Why the Midwest is becoming a booming hub for Fintechs

Austin MacNab is the CEO and founder of VizyPaya payment processing fintech with transparent, money-saving services for small businesses.

Increasing demand for innovations in payment processing, lending, personal finance and asset management are some of the factors driving the fintech segment’s growth.

Between 2022 and 2027, the fintech market is expected to see a compound annual growth rate of 20.5%, an increase of $277.2 billion. While fintech companies are popping up across the country, the Midwest is quickly becoming a fintech hub with some of the most innovative companies in the sector making this region their home base.

While the majority of venture capital dollars flowing into San Francisco, New York, Boston and Los Angeles (63% in the third quarter of 2022) serve to create a thriving ecosystem of technology, new venture capital becoming available in the Midwest is attracting fintechs to the region. That, combined with a growing number of fintech startups in the Midwest that are rising to success without venture capital backing, is helping the region earn the nickname “Silicon Prairie.”

Bootstrapped and venture-backed fintech companies are flocking to the region to take advantage of the favorable entrepreneurial climate.

According to a ranking of Forbes advisor, five of the top 10 states for starting a business this year are in the Midwest: Indiana, North Dakota, South Dakota, Illinois and Ohio. The article noted that this ranking “takes into account factors that affect businesses and their ability to succeed, such as the cost of doing business, business climate, economy, workforce and financial accessibility in each state.” Indiana took the top spot because of the state’s low taxes, reasonable cost of living and top-notch workforce, which create favorable conditions for businesses. The article noted that in addition to Indiana’s business climate, entrepreneurs benefit from a cost of living that is 15% lower than the national average.

Fintechs are also building their companies in the Midwest because of the robust pipeline of top tech talent. The lifeblood of any successful fintech, some of the best and brightest talent is readily available thanks to the many world-class universities based in the region.

The Midwest is home to top educational institutions including the University of Notre Dame, Purdue University, Iowa State University, University of Michigan, Ohio State University and many more that feed into the region’s talent pool. A report by the Chicago Council on Global Affairs noted that “all the communities anchored by one of the region’s many top research universities (such as Iowa City, Ann Arbor and State College) are thriving in an economic era where talent and innovation dominate.”

Many fast-growing fintech companies are steering clear of the East and West coasts in favor of a lower cost of living environment that allows them to stretch their cash flow. A recent cost of living index released by the Council for Community and Economic Research ranked five Midwestern metropolitan areas in the top 10 of the nation’s least expensive places to live. Decatur, Illinois; Kalamazoo, Michigan; Topeka, Kansas; Ashland, Ohio; and Salina, Kansas were some of the most affordable places to live based on factors such as housing, utilities, grocery costs, etc.

This lower cost of living is also helping to expand the talent pool for fintech companies by attracting young talent who are increasingly choosing to locate to less expensive cities.

Having lived in both California and Iowa, these factors made it easy for me to decide where to base my company. For myself and many other entrepreneurs, it is much more cost-effective to start a bootstrapped or low-investment company in the Midwest. The cost of living is nowhere near what it is on the west or east coast. Therefore, the costs of operations such as renting office space or hiring and retaining top talent are much lower, enabling cash-strapped startups to reinvest these important funds back into their company’s long-term growth strategies.

Fintech entrepreneurs are also drawn to the Midwest by the slower pace of life, which leads to a relatively less stressful business environment and contributes to the region’s overall viability. A recent WalletHub study comparing the 50 states across 41 stress indicators found that six of the 10 least stressed states were in the Midwest. The study compared states on factors such as average hours of sleep per night, health and affordable housing.

The Midwest has a population of over 68 million people and is home to a significant portion of Fortune 500 companies – two more reasons why the Midwest continues to attract fintech companies. This robust ecosystem of customers and companies drives an economic engine that can help Midwestern fintech startups grow.

All of these factors and more make the Midwest an epicenter for fintech companies and fintech innovation. As more fintechs and technology companies locate their operations in the Midwest, the region is evolving from Flyover Country to a thriving tech scene known as the Silicon Prairie.

To capitalize on this trend even more, Midwestern states should not only encourage private equity or venture capital-backed tech startups to put down roots in the region, but also pay special attention to bootstrap companies. This will show entrepreneurs across the United States that the Midwest can be a great place to take action on a dream and build an empire from the ground up. In addition, fintech companies based in the region can also do their part to grow the thriving tech ecosystem and economy by collaborating more with each other. Only by helping each other can fintechs level up together.

The Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Am I eligible?