FinTech and French banks: collaborate or decline

by bold-lichterman

On April 10, the Fintech R: Evolution was held at Station F, organized by France Fintech. The opportunity to be proud of some 260 French financial start-ups, but also to question the growth difficulties encountered by them.

French FinTechs under-capitalized in need of partners

If we judge the state of health of a sector by the growth rate of the investments it generates, the future of French FinTechs looks bright: their fundraising has jumped by 55% between 2015 and 2017. Main beneficiaries of the last two years: Tinubu Square (commercial credit risk management), Younited Credit (online credit), PayFit (payroll management), Quonto (neobank) and recently Lydia (payment). However, the modest nature of the amount of fundraising is indicative of a weakness of FrenchTech: the inability to rapidly grow young shoots through appropriate financial support.

British FinTechs seem to be in a much better shape. 7 of the 10 largest FinTech fundraisers in 2017 were from London start-ups. British financial start-ups have benefited from equity investments by venture capital firms to the tune of $ 1.65 billion. In comparison, France acts as a minor player, with only $ 170 million raised. A surprising figure, especially since the French financial sector plays an important role in the national creation of value (4% of the GDP) and supports 800,000 jobs. Weak funding does not seem to be linked to a positioning problem either: French solutions cover the entire range of FinTech offerings (neobank, payment service, insurance, blockchain, etc.).

Support and financing at the heart of a French paradox

On a European scale, French FinTechs are models of sustainability despite very modest fundraising. This paradox can be explained by the particularities of the French support and funding systems.

In their life cycle, French start-ups resort late to fundraising, because they benefit from state support mechanisms for activity (grants, loans, tax credits) and support (BPI France, incubators , status of young innovative company…).

They are supported from the R&D phase, and during the first years benefit from gradual funding adapted to their projects. Once incubated, FrenchTechs encounter difficulties in finding sources of funding in the pivotal period of 3 to 5 years, a phase of their life cycle when public aid is no longer sufficient to ensure their development and where their volume of activity is insufficient. not allow them to attract foreign investors. The latter tend to finance disruptive offers and business models with strong growth potential.

Conversely, the Anglo-Saxon model incorporates little state support. The first external investments generally occur there very soon after the R&D phase. Venture capital funds collectively abound in the capital of the most promising start-ups, contributing to their over-capitalization compared to the potential of the solutions developed. British nuggets have neither the maturity nor the internal skills to assume the level of growth that follows (lack of experience in the field of activity, non-scalable concept, management or management difficulties, etc.), conferring this investment model has a highly speculative character.

The French support offer manages to perpetuate its nuggets, but the weaknesses of the funding model make it difficult to scale up their activities. However, it does not seem desirable to give up French-style support in favor of the Anglo-Saxon obsession with financing. Between the two models there is an underexploited alternative: that of FinTech collaboration with financial players, the banking industry in mind.

The laborious FinTech shift of French banks

French FinTechs suffer from their underfunding as much as from the prospects of opportunistic takeovers by players in the traditional banking sector. Despite their relative weakness, the irruption of start-ups is straining traditional players in the French financial sector. The latter have witnessed in the space of a few years the emergence of pure player start-ups, managing to replicate their offers at a lower cost, to overtreat their customer relationship without consideration, to play a central role in the changes in their front lines. , back, and middle office, to program portfolio and wealth management services by AIs without a significant amount of customer data … These are all anxiety-provoking signs, casting the shadow of uberization over the sector. Nevertheless, FinTechs, through their ability to produce agile and innovative solutions, are more of a resource for the necessary transformation of French banking models than direct competitors.

Despite the obvious synergies between the financial strength of banks and the innovative capacity of new entrants, the appropriation of FinTech solutions and characteristics by the large banking groups leaves much to be desired in France. The acquisitions of Nickel by BNP Paribas, Fidor by BPCE or KissKissBankBank by La Banque Postale are part of the logic of appropriating skills and restricting the scope of potential competitors, at the risk of sterilizing innovation within of their targets. Rather than playing the card of agility and cooperation in the service of the co-creation of innovative offers, traditional players seem inclined to maintain their logic of concentration.

The psychodrama currently playing out within Crédit Mutuel between CM11-CIC, the main banking group of the mutualist giant, and Arkéa is emblematic of this trend. Only 7th French bank in terms of its financial results, Arkéa has stood out in recent years by its desire to finance and support French FinTechs, making it their main provider with 28% of total investments. Younited Credit, Leetchi, Linxo, Fluo, Grisbee, Yomoni, Pumpkin and even MaSuccession.fr have thus benefited from substantial funding from Arkéa, but also from specific support to secure these investments.

The CM11-CIC, much more discreet in this area, focused above all – and this rather out of time – on the standardization and centralization of its internal processes, in a spirit which is more or less the opposite to that of Arkéa. . It is difficult not to read in this opposition between Crédit Mutuel and Arkéa the tension between sclerosing conservatism and the desire to innovate.

The contributor:

Different perspectives on the collaborative economyLecturer and doctoral student in management science, Fabien Giuliani studies the link between strategic watch and prospective. His research aims in particular to shed light on the uses of artificial intelligence in the field of economic intelligence.

Founder of the firm Demain la Veille, he advises companies in terms of digital transformation strategy and strategic information management. The changes linked to the digital economy are his favorite theme.