P101 and BorsadelCredito.it represented Italy during the major European Fintech event. Where the next trends have been traced: open banking, Baas and challenger banks
LendIt Fintech Europe 2018, the biggest European conference in the innovation of financial services, ended in London a few days ago. Among the Italian operators, P101 was there with its invested company BorsadelCredito.it – the Italian pioneer of digital credit to companies, fifth in Europe for market share and third for lending volumes in the last year (Altfi Data).
Digital lending, which means lending to businesses and people, is experiencing exponential growth throughout Europe. AltFi Data shows that by the end of the year UK platforms – which are the oldest and most important ones – will facilitated more than 6 billion Euros in lending, while European ones will help lending 3 billion Euros. The future of digital lending is especially bright in Italy: P2P Lending Italia reports 948.1 million Euros in lending at the end of September 2018 (+23.4% compared to the end of June 2018 and +209% compared to September 2017). Italy is therefore worth one billion Euros, one third of the rest of Continental Europe.
And in Italy, as well as in Europe, digital lending is marking a change of pace in terms of quality, too. Some of the future trends have been identified at LendIt. Here we provide a summary of them:
- Strong market players are emerging. They will be the centres of gravity of future consolidation, which will develop horizontally (with merger operations between players) and vertically (banks or software companies buying digital lenders). Kpmg writes that, overall, European Fintech funding experienced a great leap forward in the first half of 2018, driven by major M&A deals, including the acquisition of WorldPay by Vantiv for $12.8 billion and that of iZettle by PayPal for $5.2 billion. The average deal size in Europe increased from 23.7 million Euros in 2017 to 60.4 million Euros in 2018. This is the sign of a mature market. In terms of vertical aggregations, according to CB Insights, from 2013 to 2017, $118 billion were invested by world banks into Fintech. Among the biggest investors are Goldman Sachs ($37 billion) CitiBank ($25 billion) and JPMorgan ($14 billion). In this cases, we are talking about giants, but this kind of evolution affects all banks with different degrees of involvement.
- An innovative open banking model is emerging all over the world. It was born for two reasons: to create greater competition in personal banking and to offer SMEs alternative financing opportunities. The origin of open banking does not lay in the industry but in the institutions, and is marked by the promulgation of two regulations. The first one is the adoption of the PSD2 by the European Parliament in 2015, to promote the use of electronic payments. And then in 2016, the UK’s Competition and Markets Authority (CMA) introducing the obligation for the 9 major British banks to authorize that licensed startups have access to their customers’ data. At LendIt, George Osborne, UK’s former Chancellor of the Exchequer and Treasury Minister from 2010 to 2016, commented that it will be interesting to see how big banks will react. In other words, if they will develop in-house technologies or buy them from innovative companies: in any case, tertium non datur, they will all have to accept some form of cooperation with Fintech.
- Open banking will give new relevance to APIs: intelligent interfaces allowing data to flow among systems in a controlled and seamless way. The progressive growth of APIs is documented by McKinsey: “in the next 18-24 months banks will have to capitalize on their incumbent benefits: explore data-sharing agreements with Fintech and non-financial services companies, develop an idea of the benefits that Bees can bring to their service model, both by exploiting mandatory third party access and by extending it beyond the legal requirements.”
- Customers themselves are driving this disruption by asking for increasingly friendly, mobile, accessible solutions. Indeed, new realities are aiming to replace traditional banking, which is anchored to old legacies both in cultural terms and in its business and tech models. They are called challenger banks, and are non-traditional institutions such as exclusively digital banks, but also traditional ones that have changed their approach, and those specializing vertically. The best known challenger banks are N26 and Starling Bank. In Italy the first challenger bank is Hype (Banca Sella Group).
- In conclusion, the newest – but equally promising – trend is that of banking as a service: banking will go in the same direction of the IT world, where now it’s typical to pay to use an application without buying it. Banking will be custom-made by the user with a series of plug-and-play apps that can be tailored to suit your business or personal needs, all of which can be accessed via mobile, without space or time limitations.