Every January for two days, Paris crowns the FinTech capital title. The key players of the banking and FinTech industries all around the world gather in the beautiful former stock exchange building (Palais Brongniart) to discuss financial innovation.
This year, I the pleasure of representing FinTech Istanbul in Paris and noted the key learnings (including an executive summary at the end) for everyone too busy to attend.
PFF didn’t disappoint this year as well: +2500 attendees, with a %60 percentage of non-French participation, were present. The crowd consisted of the right mix of corporates, regulators, and start-ups along with prominent industry figures like Dave Birch, Brett King, Susanne Chishti, Ann Cairns, Oliver Bussmann, and Ghela Boskovich (who stirred the forum and the very much in demand side events such as the Women in Finance Lunch, the Pay&Tech Breakfast, the LHoFT drinks, and the PayPal dinner).
- There were many stimulating talks performed during the event. The highlight of the event was beyond any doubt the opening discussion: Dave Birch and Brett King filled the main conference room end to end and assessed FinTech’s position in the financial services. The analyses revealed that in the UK, 67% of the population use FinTech, whereas in the US it is only 47%. The audience was also reminded that FinTech became widely-known, and attracted record investment amounts in the last years; making some start-ups household names. Brett King stated that the most significant change FinTech brought to our lives is the shift in the customer expectation about how tech utilizes financial services. It was rightfully pointed out that Fintech hasn’t revolutionized financial inclusion or how people make payments. Dave Birch added that although the payments linear is working out fine, there wasn’t much progress in the pension funds module, and the goal for delivering better financial health to average individuals in developed markets wasn’t reached.
- During the opening discussion, Brett King and Dave Birch also highlighted their concern about the rise of the use of facial recognition technologies (by government officials). With facial recognition associated with so many risks, KYC, AML, and CTF (RegTech) were pointed out as topics that need to be addressed urgently.
- The famous FinTech duet also touched upon the neo-banks’ topic. Brett King emphasized that being a neobank was hard in the early 2010s, and they reached their optimal time around 2014/15. Neobanks were subtly criticized for still not making much money, which was followed by the question about how to categorize these institutions. Should we compare neobanks’ success to other banks or to tech giants like Twitter, who isn’t also making any money or judge it by their active users and user engagement? These discussions signaled the fact that neobanks might be starting to lose their market popularity.
- Plaid’s acquisition was a hot topic on almost every moderator’s agenda. The success behind the acquisition and how it gave hope to other FinTech entrepreneurs was discussed across panels in the course of these two days. All in all, the experts agreed that this is positive news for the industry but yet, it is a specific case that can’t be generalized and interpreted broadly.
- The lack of standard regulations was an overly discussed topic by default. Regulators and policy makers from Malta, Mauritius, Lithuania, and Luxembourg were competing across panels to demonstrate why their country has the potential to become the new FinTech hub after Brexit. All regions seemed to offer clear, robust regulation and an agile ecosystem, making it easy to test new technologies. It was revealed that Malta, Vodafone’s second home for testing and first foreign jurisdiction, has two laws passed since 2018 and has 34 ongoing license requests at the moment, being in demand by InsurTechs mostly. Also, the CEO of the Financial Services Commission in Mauritius (Harvesh Seegolam) explained that they are working on a digital currency scheme and need more collaboration to spread it. Overall, all parties agreed that although London is already an established hub and will remain so for some time, the specific set of rules UK will carve to make London remain comfortable for the FinTechs is still unclear, which turns these destinations into attractive hosts for the financial institutions seeking shelter.
- Another regulatory topic that was pointed out to have urgency is the difference between the US and the European regulations. Even participants from the US ecosystem agreed that the European regulations are more mature when it comes to FinTech. Jo Ann Barefoot, Co-Founder of Alliance for Innovative Regulation, used the analogy of a “multi-headed creature in a complex system” to describe the regulatory structure which lacks a high-level agenda and has a lot of fragmentation. It was stated that an average US citizen doesn’t feel safe by the house bank, and hence the low FinTech adoption of 45%. Additionally, there was a brainstorming part about how European regulators can help the VC money to flow into FinTech, but there was no real conclusion.
- The parties from the US, Russia, Luxembourg, and Ireland highlighted cybersecurity, overregulation, staying significant as a regulator, crushing innovation by mistake, and failing to protect consumers as the biggest risk for regulations as opposed to being innovative and making a historical difference (by making finance available and affordable for everyone).
