The Italian FinTech sector is rapidly evolving

The Italian FinTech is lagging behind but is moving consistently with global trends with a high level of dynamism, showing a positive and promising scenario and gradually closing the gap with the global developments.

Compared to the evolutionary phases that characterize the sector: 1-Disruption, 2-Discussion, 3-Partnership and Collaboration, the Disruption (competition) phase has been largely overcome, the discussion phase has started (thanks also, but not only, to Psd2) and is laying the foundations for the partnership phase that could be accelerated in the face of the ongoing Covid-19 emergency.

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The number of Italian Fintech companies and their turnover is increasing

278 FinTech companies were surveyed, 49 more than last year, 18 of which are new companies that were founded during the last year. There has also been an increase in business segments, for example with the entry of the Real Estate segment (both dedicated platforms in the Lending and Equity Crowdfunding areas), cryptocurrency investment solutions and specialized trading for NPLs.

The total turnover of the sector reached $403 million (€373 million) in 2018, with a growth of 40% compared to the previous year. Actually, 64% of the companies surveyed, as some purely Italian companies, but with registered offices abroad, non-profit and newly established companies are excluded.

The number of companies with $1.08 million (€1 million) or more in turnover, increased from 28 last year to 37 at present.

Among the less positive indicators, in the first place are the low investments in the Italian FinTech sector that have contributed to a weak positioning of the country at the international level.

In 2019, investments decreased to $166 million (€154 million) from $212 million (€197 million) in 2018 (not counting $108 million (€100 million) to Prima). Similarly to the international market, in Italy 2019 also saw a polarization of funds on a few larger deals (75% of funds on the first 5 deals).

An adequate level of profitability is still lacking. A second potentially critical indicator is the level of profitability of companies. The aggregate EBITDA of the sector is 2%, stable compared to 2018. In general, it is linked to the young age of companies in the sector (60% are under 5 years old), and to business segments.

The impact of the Covid-19 emergency

The negative impacts could concern Venture Capital investments, which will probably lead to an accentuation of the trend of less attention to new start-ups (seed), with a greater number of closures of players in the development phase. Also negative is the volume of transactions that could lead to a decrease in profits (and, once again, investments) in the sector.

There are, however, areas of potential optimism. Italy, which is suffering a significant delay in the path of digitalization, financial and otherwise, is the forced experimentation of a new way of collaborating at a distance through digital solutions. This is not only happening for smart working or distance learning, but also for the relationships between banks, insurance companies, and customers.

For many realities (including banks and insurance companies), critical issues are emerging regarding the resilience of infrastructures, the quality, and quantity of smart working tools, the efficiency of online services and security. It is quite natural to think that this situation will lead to a significant increase in the use and appreciation of digital financial services by all customers, not to mention the probable exponential growth in the demand for credit, especially SMEs, that is increasingly finding an answer in the world of FinTech, to the detriment of the traditional offer.

Roberto Lorini, FinTech Leader, PwC Italia explained: “Never before has the contribution of FinTech companies in terms of accelerating digital innovation to traditional financial companies become a strategic element for an innovation aimed at responding to the new needs of customers (private and corporate).”

There will be a consolidation of the sector in some areas, such as the area of lending, customer experience, onboarding, and KYC solutions, cybersecurity, Artificial Intelligence, and Advanced Analytics solutions, conversational interfaces, Blockchain. Service integration platforms capable of involving multiple players, both traditional and not, will be increasingly important.

The trends in the Fintech Industry

Alliances and collaborations:  Agreements and partnerships are increasing between individual companies, either through the creation of aggregation poles and hubs, or through the same technological integration platforms of Open API.

Enlargement of operations/offers: Often Fintech companies are founded on vertical services (including niche services) and then tend to expand their business.

The focus of investments on key players: Despite the potential negative impact on new and less mature companies, the increased concentration of investments is a sign of maturation and consolidation of the sector. In Italy, in 2019, the first 5 deals weighed 75%.

Globalization: This is a fundamental issue both for FinTech companies, which rarely can face sustainable growth levels in the domestic market and for financial companies. Globalization is made by foreign FinTech companies that land on the Italian market and by Italian FinTech companies that move on the international market.

Open finance: the necessary resources are being developed

The survey analyzed the environments where capabilities can be developed and where banks and insurance companies can know and select the ideal partners and integrate solutions from an operational, regulatory and technological point of view.

The incubators and accelerators for innovative startups, typically cross-industry, are now almost 200 and continue to grow (in number, number of startups, turnover, and number of employees).

The Italian panorama is also equipping itself with ecosystems/aggregators dedicated to the FinTech world. The first – and to date more mature – is the FinTech District, promoted by Banca Sella. The first one is dedicated to InsurTech (Vittoria hub) and the new FinTech research and development center of Plug-and-Play Italy in partnership with Nexi and Unicredit, presented in February 2020.

Integration platforms

Once the initial phases of strategic design, business model design, identification of possible partners are over, a delicate phase opens up, which is represented by operational and technological integration.

The Italian context now offers some integration platforms in view of Open API. These are often responses to regulations (PSD2) and rarely (Fabrick, CBI, Sia, to cite a few examples) have an explicit Open Banking strategy. A useful tool will also be Regulatory Sandbox, which could become operational this year.

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(Featured image by Christiann Koepke via Unsplash)

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