The fintech revolution: overview and outlook
The trend has clearly been accelerating for several years: fintech companies and neobanks are competing ever more strongly with traditional players in the banking and financial sector, forcing them to completely redesign their models. On 8 June, at an event on banks and insurance companies as a platform organised by the Open Group company IZBERG and CGI, Alain Clot, Chairman and founder of France Fintech, discussed this impressive rise and its consequences.
The trend has clearly been accelerating for several years: fintech companies and neobanks are competing ever more strongly with traditional players in the banking and financial sector, forcing them to completely redesign their models. On 8 June, at an event on banks and insurance companies as a platform organised by the Open Group company IZBERG and CGI, Alain Clot, Chairman and founder of France Fintech, discussed this impressive rise and its consequences.
In the field of remote finance, the French have been forerunners for a long time. Many people have forgotten about it, but thanks to the Minitel, France was more than a decade ahead of the United States in particular, when a significant share of the population were used to consulting their account and carrying out online transactions using it. As a result, many innovative European players such as Boursorama, chose France to join the sector. Unfortunately, the trend quickly lost momentum. A phenomenon that Alain Clot explains as due to three deficiencies: “a sufficient amount of venture capital, a regulator in favour of innovation (a feature of Latin law which deems that only what is written is allowed) and consumers who are sufficiently available, willing to escape from the closed model created by banks and insurance companies”. But the Chairman of France Fintech is delighted about the reversal that has taken place in recent years. France is now a market leader for venture capital, and the regulators are used to collaborating with the new financial players. The change is also cultural, in particular among the youngest people: for example, one third of French people aged under 35 have a Lydia account.
As a result, in 2022 the French ecosystem comprises nearly 900 fintech companies, i.e. the second highest number in Europe after the UK market. There is a clear trend, as several indicators show.[1] After €2.3 billion of funds raised in 2021, the figure already reached €1.7 billion in the middle of 2022… i.e. more than 2.4 times the German level. With 11 unicorns, the fintech sector is the driving force of French tech. What’s more: 35,000 jobs, including 10,000 created last year.
New uses, platformisation and internationalisation
This trend is driven by several major changes. “The last ten years have seen a revolution in common practice and user experience,” says Alain Clot. Innovation came from a new definition of service, in particular for young people, rather than from disruptive technology. “To put it simply, we can say that after a long period during which technology tried to catch up with practice, practice is now trying to catch up with technology. It is the result of the terrific progress achieved in data processing, storage, algorithmic analysis, artificial Intelligence, the blockchain and cryptocurrency technologies”.
A second decisive change, driven by ever-increasing technologies and resources, concerns platformisation. Its principle? Start from a set of services to which are linked various components to move either towards a super-app, or towards a neobank or neo-insurance company.
Finally, Alain Clot identifies a third major trend driven by fintech companies: internationalisation. Until recently, consumer finance was multi-local rather than genuinely international. The regulations, common practice and the culture enabled large establishments to have subsidiaries in a certain number of European countries, but without a joint structure for real estate loans or consumer loans in Europe. “One of the characteristics of digital technology is to create models, common practice and journeys that are almost universal,” emphasises the Chairman of France Fintech. “A payment application works the same way whether you are in France or Singapore. And while digital technology does away with borders, regulations have been internationalised”. For instance, while almost 90% of the financial regulations applied in France come from the European Union, obtaining regulatory approval in a European country gives access to the biggest market in the world, ahead even of the United States and China.
Traditional players disrupted
These basic trends are of course disrupting the traditional models. Banking and insurance players are under pressure. Several issues are becoming high-priority, the first of which is the acquisition cost of a new customer (between €200 and €300 for traditional finance, and €0.20 to €15 for startups), as well as the operating cost of organisations with very unwieldy systems, and the cultural dimension: managing to speak to young customers. “Millennials have exceeded baby boomers both statistically and culturally, and are now the prescribers,” emphasises Alain Clot. “For the first time in history, children are teaching more to their parents than the other way around. In a similar trend, industrial players are obliged to turn towards smaller organisations. A large proportion of current financial business involves a fintech company, without us always knowing it”. Digital technology has re-weighted the analysis factors, with an approach based on about ten key concepts: customer acquisition funnel, deployment models, value models, barrier to entry, scalability etc.
Another reality to be taken into account: in an increasingly technological, agile and decompartmentalised world, predictions quickly become problematic. “The past tells us less and less what the future holds,” summarises Alain Clot. “For instance, in the banking sector, no ten-year model can provide certainty. For example, many professionals alternate between periods of employment, unemployment, micro-entrepreneurship or holding several statuses concurrently… This fragmented reality is very difficult to include in an algorithm”. But new tools are expected to appear, like the risk algorithms made possible by the PSD2. A key issue, even if the expert thinks that risks will structure the industry in the years to come, especially as fintech companies are entering the credit market.
Under these conditions, what is the future for traditional establishments? The sector will certainly not grow weaker, even if certain establishments may move in that direction. “Banks are still high value added businesses, highly-skilled, trusted and profitable third parties…” But the strategic and tactical choices are increasingly differentiated between the establishments… making the next stage even more exciting. “In the end, probably only time will tell what will happen. Things are speeding up, even though the regulations are in advance, which is exceptional. So there is only one solution: move quickly, together”.
