FinTech consists in the use of New Information Technologies and Communication (NTIC) by start-ups in the financial sector to create innovative products for companies or private individuals. Competing with traditional banks, these products can cover monetary loans (peer-to-peer lending), mobile payments, crowdfunding or monetary transfers between countries or currencies such as the services proposed by TransferWise or Kantox and WorldRemit.
Numerous advantages compared to traditional banks
The FinTech sector has been in existence for 20 years yet, it is still in development. FinTech has numerous advantages thus showing immense potential.
- Saving Time: the direct relation between a customer and a company allows one to save time on the recording, granting and payment of credit compared to using traditional banks. The response time for the granting of credit is measured in hours, whilst using traditional banks it can take several days or weeks.
- A monetary gain: FinTech offers more advantageous rates compared to traditional banks. SlimPay offers companies (Engie, EDF, Deezer etc.) the opportunity for subscriptions: direct payment service between the parties thus avoiding the fees charged by banks. With the cost of intermediaries avoided, FinTech companies can offer more interesting price rates to their customers. This is the case for the company Number26 in Germany which charges almost no intermediating fees (set-up fees, management fees, etc.). Another example is Arboribus, which specializes in the financing of small and medium-sized enterprises in Spain thanks to an abolition of commissions and intermediaries used by traditional banks. Better still, the start-up Pumpkin specializes in the free exchange of small sums of currencies between private individuals.
- An offer closer to the market demand: FinTech allows financial entities to better meet the demands of their customers. Since the financial crisis, traditional banks are more reluctant to lend funds to small and medium-sized enterprises (SME), while the latter are very dependent on bank credit. However, the use of NTIC facilitates SMEs with access to sources of diversified funding adapted to their needs (for example, short, medium or long term financing).
However, the FinTech sector is not an alternative to banks, since both entities are not necessarily intended for the same customers or the same needs. Neither are traditional banks condemned to disappear, as they possess assets which banking start-ups do not necessarily have (more important funds, physical cover of territory, brand image, customer experience, etc.). Banks are being urged to innovate and collaborate with start-ups in the future, as seen with IBM working with the smart service Watson, which is intended for banks.
A late opening of the sector in Spain
In 2015, Europe faced a record growth in the FinTech sector. According to a study by Accenture, world investments in financial technology companies tripled in one year, passing from $4.05 billion in 2013 to $12.2 billion in 2014. There are few barriers which hinder the entry of foreign companies into the sector, which highlights the existence of remarkable investment opportunities. The recent acquisition of holdings by the French Lyra Network in the Spanish company Pure Machine shows the possibility. With world growth in the sector being 201%, it is the northern countries which take the lion’s share in Europe: the United Kingdom, Ireland, and Sweden represent more than 50% of the investments in Europe today. Nevertheless, according to a recent investigation by Captio, more than 46% of finance professionals use FinTech tools for their companies.
Thus there’s possibility for Spain to find a place in the FinTech market. More dynamic fields for innovations (today, Barcelona is the second most important place for a number of established French start-ups abroad) or another financial heritage in progress make the country a market for the future.
Moreover, Brexit has upset the European organization of the FinTech sector. Numerous start-ups previously installed in London are searching for a new European base, as the exit of the United Kingdom has made companies lose the right to use their banking license in other countries of the European Union. Madrid offers such companies an opportunity. JP Morgan’s recent report which made a comparison between assets in Madrid, Paris and Frankfurt, shows the spanish capital succeeding post-Brexit. Besides its climate and exceptional quality of life, the merchant bank highlights the large availability of housing and offices as well as the more attractive real estate prices in the Spanish capital: €27 per square meter against €40 in Frankfurt and €67 in Paris. Spain now has the opportunity to get in while the going is good!
Gael Jeanson & Clément-Henri Girardot
This article is not considered as legal advice