- Russia’s central bank representative joined the regulatory discussions declaring that Russia went through all the present regulations when carving its structure and therefore has the best of all systems, mostly staying close to the customer experience present in the UK. Moreover, Olga Skorobogatova, the First Deputy Governor of the Bank of Russia stated that Russia is aiming not to regulate, but to regulate smartly and added that regardless of the opposition of the big banks, it has three prioritized projects for this year including fast payment platform across industries and participants; biometric infrastructure; and a setup allowing consumers to pull their personal data from the public data warehouse digitally.
- There were noteworthy dialogs about bank and FinTech partnerships. During a panel on Coopetition, including participants from Visa, Natixis Payments, GenerationS Accelerator, and the Holt Accelerator, the ability to bridge different cultures and develop various partnerships were listed as crucial skills needed by the co-founders in the future. Moderator Susanne Chishti emphasized the hardships of forming partnerships between FinTechs and banks by referring to a cooperation process experience that took a year due to regulatory approval (although the bank team was fully on board). Earlier on the same topic, Dave Birch Banks advised banks to purchase innovation since they are not able to create/grow innovation. He said, and I quote: ” Before, it was about disrupting the industry and throw over banks. Now it’s more about cooperation.”
- The discussions that came forward during the second Coopetition panel moderated by Susanne Chishti, including the CEOs of Active Asset Allocation, FriendlyScore, Moneythor, and Bud was very relatable for entrepreneurs. The panelists discussed the financial aspects of acquiring B2B customers, and all four agreed that onboarding financial institutions is one of the biggest challenges a start-up has to go through in its life cycle. Participants pointed out that the key to fast track during the onboarding process is to find a sponsor from the institution who is willing to promote the partnership internally and fight for the partnership. The fresh entrepreneurs were advised to find this sponsor among the high-level executives and create a strong personal connection with them. It was also stressed that even with a sponsor, the onboarding might take even four years, and due to the high acquisition costs, it makes more sense to sign multi-year contracts. Specific practical sales tips for FinTech entrepreneurs listed during the panel were as follows:
- Building a big sales pipeline and filling the funnel until it is possible to start dropping.
- Getting connections from the top.
- Being persistent, resilient, yet patient.
- Asking for a quick death (yes/no) as opposed to losing time with discussions.
- Diversifying the cash flow channels and taking smaller institutions on board to prolong the start-up survival time.
- “Embedded financial services” appeared to be the new popular coopetition type, as it was highlighted as a priority by many experts during the event, including Brett King.
- In the panel, Lydia, Azimo, and Thought Machine executives participated; panelists tried to answer whether the EC killed the banking business with PSD2 if big data is the future (since the tech giants have all the advantage, possessing the consumer data). The panelists had black and white opinions with regards, however, agreed on the fact that although there is an API into Barclays for Facebook, there is no API for the other way around, which makes all the difference. The panelists also criticized the fact that the European banks do not have much leverage since up to 90% of their tech budget is used for regulatory compliance. However, the CEO of TM argued that these budget constraints are more due to banks’ culture and speed, and banks should start getting used to outsourcing from other service providers instead of trying to deal with the services themselves.
- During the same panel, the CEO of Lydia, the French FinTech, revealed their focus as using and leveraging data, gamification, and personalization of financial services. Lydia started as a payments provider that transformed into a financial service platform, and accordingly has 3 Mio users, with Tencent being one of the investors.
- During the payments panel, the CEO of Rapyd (Arik Shtilman) made an interesting statement about most things in the tech world resembling 20 years ago; “Today’s Amazon discounts are the equivalents of companies giving away microwaves, and younger generation totally buys it. However, nobody speaks about the risks of this, about whether Amazon is storing the buyer’s card data in the meantime or not.” Moreover, it was pointed out that when crypto was first discovered, people thought it’s the future of payments and a solution that fits all. Panelists stressed that only now we understand that crypto will not become the default payment method since we are not using our credit cards for remittance or bank transfer for buying a pack of chips. This means there will always be a different payment solution, fitting the needs of that peculiar transaction, and crypto might become an alternative but not a replacement.
- Lending was another hot topic, and there were a lot of participating start-ups from this track. During the panel in which the CEOs of Auxmoney, October and MarketFinance were present, it was revealed that lenders do not see themselves as competition to banks, but more as complementary service providers since they are all performing in the underserved access to capital vertical. Oliver Goy, CEO of October in France, mentioned that after many years of activity, they have the same challenges: that average people still don’t know about what they do and go to banks when they need money, that they haven’t been able to change the habits of the entrepreneurs and that the cost of the marketplace lending is too high. He added that they are developing a solution for the last part, which is planned to be released in the next four months. The following lending panel hosted the CEOs of Spotcap, Miimosa, Kapilendo, and Cashplus, and the panelists focused on the hardships of being a direct lender on an international scale.
