French fintech, main contributors to French Tech, display their disparities

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Fintech is doing well in France, at least as an ecosystem. While two major fundraisers (Lydia and Qonto), in which the Chinese giant Tencent participated, marked the news at the start of the year, we should look back on 2019, which was a year of maturity for companies in the sector in France. Record fundraising, predominance of Paytech and Insurtech, but also difficulty in emerging for certain segments and ecosystem that is not very feminized … Here are the main lessons from the 3rd edition of the annual map of French entrepreneurial fintech, established at the end of December 2019.

Produced by the management company NewAlpha Asset Management and the consultancy firm Exton Consulting, this report published on January 28, the first day of the Paris Fintech Forum, provides a representative image of the French Fintech sector. It positions these companies by sector of activity and by seniority. "This cross-visualization makes it possible to analyze the dynamics of creation of Fintech start-ups in France and to anticipate industry developments"says the study.

Record year in number of companies, 7 leaders in the ecosystem

First sign of dynamism, the number of start-ups: with 352 companies, the French fintech ecosystem occupies a good place in Europe. "France has never counted so many fintechs that seek to revolutionize the landscape of financial services, analyzes Nicolas Felgueiras, Director at Exton Consulting. Many new players have appeared this year, not necessarily where we expected them, a sign of the agility of our entrepreneurs in identifying new opportunities".

Note however a figure which can both be interpreted as both a sign of dynamism and a form of instability: 134 companies were added or removed compared to the previous edition. 83 companies have entered this new edition and "51 fintechs present last year no longer appear in this new edition, mainly due to weak activity or pivoting of the economic model, cessation of activity, or following the consolidation movement observable on certain Fintech segments", specifies the report.

The trend is towards consolidation of players, as shown the growing weight of French fintech in business for more than 5 years. For experts, this shows "their ability to make a lasting contribution to the national and international financial landscape, thanks in particular to the quality of execution of their plan and their financing by national but also foreign investors".

Beyond the number of companies, 7 of them are standard-bearers thanks to their integration into the Next40 classification : leaving aside the funds raised, they have created more than 1,000 jobs since 2017 "and settle permanently in the landscape of financial services in France and abroad, in a competitive or collaborative relationship more than ever creating value for the whole market", continues Nicolas Felgueiras. Alan, Digital Insure and Shift Technology are joining the French Tech 120,"illustrating the growing maturity of business models and the multiplication of use cases"among insurtechs.

The milestone of 600 million euros raised crossed

Fundraising is of course an integral part of the dynamism signals and 2019 is also a record year from this point of view: Fintech represents 13% of French Tech fundraising. The sector has recorded an average growth in investments of around 50% per year over the last 3 years, with a historic milestone of 600 million euros raised reached in 2019 for 81 fundraisers. This growth is explained by a French ecosystem particularly encouraged by the public authorities.

"French fintech continued their development in 2019 and became one of the main contributors to French Tech, explains Lior Derhy, Managing Partner at NewAlpha AM. A considerable number of success stories are boosting the growth of this sector and helping to attract increasingly significant national and international funding. The acceleration of the digital transformation of the leaders of the financial industry is thus accompanied by an ever-sustained dynamism of entrepreneurs and investors, who intend to contribute".

"The almost doubling of French fintech funding in 2019 compared to 2018 illustrates the significant increase in the number and size of operations above 10 million euros, as well as the increasing intervention of international investors in major operations"continues the study. Note an increase in the share of foreign venture capital funds.

Promising segments, strategic diversifications

The study goes into detail in the composition of the ecosystem in 2019. Paytech, i.e. platforms specialized in payment solutions (Wynd, Payfit, Lunchr or LemonWay), are still the largest entrepreneurial pool with more than 20% of French fintechs, while "tech for Fin" and neo-banks targeting specific markets show sustained growth.

 The insurtechs constitute the second segment in terms of number of entities with around fifty start-ups. They are developed in particular on improving the efficiency and profitability of traditional insurers in a B2B approach. We can cite Predilex, Akur8, or via solutions targeting the VSE / SME or independent Hoggo, Qlara, Moment markets. The insurtech segment is the second for fundraising, with a cumulative amount reaching a record 148 million euros in 2019 against 41 million in 2018.

 There are around fifty financing solutions for companies and individuals. Half of them are crowdfunding platforms for SMEs, generalists or specialized in a sector of activity, but some leading platforms (Younited Credit, October, Lendopolis…) have diversified their model by integrating institutional investment. "The other companies in this segment are, for the most part, brokerage platforms with increased financing (HelloPrêt, Pretto) or solutions offering a simplified subscription process with a more fluid experience served by algorithms that speed up scoring and taking of decision (Virgil, Mansa)", continues the report.

