Seamless Xtra’s Carolina Lubinus speaks to Roger Berger, head of fintech at BNP Paribas, a top-tier European and international bank. In his role he advises fintech founders alongside the capital structure on both equity and debt, whilst supporting investors in their deployment of funds. In addition, he helps fintechs operationally by leveraging the institution’s teams and infrastructure, in amongst others cash management and custodial services.
Roger, how do you see the intersection of traditional banking and fintech evolving in the coming years? Do you see any differences in between European countries?
When I look over time, I think the view of fintechs and traditional financial institutions has changed. I think if we go back just a couple of years, a lot of fintech business models were still quite new, nascent, and maybe even peculiar. Financial institutions including insurance firms, banks and brokers, kind of took a step back to look at this new breed of tech start-ups developing and initially saw them a lot as competition. I think this has changed dramatically over the last 24 months even.
Today, fintechs are essentially three things to a financial institution. Yes, they continue to be a competitor to traditional financial institutions. But at the same time, financial institutions have opened up and also see them as partners. A lot of financial institutions depending on size will partner with fintechs and see them really hand in hand in now, conquering a certain client or customer base. If you look at us at BNP Paribas we also view fintechs as clients, meaning we actually cater to fintechs and provide solutions. So ultimately fintechs fall within one of these 3 brackets. Most of the time they are competitors, partners, or they can also be clients of financial institutions.
This doesn’t really differ between European countries. If you follow the money and look where are the most prominent fintechs, they will be in the UK, they’ll be in Germany and they’ll be in France. That’s where approximately 75% of fintechs are in any given year of VC and PE money flow. Financial institutions in these countries don’t perceive fintechs very differently from these three brackets.
I think the larger the financial institution, the more likely the fintech is to be perceived in all three of these brackets by different parts of the institution. And the smaller or more localised the financial institution is, the more it will perceive a fintech maybe in a singular bracket, maybe just as a competitor or just as a partner or just as a client.
That leads perfectly into our next question, As BNP Paribas is a global player in the financial industry, how exactly do you as head of fintech cater towards the fintechs that you work with?
I think, as a team, we see them as clients. We work with founders, we work with their C-levels, we work with their investors and we follow the same goals. Their goal is to grow their business and our goal is to grow their business so we help them in that process. What we do is we work across the capital stack or the capital structure. We help out on the equity side – on fundraising, on the investor outreach, the equity narrative, the equity story, and also on valuation.
But at the same time, for asset generative fintechs, we will deploy our balance sheet and fund those portfolios of assets that the fintechs originate and ultimately we dive in a lot deeper as an institution and also provide our infrastructure. That means that we will provide operational support in the form of either custodial services or accounts, specifically when required in conjunction with regulatory licences that fintechs may have or will have over time. There are certain safeguarding requirements under certain licences and we’re happy to provide that infrastructure required to fulfill regulatory requirements that fintechs have. We do this at a pan European level and are always excited to speak to founders and investors on how we can be helpful.
From a regulatory aspect then, what is the role that you believe that regulation plays in shaping the fintech landscape across Europe?
Since there’s different regulations and different parts of the continent I think regulation levels the playing field for all players. It’s beneficial in my view to financial institutions, but it is equally beneficial to fintechs. When it comes to competing with financial institution regulation can be very helpful there. And in particular, regulation can be very helpful as acquiring a licence in one jurisdiction and passporting it across the EU gives access to the complete EU market in a standardized way. It gives protection to the founders, their investors and the fintech itself that it complies with regulation across the continent.
Equally, the major licenses have been harmonized. So you’ve got banking licences, which are harmonized across the EU. You’ve got money licences that are harmonized across the EU, but then there are licences that are not harmonized. And I think that’s where you see an easier go-to market for fintechs. For example, if a fintech wants to offer a factoring type of business, it will probably be well advised to start in the Netherlands where it’s factoring as an unlicensed business. But if you just take that one step further and want to expand beyond the Netherlands, to Germany, you’ll require a factoring license, which is a non-passportable licence. And then if you move to France, you will require a banking licence to provide factoring services. So you’ve got a patchwork of licensed and unlicensed requirements across the EU for certain types of businesses like factoring, like leasing, that actually hinders the ability for the fintech to easily and safely expand across the EU.
This strengthens the point that regulation is good in the sense that it gives a level playing field and it allows for an easy expansion across the EU. When we look at the UK, I think, post Brexit the UK has its own licensing regime within the UK. A lot of fintechs choose to get licenses in the UK for the UK market, or acquire a company in the UK. Equally, if it’s a UK Fintech expanding into the EU, it chooses one jurisdiction to get the equivalent of its UK license in the EU to expand across the continent.
Roger, in the future, what do you feel are some of the trends or developments that you anticipate in the fintech ecosystem and in the EU?
I think this is not Europe specific.Tthese are more overarching trends that we see in North America, but equally in APAC. AI has been part of fintechs before it was was a hype, and it is what it is today. Fintechs have been using different forms of artificial intelligence, neural networks and other techniques. For example, when they were doing underwriting or looking to prevent fraud, when monitoring cash flows, or even so far as to customizing the outreach to consumers in general. AI has been a part of fintech and has helped drive the success of fintechs over the last 5 to 10 years. That’s why, in part, they are able to offer services, solutions, and products that traditional financial institutions offered, but with less full time employees and a more tech-driven, more tailored approach.
Another overarching trend is a convergence of models where non-fintechs are integrating fintech models into their daily business. I think Apple is a great example of that. They have Apple wallet with payments. Then you’ve got a German player, Zalando, which is an online marketplace but has its own payments arm. Again, it’s a fintech model integrated as a subsidiary into their daily business. Then Amazon is so broad it’s got a number of fintech models integrated and depending on the jurisdiction, they’ll offer merchant financing, they’ll offer invoicing to consumers and so on. So I think that’s an overarching trend we see where traditional companies outside of fintech but within tech are integrating fintech business models.
I think if we look at the fintech vertical on its own there’s two things we’ve seen starting mid 2023 and this is something that will continue going forward. One is that investors are placing a high value on vertical leadership or runner ups or those fintechs that are creating a new vertical. They are giving their capital to those founders where they perceive vertical leadership to be attained or sustained.
Second, is sustainable growth. Top line growth is something desired by investors, but equally, strong contribution margin, which then over time follows into a strong EBITDA and a strong bottom line. This opens up the IPO markets and then a potential exit for those investors. That’s crucial today and it will continue to be crucial for the next 18 to 24 months.
