With a preexisting network of financial services firms, venture capitalists and entrepreneurs, industry boosters say Massachusetts could become one of the world’s top destinations for fintech startups.

With the pandemic shining a light on the struggles unbanked and underbanked individuals, households and business owners faced during the economic crisis, the financial services industry has an opportunity to look for ways to make the system more inclusive. 

“I think what spurs out of COVID is this whole new set of people coming in because they now see problems at a very different level than we experienced when the economy was good,” said Mike Fanning, head of MassMutual’s U.S. operations and co-chair of a fintech working group. “That’s just going to probably fill the top of the funnel with new ideas that we couldn’t have even imagined pre-COVID.” 

And Fanning and others want to make sure these ideas get developed in Massachusetts. Stakeholders in financial services, financial technology and government have been exploring how to develop the local fintech ecosystem and make Massachusetts the world’s top destination for fintech startups.  

Part of that ecosystem would include the state’s community banks and credit unions, giving them access to entrepreneurs working to address the financial system.  

“There’s some really great banks that are doing some really great things inside their institutions and partnering externally,” said Julieann Thurlow, president and CEO of Reading Cooperative Bank. “The more that we can create those partnerships, that ensures that financial institutions will be robust and be competitive.” 

Coalescing the Ecosystem 

Globally, fintech investments increased from $8 billion in 2010 to $110 billion in 2019, according to an October report conducted on behalf of the Mass Tech Collaborative by Ernst & Young LLP. The report also found that Massachusetts has more than 350 financial technology startups, and last year 9 percent of new U.S. fintech startups were located in the state.  

“That’s without even trying,” Fanning said of the findings.  

The state did begin recognizing the economic potential of fintech following a 2018 study by the Executive Office of Housing and Economic Development into ways to grow the state’s innovation economy. The study identified fintech as an area for further support and attention. 

A working group was founded in 2019, co-chaired by Fanning and EOHED Secretary Mike Kennealy, to develop a strategy for expanding fintech and, in turn, financial services in the state.  

Thurlow, Lamont Young of Citizens Bank, Vasilios Roussos of the DCU FinTech Innovation Center and Siobhan Dullea of MassChallenge are among the working group’s 24 members. 

Massachusetts already has a combination of assets that make it almost unique compared to other places with fintech startups, Fanning said, including financial services firms, venture capital, a network of entrepreneurs, universities, fintech incubators and state and regulatory agencies supportive of the innovation economy. 

What the state needs now is a way to coordinate these independent pieces, Fanning said, adding that Massachusetts has an advantage over other cities because of its potential to bring the different parts of the ecosystem together.  

“You see this on the consumer side in Silicon Valley, between venture capital and mentorship and others that are there to create that ecosystem where entrepreneurs can thrive,” Fanning said. “I think we have the opportunity to do the same thing – it’s about getting these pieces to talk.” 

Partners, Not Disruptors 

Sarah Biller, co-founder of FinTech Sandbox, a not-for-profit organization providing data to startup firms, said that much of the past decade of fintech innovation involved disrupting the industry. But what has been more effective, she said, are the partnerships between financial services and entrepreneurs. 

“Rising tides are going to lift all of our ships,” Biller said in a joint interview with Fanning, who recently joined FinTech Sandbox’s advisory board. “When the institutions come together with the entrepreneurs, and we’re able to retain the amazing talent we have in our universities – and the capital comes to bear at the table too – we’ll do great things.” 

Thurlow with Reading Cooperative Bank said fostering these partnerships provides win-win situations for fintechs and financial services providers, particularly as a way to keep more banking products and services in a regulated environment.  

Being part of fintech ecosystem will be especially important as the industry accepts that change will be needed in banking. 

Diane McLauglin

“Innovation is always evolving, and it actually comes about because of friction, so wherever you find friction there’s an opportunity to innovate,” Thurlow said. “For years everybody expected banking services to be delivered in one way, and the pandemic has just identified for us that that’s not the case.” 

Biller expects Massachusetts fintech firms to focus on solving societal problems brought to light by the pandemic. 

“The commonwealth has been known for its ability to create breakthrough ideas in biotech and in life sciences,” Biller said. “And now we’re really excited that financial services also has its moment to actually break out and be a place where great problems are solved.”