaining a enterprise relation. For the broader space of AML, monetary establishments are required to observe buyer transactions and report on suspicious exercise. Software helps them gather info and analyse conduct.
The human issue
“Access to decision makers is a key differentiator for Luxembourg,” says Zubairi. “You bump into the CEOs of the financial institutions – or even the prime minister – grocery shopping on the weekend. They’re all down to earth. Everybody is easily accessible. Everybody is easy to talk to. Things get done quickly because Luxembourg has the agility of a startup relative to other countries.”
Tryolabs’ CEO Ernesto Rodriguez says: “Luxembourg is an open and dynamic place to create a subsidiary and community with key determination makers. We had been capable of actually rapidly arrange store there and had been capable of work with purchasers in Europe from a spot the place, not solely the placement that was tremendous handy, but in addition the benefits of the community that being there created. The LHoFT opened the door for us to different firms in fintech, and in different industries.
“We intend to stay in Luxembourg,” he provides. “We’re looking for more opportunities in finance. We’re working with a big insurance company from Germany and another one in France. The idea is to continue using our Luxembourg network to connect with other companies in Luxembourg and the rest of the EU to expand our market.”
Prince says: “Maybe one of the biggest advantages of Luxembourg is the quality of life that we can offer. That is a strong argument when you want to hire people. The quality of living here is great. You can come from a variety of backgrounds and fit in very easily. I moved here 10 years ago and can’t imagine leaving. To start a company and to run it an ongoing basis, Luxembourg is a great location.”
