Traditional Spanish banking lives in turbulent times. The negotiations between Caixabank and Bankia To create the first bank by volume of national assets, they now monopolize all eyes, but the rest of the entities know that they also have to move tab by the continuous pressure from regulators and the problem of low profitability, aggravated by the coronavirus crisis. The third great wave of mergers looms over the sector and with it opens a window of opportunity for the so-called “fintech”, technology companies that offer financial products and services to operate one hundred percent in the online world.
These companies were already growing strongly in our country: in just four years they have increased fivefold, from 78 in 2015 to 385 that were counted in 2019. There are of all types: loans, means of payment, investments, personal finances, neobanks … but far from having peaked, the experts consulted believe that a promising future still awaits them and that the current context, marked by Covid-19 and the processes of bank consolidation, plays in their favor. “After the 2008 crisis, the American banking system reacted with major reforms, while in Europe we responded with state support and regulation, which makes innovation difficult. The more inefficiencies the financial system has, the more opportunities arise for “fintech” actors and the pandemic has accelerated this need for change, “he says. Luis Garvía, Professor of Finance at ICADE Business School.
With the fusion dance around the corner, the «fintech» have before them the perfect opportunity to attract new clients. “If now there are banks that are going to be more focused on internal issues, it may be an option for the fintech companies to take advantage of to acquire specific vertical solution segments or niches”, he points out. Miguel Angel Barrio, Deputy Director of the Digital Innovation and Fintech Program of the Institute of Stock Market Studies (IEB) and Head of Entelgy Digital. It qualifies, of course, that banks are also entering the “fintech” world, with which they themselves can implement solutions for uncovered areas. In June, without going any further, Caixabank relaunched its Imaginbank mobile banking application with the aim of raising profitability with young customers by 70%.
Francisco UríaKPMG Finance Partner at EMA (Europe, Middle East and Africa), highlights that the most likely effect of the presumed new wave of bank consolidation is’ that new opportunities may arise for the development of new businesses that become a competitive alternative to traditional banks». On the other hand, he points out that «for those” fintech “companies that have already entered into alliances with banks that can participate in integration processes, the situation will be equivalent to other areas in which instrumental vehicles have emerged for strategic collaboration between banks and other entities, regulated or not ”.
Furthermore, he anticipates that financial services will evolve even faster after the experience of confinement from traditional to digital channels: “The competitive scenario will become more complex and it is likely that in a context in which a slowdown in the rate of entry of investors into the sector, let’s see a consolidation process also in the fintech world that would probably be positive ».
Although fintech companies currently represent around 5% of the banking business, Alberto Gómez Toribio, director of the University Expert in Development of Blockchain Applications program at the International University of La Rioja (Unir), recalls its potential at a time like the present: “The existence of a quasi-monopoly in banking is the ideal breeding ground for specialized actors emerge. There comes a time when banks cannot grow more in income by increasing the number of customers because they have already reached a very high market share, so they choose to launch more complex products and the consumer perceives that “fintech”, specialized in a single segment, is a better service provider». What can banks do to avoid the transfer of customers to these digital native companies? The teacher gives as an example acquisition made by Telefónica de Tuenti to turn it into a virtual mobile operator aimed at young audiences: “Banks are going to have to adopt this strategy if they don’t want to continue being drained into clients by fintech companies, although it is a difficult decision to make because it cannibalizes their own business.”
The new banking scenario is a perfect occasion for the “fintech” to hit the table and claim their position, but also to strengthen their collaboration with traditional entities. “Many” fintech “companies are in record activity because in the current situation they are part of the solution for the financial sector”, he assures Rodrigo Garcia de la Cruz, President of the Spanish Association of Fintech and Insurtech (AEFI). Specifically, he explains that for the “fintech” “business to business” (they represent 56% of the total, according to data from Funcas), it is being a “very interesting” moment because the bank has had to develop more digital processes and is requiring your collaboration. Banking sources comment that for banks, these companies “can be an ally in the evolution of the digital transformation process that the banking customer is increasingly demanding”, while that collaboration “can bring them closer to the deep knowledge that the customer’s banks have and the relationship of trust on which the banking business is based ”.
By business segment, some categories of “fintech” have hardly suffered the blow of Covid-19, while others have been more affected. «The feeling is that in the field of payments the “fintech“has maintained a strong activityIn the same way that there has also been a strong influx of investors and relevant transactions, ”says Francisco Uría (KPMG). The other side of the coin is the area of credit, especially consumer credit, where the economic effects related to the crisis have led to less activity.
In terms of investment, KPMG’s latest global report on the fintech industry shows that there has been a slowdown linked to Covid-19 in investment volume (25.6 billion dollars from January to June compared to 150.4 billion in 2019) and in transactions linked to these entities. “We believe that this is a temporary phenomenon and that they will end up benefiting from the momentum that the financial business through digital channels will have in the coming years,” says Uría.
Regarding the state of investor appetite in Spain with respect to Europe, he indicates that “there is a general perception, and probably a real one, that the negative effects of the pandemic on the Spanish economy will be more intense and prolonged than in other places, which has effects on the profitability expectations of almost all businesses and also on credit operations ”. However, it states that there are areas such as electronic commerce or digital payments that «are experiencing strong growth and in which there is a greater investment appetite so, as in the whole of Europe, there is a differential investment appetite with respect to the different sectors in direct relation to the effects suffered and the expectations of a more or less rapid recovery such as consequence of the pandemic ”.
In 2019, investment in Spanish “fintech” was still incipient when compared to other European countries, since it represented 3% of the total, according to a study by Finnovating, a global platform for open innovation strategy, with data referring to 2019 Jaime Fernández, Finnovating’s head of innovation, trusts that this percentage will increase in the coming years: «One of the aspects that it can attract from the Spanish market is that the valuation of its startups is lower than that of similar companies in the United Kingdom, so that for the same investment they can get a greater participation. Ahead of Spain is France (6%), Sweden (7%), Germany (28%) and, as the outstanding leader, the United Kingdom (42%), which has had a regulatory sandbox since 2017, that is, a controlled environment for the promotion and testing of innovations for fintech companies.
But all is not lost for Spain. The Council of Ministers approved in February the Bill for the creation of a Sandbox to accompany the digital transformation of the financial system, now pending to be approved as law in the Courts. The proposal, promoted by the Executive of Mariano Rajoy and taken up by the current Minister of Economy and Business, Nadia Calviño, It could be the definitive catapult for Spain to become a benchmark in the European Union. “It would be an absolute trigger, that is, it would accelerate the growth process of this sector enormously and that would also attract investment”, reflects Miguel Ángel Barrio (IEB). The employer’s association estimates that this test space would generate 5,000 jobs in the next two years and would attract 1,000 million euros of investment.