 41 companies offer savings and investment solutions for individuals and professionals. A sector which "did not experience any significant development in 2019". Main representatives of this segment: own-brand robo-advisors, marketed directly to retail investors, or white label to management companies, banks or insurers. "Due to the difficulty for French robo-advisors to attract savings from individuals, most of them have pivoted to BtoBtoC models"According to the report. 25% of companies in this segment offer solutions dedicated to investment professionals and management companies.

 The number of financial flow management solutions remained stable in 2019 and represents around 10% of fintech companies in France. The vast majority of the offers available on the market (80%) are positioned on the BtoB and offer solutions for managing business expenses, invoices, cash flow or accounting automation. The offers for individuals make available budget management and personal finance applications, assistance in building savings or overdraft financing.

Even if it represents only a little more than 6% of fintech in France, the bank-as-a-service segment strengthened in 2019 with 6 new players, including 4 neo-banks. "After a first wave of B2C-oriented neo-banks and a second wave targeting VSEs / SMEs (Qonto, Manager.one, etc.) and the self-employed, in 2019 we witnessed the development of affinity neo-banks, mainly in the segment adolescents and young adults (Kard, Xaalys, Pixpay…)", explains the report. A trend which should become more complex this year with the arrival of large traditional players (Société Générale with Kapsul) in this niche.

2019 trends: B2B solutions and automation

Two other trends from the past year are noted: the number of fintechs addressing the needs of VSEs / French SMEs has increased. "These fintechs offer solutions allowing better management of the operating cycle (invoicing, accounting, treasury, insurance and activity financing) or payroll management.", details the barometer.

In addition, AI-based business solutions offered by fintech have also developed. "These solutions are aimed at optimizing business processes, in relay of solutions based on RPA (Robot Process Automation) that we have known in recent years, and meet the strong expectations of banks, insurance and management companies".

 The Tech for Fin segment is gaining 15 new companies. Made up of companies offering software or services specifically adapted to bankers, insurers and asset managers, it is based on "on big data, artificial intelligence, automatic natural language processing (NLP) or cybersecurity technologies", lists the report. Although these solutions can also be used by other large industries,"major bank and insurance accounts have proven to be among the first to adopt themAmong the examples cited, the democratization and scaling of AI projects in order to anticipate customer behavior, the automation of customer return processing (Owi, Datakeen, etc.), instant translation of content financial (Lingua Custodia), or the detection of fraud and anomalies.

regtech lagging behind, DIGITAL ASSET MANAGEMENT AT DEATH POINT?

If Fintech is so dynamic, it is above all to fill the gaps in a rapidly changing financial sector. However, not all segments have reached their potential. If the sector has identified needs for compliance solutions, allowing RegTech to position itself, this is done "essentially as POC at this point", nuance the report. If in 2019, 31 companies meet the new regulatory needs specific to the banking, insurance and asset management businesses, the report did not identify "no significant fundraising in this segment".

 23 companies develop or rely on distributed ledger technologies. More than half of them develop their activities around cryptocurrencies : trading, distribution, exchange, storage and portfolio management. "Other identified companies directly publish technologies or protocols of registers adapted to banking and insurance environments, and making it possible for example to edit smart contracts on use cases specific to the industry, such as keeping transactional registers ( especially in trade finance) or data authentication", details the report, which notes few recent creations of companies in this segment.

Other data that puts into perspective the use of certain "buzzwords". If 75% of blockchain start-ups were created more than two years ago, "they remain at their beginnings, concludes the report. Demonstrating use cases and validating pilot projects require close and long-term cooperation between start-ups, large groups and regulators".

Promising emerging sectors for 2020

Another subject of transformation, the offers and solutions around Green Finance and finance "for good" and above all, the entry into force of the European directive DSP2 and the development of instant payment. These last two factors "should encourage the emergence of new PayTechs capable of offering enhanced payment functionalities in the coming years"the report predicts. In 2019, the financial industry also became very interested to solutions allowing the aggregation and enhancement of transactional banking data … to the point of bringing them into its fold : Budget Insight was acquired by Crédit Mutuel Arkea and Bankin ’brought the Casino group to its capital.

Finally, note a sector that is not very feminized: still in 2019, 5% of the total amount of fundraising funded fintech companies whose founding team includes at least one woman.

Aude Chardenon

 @ChardenonA 

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