Fintech Disruption

Spain's Changing Banking Landscape

Fintech disruption of the Spanish financial services industry is as inevitable as death and taxes.

Madrid, Spain financial district skyline at twilight viewed towards the Gates of Europe. Credit: Shutterstock / ESB Professional

Spain’s banking sector has been bloodied by its own crisis that ignited as the housing bubble went “pop.”

By August 2012, non-performing loans (NPLs) in the corporate and household components had respectively scaled historic highs of 16.8% and 3.8%.

Yet, the sector has since emerged with consequent consolidation, and stronger players today recognize both the digital route to new customers wary of traditional bricks-and-mortar banking and client loyalty among the less wary.

Europe sets the pace

Fintech relies on the tenets of open banking, itself reliant on application programming interfaces (APIs), the software behind apps that connect to the technology of third parties. In the European arena, open banking has been boosted by second Payment Services Directive (PSD2).

The European directive was introduced to galvanize a competitive market for banking, credit cards, and payments. It is telling that European fintech investment, still on the ascendancy, stood at an estimated USD4.7 billion in 2017.

Spanish zeros and wows

As of 1Q2019, the Spanish fintech ecosystem accounted for 5,000 direct jobs, estimated to have doubled by 2020. And the Spanish Association of Fintech and Insurtech (AEFI) is keen to sustain the momentum with, “…up to 12 verticals to segment companies according to their activity: crowdfunding, currencies, cryptocurrencies and blockchain, aggregators…” PSD2 debuted in September 2019, by which time all European banks are to have authorized, and regulated, third-party access to customer data.

A study by fintech accelerator Finnovista reveals that in the 15 months to March 2018 close to 120 fintech start-ups had been launched in Spain, notably in “insurance, crowdfunding, financial management, wealth management, corporate lending, and payments.”

As early as 2017, the ecosystem had already numbered 294 start-ups, as Spanish firms generated north of USD120 million of investment for the year in 19 deals; tenfold the 2016 print. And as of January 2019, fintechs numbered 336, in stark contrast to 50 enterprises just four years earlier. As of February 2019, there were 185 start-ups in the insurtech arena.

For that year, too, the EY Fintech Adoption Index 2017 positioned Spain sixth among 20 fintech markets. The data indicated that 37% of Spain’s internet users had benefited from enhanced financial services at least once, be it for managing finances, online purchases, or executing mobile transfers.

Digital payment has ever been a stalwart of the fintech universe, with Spain being no exception. User numbers topped 27 million in 2018, up from 23 million three years prior, and sector research forecasts the number at around 30 million in 2021. It seems that just over 50% of Spain’s fintech start-ups pursue the B2B model while around 48% directly tap the end user.

Among B2B and B2C companies combined, close to 80% provide paid-for solutions, while around 20% cater to digital needs free of change with a mere 3% operating a “freemium,” or mixed, model.

Regardless of scale…

By 2018, Spain had around fintechs in operation, having taken note from the Asian phenomenon; sector data reveals the sole European fintech entity within the top 10 in 2018 as German Kreditech. To the field must also be added the so-called bigtechs, now eager to fish the same waters.

They even have their own acronym—GAFA—how could they not? It stands for Google, Apple, Facebook, and Amazon, all particularly interested in payment systems. So how are the Spaniards doing?

Well, local giant Santander has its own tech wing, Santander Global Tech, primed to take on both bigtech and fintech alike. Santander is already recognized as a 24/7 digital financial force that enjoys the all-important customer confidence in its ability to mitigate the equally 24/7 reality of cybercrime.

…Play nicely

On February 22, 2019 Spain’s Council of Ministers approved the draft bill related to the digital transformation of the financial system, wherein the legal environment of digital financial services is to be governed, allowing the consumer to sleep easy at night. A proposed regulatory sandbox is a cute metaphor for checks and balances on the rampant imagination behind current digital innovation.

Fintech in Spain, with the consumer now wrapped in a security blanket, can but continue to address the unfolding financial universe of tomorrow.

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