European FinTechs: leading the way in banking innovation
FinTechs have been on fire in recent years, garnering huge amounts of capital infusion and posting spectacular growth. Europe is home to much of this expansion, notably in London, now the hub of banking innovation across the continent.
2015: the year of the FinTechs
2015 will go down as the year of the Financial Technology startup, or FinTech for short. FinTechs saw a meteoric rise in the span of just a few months, raising €13.6 billion in funds—twice the total of the previous year, according to a KPMG study.
The study also revealed another highlight. While FinTechs are located on every continent, Europe has emerged as the “land of banking innovation.” European startups accounted for no less than 73% of the 653 FinTechs sector fundraising campaigns for the year.
“In my opinion, Europe is at the heart of innovation in the banking sector,”said David M. Brear, former banker and CEO of Eleven FS Group, and an expert in banking innovation. In an interview with L'Atelier BNP Paribas, he explained: “Compared with the United States, Hong Kong, China, Philippines and Australia, we are remarkably more innovative. This is likely due to all of the scenarios we have seen inside the European Union. The most innovative banks on the planet are in Europe.”
The FinTech explosion was encouraged by the attitude of banks, some of which now view these startups as partners, and not merely as new players ready to offer competing services. This is notably the case at BNP Paribas, which has put together a complete startup ecosystem with its own teams, combining open innovation and cooperation.
One example: the L’Atelier BNP Paribas FinTech Accelerator, which provides four months of support to startups (FinTech or Insurtech), each sponsored by one of the Group’s business entities. These young and innovative companies benefit from expert advice (technical, sales, legal, business, etc.), and see how their technology and/or concept stacks up against the actual expectations and constraints of banking businesses. L’Atelier BNP Paribas also encourages FinTech startups. The Group’s technology intelligence entity has notably collaborated with France FinTech, an association of market players.
Strong growth accross the Old Continent
Europe’s dynamism is nothing new: already in 2015, an Accenture study underlined that “FinTech investment in Europe saw the fastest growth.”
In fact, according to this study, Europe saw growth of 215% across the FinTech market, reaching $1.48 billion in 2014.
Leading the way, the United Kingdom and Ireland alone accounted for 42% of European investments ($623 million invested in 2014, compared with $264 million in 2013). Leading the rest of Europe were the Scandinavian countries ($345 million), the Netherlands ($306 million) and Germany ($82 million). France, in 5th place, invested $21 million in FinTechs.
Development encouraged by Europe
Several factors explain the success of FinTechs in Europe:
- The openness of European banks, which have flocked to FinTechs
- The acceptance of new technologies by consumers—in France for example, according to a study published by TransferWise, 72% of consumers think they can turn to FinTechs for services currently provided by their banks
- The encouragement of the European Union
The EU encourages bank collaboration with FinTechs through many different measures, such as opening bank account access to new players. The Directive on Payment Services (DPS2), which comes into effect in 2017 within the European Union, created two new statuses: a status for bank account aggregators, and another for payment initiators.
These two statuses, requiring approval and supervision, add to the statuses for payment establishments created by the original directive in 2007. The directive states that banks must open bank account access to these new players, in order to protect fair competition.
In this way, the 2015 directive—even though it will not come into effect until 2017 or 2018—opens new prospects to FinTechs and stimulates innovation, all while making cooperation between banks and these new businesses a matter of necessity.
A new deal?
In 2015, British crowdfunding site Startupxplore published a blog post entitled “Why Europe and London are a force in the world of FinTech startups,” in which it underlined that “Europe has been at the forefront of financial innovation. According to Dow Jones Venture Source, Venture Capital investment in European FinTech companies reached its highest level in over a decade in the first three months of 2014.” The site underlined that “in Europe, London has become the home of Fintech.”
In 2016, European FinTechs confirmed their dynamism. However, the European FinTech landscape may be impacted by the United Kingdom’s decision to leave the European Union. In June, the International Business Times notably ran a headline asking, “Brexit: Will London lose its FinTech crown?” Following the referendum, British FinTechs will no longer enjoy easy access to talent developers across Europe, and they will also face more complications when rolling out their products across the continent. In addition, the uncertainty caused by Brexit may even scare off some investors.
To survive this challenge, British startups may opt to move to continental Europe or to partner with European startups—potentially in France: a shift that could only serve to benefit “French Tech,” whose know-how is already widely recognized.