State of play: European fintech

Written by Philip Benton, senior fintech analyst, Omdia
3rd April 2023

Each month, Philip Benton, Principal Fintech Analyst at Omdia, explores a new topic and assesses the “state of play”, providing an in-depth analysis and understanding of the market landscape.

Hundreds of banking and fintech professionals were present at this year’s FinovateEurope conference

This month, we take an in-depth look at European fintech.

Finovate (the sister brand of Omdia) recently hosted its first major event of the year, FinovateEurope, which was held at the O2 Intercontinental Hotel in London over 14-15 March 2023.

The event took place just days after the dramatic demise of Silicon Valley Bank (SVB) – which meant an emergency session discussing the fallout was added to the agenda – and during a London tube strike which luckily did not put off the hundreds of attendees from the fintech community.

Key topics that were discussed included the evolution of neobanks, fintech/incumbent partnerships and the role of financial services in supporting ESG initiatives.

European fintech community optimistic about its future despite macroeconomic challenges

Fintech itself was only established following the 2008 global financial crisis which saw the now giants of fintech emerge – including Stripe, Revolut and Wise – so venture capitalists are unsurprisingly on the lookout for the next iterations. This optimism for the future of fintech was debated in the panel session “Where is the smart money investing in fintech?”, which featured panelists from venture capitalists including Sie Ventures, Citi Ventures, Portage and Outward VC.

Even though the valuations of later-stage start-ups are significantly down (inevitable for those who didn’t make it to IPO in 2021/22), early-stage start-up valuations have remained stable and seed-stage valuations are growing, according to Luis Valdich, MD of fintech investing at Citi Ventures. He says: “It is harder to raise money now, but if you do, it provides validation, so it’s easier to compete and raise money later on.” Valdich went on to say: “We saw in the aftermath of the ’08 crash that a lot of iconic start-ups were formed. I am hopeful that this difficult macroeconomic environment will provide the same.”

Partnerships increasingly important for both incumbent banks and neobanks

The early days of the fintech revolution were about ‘disrupting’ banking, but incumbents and fintechs now increasingly work together to lead innovation. The neobank sector is now approaching its teenage years and is quickly maturing, and firms now realise they require strategic partnerships to expand their product suites and evolve their offering, in a similar vein to the approach of incumbent banks.

Omdia’s Ouliana Smith kicked off day two of FinovateEurope by discussing how neobanks are increasing their reliance on partnerships. In her “Analyst All-Star” presentation, she outlined how partnerships were the second largest category in Omdia’s Neobank Activity Tracker, after products and services launches and announcements.

With some neobanks announcing up to four new partnerships a year, standalone growth and scaling are not necessarily the predominant factors driving innovation in financial services. Incumbent banks that outsource their digital banking platforms also have access to third-party providers through their relationships with vendors, which is exhibiting a trend towards convergence, integration and efficiency and security of service delivery. She noted that the rise of the so-called “super-apps” in Asia, which do almost everything for the customer including payments, demonstrates that convergence is accelerating much faster elsewhere, requiring an improved strategy for European players to better address changing consumer preferences.

Although incumbents are just as enthusiastic as neobanks to embrace partnerships, they face different challenges to successfully onboard a partner, as discussed during the “Fintech ecosystem and strategic partnerships” panel featuring speakers from ING, Raisin, KBC and Coinbase. Katharina Lueth, chief client officer of German fintech Raisin, explained how culture clash is a common obstacle. She says: “Expectations and culture are the hardest thing to align between a fintech and incumbent. Six months is very fast for a project to an incumbent, but that is slow for a fintech.” Jurgen Vandenbroucke, MD of everyoneINVESTED (the wealthtech spinoff of Belgian incumbent KBC), agreed, adding: “It’s difficult to find the correct decision-maker at the right time, but even if you did that today, you would realistically not see the results [of a partnership] until the backend of 2024. That’s just reality.”

Tackling ESG from a financial services perspective

ESG was a key topic discussed at FinovateEurope, but the lack of progress in the financial services space was evident, as outlined by Matt Bullivant, director of ESG strategy at OakNorth, who explained that there is not enough people in banks with the relevant experience that are able to model the true impact of ESG on their business. OakNorth was one of the first banks in the world to stress test its climate change strategy, but few banks have followed, with regulators slow to agree on the appropriate policy.

According to Omdia’s IT Enterprise Insights 2022/23 survey, 30% of banks claim to be in the assessment phase of their sustainability strategy and more than a quarter of banks have stated that their strategy is well defined and covers both their company and supply chain, yet there is little evidence to suggest this. OakNorth’s Bullivant explained how the sector needs to make transparency a priority in order to succeed in their ESG efforts. He says: “To combat ‘greenwashing’, you need to be completely open about what you’ve done well and what you haven’t (but plan to).”

Although tackling environmental matters is often the most talked about aspect of ESG, social factors are equally as important. Sanghamitra Karra, EMEA head of inclusive ventures group at Morgan Stanley, argued that diversity and inclusion is the more immediate opportunity for financial services in her panel discussion “Why diversity matters”. Karra outlined how the diversity conversation has moved on from a few years ago and is a big opportunity for financial services. She says: “60% of wealth will be managed by women by 2025 in the UK. We need wealth managers to be engaged and familiar with how women want to invest their money.”

Citing her risk management background, Karra went on to explain how the first principles of risk management in financial services is to diversify your portfolio, but the same principles aren’t applied in terms of diversifying the workforce, adding: “When looking for innovation, you look at the peripheries of what isn’t happening.”

About the author

Philip Benton is a Principal Fintech Analyst at Omdia and writes analysis on the issues driving technological change in financial services. Prior to Omdia, he led consumer trends research in retail and payments at strategic market research firm Euromonitor.