Italian Fintech strikes an optimistic tone
Alessandro Hatami
By Alessandro Hatami, CEO of Strategic Consulting Pacemakers
Buoyancy and Italian banking do not often go hand in hand. And yet in my third year chairing the Milan Fintech Summit and despite the bleak global economic outlook, what struck me was a pervasive sense of optimism and opportunity.
Italy is the third largest economy in the Eurozone, but historically it has lagged behind much smaller countries in developing its digital banking presence.
Smaller countries such as Spain, the Netherlands and Sweden have better results in financing start-ups, creating unicorns and adopting FinTechs. This is likely to change. The first indications seem positive; indeed, the adoption and growth of FinTech in Italy has a real impact on the economy. According to ItaliaFintech, the national FinTech association, loans to Italian SMEs granted by FinTechs have increased by 4.4 times between 2020 and 2022.
There are three reasons for this new feeling of buoyancy:
- The emergence of a native FinTech ecosystem
Until recently, the Italian FinTech ecosystem was dominated by foreign players. Italian entrepreneurs often felt that to make a breakthrough they had to leave the country. Two of the most successful Italian FinTech founders – Giovanni D’aprone CEO of Moneyfarm and Francesco Simoneschi of Truelayer – are both based outside Italy.
This perspective changed dramatically this year with two domestic fintechs Scalapay and Satispay breaking the Unicorn ceiling. Scalapay is an innovative BNPL proposition and Satispay is a payment company.
These two firms are challenging BNPL giants like Klarna and PayPal with propositions that are lean, attractive and highly exportable. Their success is the tip of the iceberg of a market in transformation. Fabrick (part-owned by Banca Sella), one of the sponsors of MFS, is another interesting example. Fabrick describes itself as connective tissue, a platform that makes access to innovative financial service providers easier, faster and cheaper.
Other banks are also increasing their VC involvement; Intesa Sanpaolo , Italy’s biggest bank, has revamped its Neva Finventure early-stage tech VC with a €250m investment announced earlier this year, explicitly saying it aims to invest in Italian startups. Enrico Resmini is CEO of CDP Capital (the VC arm of Cassa Depositi e Prestiti, the country’s third largest bank). Resmini claims that Italian VC investment in 2021 was double that of the previous year, and he believes VC investment in 2022 will maintain a similar pace.
- Regulation is more Fintech friendly
Banca d’Italia is one of several Italian bodies that oversee financial regulation, and it has changed its stance on FinTech. The bank has created three new services which allows entities such as business innovators, entrepreneurs and start-ups to establish a dialogue with the bank in Italy. These are:
Channel FinTech: which acts as a hotline where any interested third party can seek the regulator’s view on a specific proposed innovation. Canale FinTech does not offer legal advice or regulatory approval, but insight into where to look for an answer.
Milan Hub: Contrary to its name, the hub serves the entire country and potentially companies operating outside of Italy as well. Innovators can submit a new proposal to the Banca d’Italia. If the bank accepts the proposal, the innovator has the opportunity to join the Milano Hub to shape the idea into a more tangible proposition. Banca d’Italia will then contribute its own internal specialist to the project team (and may also reach out to academia). This joint team will work to shape the proposal and iron out potential issues. When you leave the node, the idea is ready to be incorporated into a new financial proposition or a startup. In 2022, 60 pitches were submitted from startups, established banks and academic projects. Of these, ten were accepted.
The sandbox: This is a proposal similar to that offered by many regulators around the world, where businesses with innovative ideas can benefit from one-to-one engagement with the regulators to shape their offering before launch.
These three initiatives are supported by a changed attitude and tone from the Banca d’Italia and most other regulators. Instead of defending the past, they are now keen to support innovation that seeks to make the future less frightening.
Other financial regulators are also stepping up their activities, reflecting a striking shift in attitudes towards more disruptive financial technologies. For example, the Organismo Agenti e Mediatori (OAM), a regulatory body in Italy that maintains lists of financial agents, has been tasked with creating a registry of crypto exchanges that are allowed to trade in Italy. They have been busy. While regulators are often criticized for delays in processing applications, the OAM has added 73 crypto firms – including those listed above – to its new list of virtual currency service providers, despite only opening in May 2022.
- Increased VC investment
The success of the new unicorns and the fintech sector at large has been supported by the significant growth in venture capital investment in Italy. Although VC investment still lags behind many other European countries, it is growing rapidly.
VC funding in Italy has already reached $1.7 billion this year and is projected to grow 64% year-on-year, while overall European investment is down by approx. 9%. Q3 2022 was the most active quarter ever for venture capital funding in Italy. Even then, Italy still has a lot of unfulfilled potential: when it comes to the amount invested per capita, Italy ranks 24th behind the UK, Germany and France, but also trails much smaller economies such as Estonia and Iceland.
But Italy is also the third largest economy in the Eurozone and 10th largest globally, and its citizens’ use of digital technology is very similar to their British, French and German counterparts. As regulation changes, start-up success stories increase and digital adoption continues, the growth in Italian VC investment suggests that investors (both domestic and international) are realizing that Italy represents a promising opportunity for Angel, VC and PE investment.
Dealroom.co, October 2022
Support for entrepreneurs is also growing. New startup ecosystems are emerging rapidly. Groups like Talent Garden, Fintech District, LVenture, Digital Magics, Fin+Tech, UniCredit Start Lab to name a few have created tailor-made spaces where startups can build their businesses. These incubators and accelerators are popping up all over the country, enabling entrepreneurs to work together, find mentorship and even secure investors.
The state is also stepping up. In July 2022, the Italian Ministry of Economic Development announced that crypto projects will qualify to apply for up to $46 million in government subsidies. As part of the Italian government’s aim to invest in technology and innovation, companies and research firms will be able to apply for funding.
Last thought
The acceleration of Italy’s financial digitization, started by the pandemic, has changed the way entrepreneurs, investors, banks, regulators and most importantly customers see the potential of the FinTech revolution. Despite the looming recessionary slowdown caused by the war in Ukraine, we will see more successful fintech firms and a greater number of unicorns emerging from Italy. I would even put money on it.
