Fintech has emerged over the lastfew years as the most striking growth opportunity in the globalfinancial services industry. A KPMG report released in March foundinvestment in the sector more than doubled to $13.8 billion in2015, meaning it has multiplied almost seven-fold over the pastfive years. Today the U.S. dominates the list of the world's mostcompetitive financial centers, boasting five of the 11 top-rankedcities, according to a recent report by Z/Yen. To maintain thisstrength, it is imperative that U.S. financial institutionsactively lead the charge in fintech innovation – or else risklosing ground not only to their European peers, but buddingfinancial centers from the emerging world.

It's clear, however, that this will not be straightforward. Thestakes are high and global competition is fierce. Last year, theU.S. was once again the world's biggest investor in fintech: Asurge in mega-rounds (deals worth more than $50 million) propelledits funding to $7.4 billion, up 72% over 2014. The mosteye-catching mover, though, was China – a relatively minor playeron the scene just 12 months before – whose investment more thanquadrupled to $2.7 billion, a fifth of the global market.

While Europe was more subdued on the whole, the U.K. was anotable exception. With London being the top rated city in thelatest Global Financial Centres Index – edging New York City intosecond place – it appears U.K. regulators are laying thefoundations for the U.K. to fully capitalize on the next stage ofthe fintech revolution. By contrast, largely due to inconsistentregulation between states and uncertainty over legal jurisdictions,the U.S. could risk missing out.

Indeed, a recent survey of financial technology founders andinvestors conducted by Silicon Valley Bank found regulation wasperceived as the biggest impediment to fintech's growth in the U.S.It is not clear which of the myriad of overlapping regulatoryagencies – both national and state – govern them, nor which rulesand policies (many of which were in place before the internet era)they are subject to. This complexity drives up compliance costs, amajor burden for young firms that might only have a handful ofemployees.

By contrast, Europe – and especially the U.K. – has activelymaintained light-touch regulatory regimes. A recent report by EYcomparing seven leading financial centers ranked the U.K. as havingthe strongest fintech ecosystem because of its “world-leadingfintech policy environment”: Supportive regulatory initiatives, taxincentives and government programs designed to promote competitionand innovation. British regulators have allocated £42million over five years toward research into developing theindustry. In April, the U.K. Treasury laid out a strategy toestablish a fintech panel to monitor public initiatives, aprofessional services information hub for start-ups, and bridgeswith priority global markets to help fintech players expandinternationally.

One example of the differences across the Atlantic is howblockchain has entered the mainstream of public policy in the U.K.,which is still a peripheral subject among U.S. policymakers. One ofthe only states to have so far issued a position paper on theemerging technology is Vermont, which does not even have afinancial services industry. Vermont perceptively noted thatproviding legal recognition of blockchain technology may create afirst-mover advantage with the potential to draw in economicactivity. On the other hand, if the U.S. fails to move quickly, itsinstitutions could lose a valuable competitive edge.

Falling behind in the fintech race hurts more than just emergingstart-ups; it is a risk to the entire financial sector. Fintech ishere to stay; established financial institutions must invariablyadjust their traditional business models to remain relevant.Increasingly, both they and their younger competitors arerecognizing the benefits of cooperation and forming partnerships toget the best of both of their worlds – nimble, innovativetechnologies combined with financial institutions’ brandrecognition, personalized service and wealth of resources.

The good news for the U.S. is that in areas other than publicpolicy, its fintech sector has an excellent platform to build upon.Both California and New York were ranked very highly by EY in termsof their talent availability and pipeline. Together, the two hubsemploy around 130,000 people in the sector – compared to around100,000 in the U.K., Germany, Australia, Hong Kong and Singaporecombined. The U.S. centers also perform very well when it comes tocapital: Seed, growth and listed. For example, growth investment infintech is more than six times that in the U.K., buoyed by aculture that emphasises re-investment. The U.S. has the world'sstrongest established network of angel investors and is dominatingthe global IPO market.

Efforts are beginning to be stepped up, too, to strengthen theregulatory environment. In March, leading U.S. fintech companiesteamed up with Innovative Finance, the trade association for theU.K.'s global fintech community, to set up a new TransatlanticPolicy Working Group.

The key is to foster a regulatory environment that is bothconsistent and clear to all market participants. There arechallenges, such as how to reconcile the national nature of thefintech market with different, state by state regulations. Whetherthat means the creation of a federal framework or some kind ofsystem in which companies can export regulations from their homestate on a national level, it also has to be simple, given fintechplayers typically lack the resources to meet overly onerouscompliance costs.

The prize is a market that is expected to grow at an annual rateof more than 50% over the next five years. But that is also why,amid voracious competition from Europe's financial powerhouses andAsia's burgeoning centers, there is no room for complacency.

Michael Carter is CEO of BizEquity. He can be reachedat 0044 (0) 203-195-3240 or [email protected].