- The main stage hosted another popular debate on innovation between representatives from ESMA and Banque de France. Banque de France Governor stressed that we urgently need global cooperation on financial stability, data protection, and cybersecurity, more than mere regulatory collaboration.
- During the same session, ESMA representation focused on elaborating on the crypto topic, and stating that regardless of the technology and the corporation type behind it, stablecoins should be regulated depending on the delivered outcome. ESMA representative also indicated that crypto assets are overhyped, and the funds that back stablecoins are more important to ESMA than stablecoins themselves.
Although the female finance force was represented strongly and better than many organizations, there was still room for substantial improvement. There were many interesting female speakers and moderators representing different continents and perspectives. However, the main stage seemed to be predominated by male speakers, which raised the question of whether it wasn’t possible to increase the number of female panelists with some perfectly good female alternatives for this stage as well.
Additionally, the exclusive Women in Finance Lunch (organized by the PwC) unveiled dramatical figures regarding diversity. During Ann Cairns’ (Mastercard) welcome speech, it was made clear that the diversity report by the WEF isn’t going in the right direction, and according to recent calculations, it would take up to 257 years to close the gender gap. Also, Marguerite Bérard (BNP Paribas France) declared that they wouldn’t be attending any manels, and the attendees’ companies were also invited to participate in this #nomanel movement as well. The immediate social media reactions created the impression that the movement started spreading full speed.
Best Pitch Awards
Sixty start-ups from more than 40 different countries pitched non-stop for seven hours during the first day of the event. Christopher Davison of BigPay and Simone Joyce of PaypaPlane received the Best Pitch Prizes, whereas Matthew Nemer of Linus and Nick Ogden of RTGS got the Best innovation award. Additionally, Nova credit and OpenPayd were given the jury and audience awards.
Future of the PFF
Last but not least, PFF CEO Laurent Nizri put an end to the acquisition and negative financial trend speculations. He explained that PFF is not interested in joining the long list of fintech and banking events that serve similar content one year after another and eventually become boring. Therefore, PFF was announced to have a potential pause in the sequel events. If you were already looking forward to next year – don’t worry. PFF will be back. However, it’s not clear how and when. Laurent also gave an open check – all parties interested in contributing to the new concept of the PFF were invited to reach out and proactively get involved.
- It seems like the bank and FinTech start-up fight is over; in 2020, we will see even more partnerships, integrated services, and start-up acquisitions. “Embedded services” seem to emerge as the buzzword of 2020 as the experts agree that financial services will become more embedded, for innovation needs to be purchased by the banks (since they are not able to grow it themselves).
- RegTech is the new FinTech. In the sector, some experts claim that RegTech is a part of FinTech, whereas some claim total segregation. In any case, the difference is blurry, and with biometrics topic gaining more significance, experts highlight the importance of addressing the KYC, data privacy and optimization, cybersecurity, AML, and CTF issues urgently, to complement and improve FinTech and financial services.
- Facial recognition appears to be the new nightmare of the FinTech folks.
- With many neo-banks still not being profitable, the recent hype around neobanking seems to be questioned.
- The steps European regulators took to integrate FinTech into the industry appears to be more popular compared to the US regulators’ approach. Nevertheless, experts predict an improvement soon. Moreover, the fact that the VC money is still not flowing to Europe after so much regulatory investment gives the impression that something might be missing. European regulators were called into action to come up with ways to help the VC money to flow into the local ecosystem.
- With London starting to lose its regulatory charm for entrepreneurs, smaller European countries are already executing their plans to get a bigger piece from the cake in the post-Brexit era. To make their region more attractive to entrepreneurs, they seem to be competing for the most accessible regulator and the most robust regulation titles. It won’t be a surprise if the smaller European countries come up with innovative solutions and offer regulatory clarity on controversial topics in the next months before Germany, France & co. does.
- Crypto madness seems to be over, and nowadays, it’s all about integrating DLT into finance in an effective way.
- Many central banks seem to have scheduled digital currencies as their priorities and are planning to make it widespread in the next years.
- In general, PFF seemed to have spent an effort on putting diversity in the agenda, but not necessarily in the right way. The gender balance in the panels wasn’t too satisfying, and the women participants protested openly, inviting others to join the #nomanel move (avoiding speaking at panels that has no other women panelists).
- There is no planned date for the next Paris FinTech Forum. It will definitely come back, but not clear when and how.