banks seek to tame competition from startups

Between VR headsets and metaverse presentations, we also talked about payments and insurance at the booths at VivaTech from June 15 to 18, 2022, where the big banks were in attendance to praise their young shooters and keep an eye on the competition. .

About twenty small clustered booths, in particular, represent “Village Crédit Agricole”, its network of incubators in France, with four of its fintech startups specializing in financial services or insurance. “Members of Crédit Agricole watch: when they see a potential partner passing by, they contact us” says Charles-Henri Alloncle, co-founder of Blank, a professional online account.

A few meters away, BNP Paribas and La Banque Postale also showcase their protégés, drawing the crowd in with many shimmery colors and English-language slogans. In recent years, fintechs have taken an increasing place in this sector. In France they have raised almost 2.3 billion euros in 2021 and represent a third of the unicorns, according to the France Fintech association, these rising startups are valued at over a billion dollars.

Therefore, most banks have developed programs to keep up with the times: incubators, special financing solutions, their own start-up programs, etc. For them, it is, in particular, to identify strategic technologies, companies that could achieve profitable success. or invade their territory. Faced with these “nuggets”, banks have several options. First: buy them back. This is what Société Générale did in 2020 with the Shine neobank or the BPCE group next year with a jackpot specializing in digital purchase vouchers and gift cards.

Most banks have also set up dedicated funds with several hundred million euros just to acquire FinTech. But they are not the only ones interested, assures Maximilian Nayaradu, Managing Director of the Finance Innovation Competitiveness Cluster: “Today we see that fintechs have become big enough to buy others” he says, referring in particular to home insurance specialist Luko, who bought out his German rival Coya and then France’s Unkle.

“Loss of Flexibility”

With competition between investors, the price of promising startups grows more easily. So some banks have to pay colossal sums for these acquisitions, such as US Goldman Sachs, which paid $2.2 billion for consumer credit specialist Greensky. Costs aside, integrating FinTech into a larger group often makes it “lose flexibility” and therefore in the speed of innovation,” says Eric Kahn, head of digital at Crédit Agricole. Hence the importance of developing other strategies.

“We had the first phase where we didn’t know each other a bit between big banks and fintech companies, and then the second phase where we loved each other too much: there were a lot of takeovers. (…) and there were failuresexplains Renaud Dumorat, Deputy CEO of BNP Paribas. Now we have entered the third phase: we have reached real maturity and are trying to work better with them. » In April 2022, Crédit Mutuel Arkéa sold the online kitty website Leetchi and its subsidiary MangoPay to US fund Advent, retaining only a minority stake.

“Being in the minority, you can have interesting discussions: we don’t invest in control, but in understanding” technology and customer needs, explains Eric Kahn. Another possibility: establish commercial partnerships with startups. A mutual solution that usually allows FinTech to benefit from new customers within the bank and the bank to offer new services.

86% of French finance and insurance start-ups have partnered with other companies, more than half of them (54%) with banks, according to a study conducted by Finance Innovation and Truffle Capital on a hundred fintech companies. It also avoids competition between small institutions and large banking groups, which sometimes find it difficult to innovate so quickly.