Attracting Foreign Investment, an Administrative Odyssey for Fintech Companies in Spain

In recent years, the fintech sector has experienced exponential growth.

Its contribution to the transformation and innovation of the sector worldwide is undeniable. In Spain, too, an emerging and constantly evolving fintech ecosystem has been consolidating. And as is usual in companies with a strong technological component, its growth depends to a large extent on the investment it manages to attract.

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Globally, it is clear that the context in Spain is not the most favorable for fintech companies

Due to the economic uncertainty and the geopolitical situation in Europe, this sector is facing increasing difficulties in financing its growth. According to Statista data, the investment volume in 2022 globally fell back by 31% compared to 2021, to $164 billion. The large firms in this segment have also experienced significant drops in their market valuation, such as Klarna, Stripe, or Checkout, for example.

In the specific case of Spain, the economic, political, and legal uncertainty is an additional brake for many institutional investors, who are reluctant to invest in financial technology companies in our territory. Due to the innovative and disruptive nature of its products and services, the fintech sector is perceived as a high-risk sector by many institutional investors.

These are allocating their resources to more consolidated sectors such as renewable energies and real estate, which are more conservative and consolidated companies. In Spain, fintech companies are thus at a disadvantage when it comes to obtaining external financing. In addition to the lack of success stories, there is regulatory uncertainty, which further contributes to the reluctance of investors.

It is a fact that the regulatory framework in Spain is not at all favorable for fintech companies when it comes to closing a financing agreement with a foreign investor

That is because national regulations, depending on their wording and the nature of the operation, may require prior authorization. Obtaining such authorization is generally a long and complex process, involving multiple bureaucratic procedures and legal requirements, and it is necessary to receive a favorable report from the Foreign Investment Board and the green light from the Council of Ministers.

In addition, the changing regulations in our country and the lack of harmonization with other European Union (EU) states pose an additional obstacle to the entry of foreign investors into the Spanish market. In this sense, the establishment of a common legislative framework at the EU level is necessary to ensure that financial innovation continues to support digital innovation in the European Union.

It is clear that innovation is having a very significant impact on the functioning of capital markets. For this reason, the regulatory direction taken by the EU will be key to strengthening its digital leadership and creating an attractive single market, in which innovative financial services are correctly identified and the regulation establishes a competitive framework that both regulates and facilitates their development within the EU.

A well-defined regulatory context will provide investors with greater legal guarantees and will probably contribute to incentivizing investment in the fintech sector. It is therefore imperative that Spanish and European authorities and fintech companies work together to improve the regulatory environment, promote economic stability and generate confidence among foreign investors, thus allowing this sector in Spain to reach its full potential and thrive on the global stage.

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(Featured image by Tumisu via Pixabay)

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First published in Expansion, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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