Starting from 2025, Expected Revenues Will Exceed Investments in the Fintech Sector

Spending on fintech investments in the Italian financial system amounted to 600 million euros in the two-year period 2021-2022. The share, according to Bank of Italy estimates , will rise to 901 million in 2023-2024, and expenses of a further 380 million are expected starting from 2025.

The deadline is not known, but so far the figure stands at around 1,88 billion euros of expenditure for 430 projects (63% of which are totally new), with a trend from the two-year period 2017-2018 (the year in which the first survey was made) which sees in the current period of time a first contraction of investments compared to expected revenues, which stand at 340 million euros in the two-year period 2021-2022 and 709 million in the following one. “Starting from 2025, the projects should generate additional revenues of almost 1.1 billion.”

The commitment (also in terms of investment) of the sector can be seen from the fourth fact-finding survey conducted by Palazzo Koch in 2023 on fintech in the Italian financial system, which involved, in addition to the entire banking system of our country, also 67 non-banking intermediaries ( including, among others, SGRs and SIMs) selected based on volumes of activity and business model.

Expectations on consultancy and portfolio management

And it is precisely the field of consultancy and management of financial portfolios that gains interest in the dynamics of fintech when the effects of investments in the sector on individual business areas are analysed. In particular, if we look at the evolution of robot process automation (RPA) projects, the main effects are expected on operational risks.

On the one hand with a reduction in fraud and legal costs, which will also result in an improvement in the intermediary’s reputational profiles; on the other hand, however, an increase in risk linked to ICT outsourcing is expected given the growing use of cloud suppliers. “Third-party risk management therefore becomes a fundamental aspect in an ecosystem characterized by frequent collaborations with technological partners,” wrote Bankitalia.

Where fintech investments go

Among the business areas that have attracted the greatest economic resources, those of intermediation and payments attract 43.7 and 39.4% of total investments respectively. While in terms of number of projects the prevailing area is that of operations (a quarter of the projects). However, the impact of spending on fintech technologies in relation to operating costs remains limited, as does the impact of expected revenues on the intermediation margin which do not exceed 1 percent.

The most important fintech projects in the intermediation area had as their main objective the digitalization and automation of the credit process , from the loan request to its disbursement up to the possible management of problem and non-performing loans (digital lending). In payments, the most recurring innovations concerned instant payments and the integration of payment instruments within digital wallets. Projects related to operations, based mainly on AI and RPA, involved back office processes and interactions with customers (through chatbots).

Polarization underway

However, Bank of Italy notes that the process of digital transformation of the financial system, although expanding, is “quantitatively limited and polarized”. The reference goes to the percentage of 5 points in 21-22 (reduced from the total, therefore) of expenditure relating to the purchase of software, hardware, technological systems and for the operation of IT systems.

“This trend – the analysts write – could indicate both a lower propensity of intermediaries to undertake innovative projects in a context of general economic slowdown and a greater ability of intermediaries to select innovative projects towards which to allocate greater resources.”

Who invests the most in fintech companies? The banks

Banks constitute the main investor entities, with 95% of total spending (76.5 in the previous survey), followed by financial companies (2.4%), management companies (1.1%), IPs and EMIs (1.4%), finally SIMs, with a marginal share (0.2%).

Furthermore, the share of spending attributable to the top ten investors grew further, reaching 87.5 percent of the total and the weight of the top five intermediaries grew even more intensely: from 61.9 to 81.0%. There is also less variety among these entities, which do not include non-bank intermediaries, such as asset management companies, IMELs and financial companies pursuant to art.

Collaborations are increasing

The institute also notes an increase in collaborations with third parties (such as companies and technology providers) compared to the previous biennial survey. In the last two years, both the percentage of intermediaries who have entered into a collaborative relationship (from 46 to 51%) and the number of agreements (from 330 to 470) have increased.

A further option for implementing fintech projects is represented by the direct acquisition of shares in companies specialized in the provision of typical information technology services: the nominal value of the shares amounts to 1.11 billion, equal to five times that observed in 2021 .

The technologies

In detail of technologies, the majority of projects go in the direction of web-mobile platforms (20.5%). Artificial intelligence drives 16.5% of investments, followed by application programming interfaces (API) with 14.9 percent. A shift in interest (and investment), therefore, emerges towards web-mobile platforms and AI, but also towards digital signatures, DLT and big data. Projects dedicated to APIs are decreasing in number and value (even though they constitute the reference technologies on which just over half of the projects are based). Projects related to cloud computing, although becoming fewer, have grown in terms of spending.

The topic of open banking

The resources directed towards new open banking projects are decreasing , going from 156 million in the previous survey to the current 46 million. The new initiatives are attributable not only to payment services, but also to the use of digital identities, the development of digital wallets and technological business support solutions. Open finance projects are still limited.

The fight against money laundering

The share of intermediaries that employ or develop technologies to fulfill anti-money laundering (AML) obligations is rising from 62 to 80 percent. The most recurring solutions, Bankitalia points out, concern adequate remote verification, for which we observe a growing use of digital identities (SPID and CIE), and greater automation in the collection of customer data through technologies such as optical character recognition (OCR) and digital signatures.

A significant increase also affected cloud technologies, used for data storage, while the increases relating to the use of AI and the sharing of information in the context of adequate verification and monitoring of the operations of the company were more limited. customers.

__

(Featured image by Tumisu via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

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

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.