B2B Payments

Why B2B May Be The Key To Europe’s FinTech Pursuit

Europe is on the path to entice FinTechs. European Union (EU) finance ministers met this week to discuss ways in which the EU can ensure its FinTech industry is solid and promotes growth, an initiative some policymakers view as critical, as the U.K., a global FinTech hub, prepares to leave the EU following Brexit.

European Commission Vice President for the Euro and Social Dialogue and Head of Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis, spoke in Estonia to not only promote progress in the financial services space, but to also ensure reforms and objectives are aligned with Europe’s goals amid what he described as a “FinTech revolution.”

“We already see FinTech services — such as mobile payments, peer-to-peer lending and online investments — benefiting millions of Europeans,” Dombrovskis stated. “Looking ahead to the future, technologies like artificial intelligence, distributed ledger and cloud computing hold even greater potential.”

He added that supporting the FinTech industry can only occur if FinTechs in the European Union are able to take advantage of the single market, “meaning to scale up so that they can compete with their rivals in China and the U.S., where FinTech is booming.”

Dombrovskis noted that the European Commission is exploring EU-wide legislation to regulate the alternative finance space, warning that FinTech should not be “‘regulated to death,’ even before this sector has evolved.”

On Wednesday (Sept. 20), the European Commission released an official proposal in preparation for Brexit that aims to consolidate regulatory control over the EU’s financial industry, taking some power from each member state’s capitals and adding it to the European Commission. The initiative, according to a statement by Dombrovskis, would gradually lead to a “single European capital markets supervisor.”

“Finance in Europe is changing due to the departure of the U.K. from the EU,” he stated, adding that this consolidation of power could help to prevent “regulatory arbitrage,” which involves EU member states attempting to lure FinTechs and other alternative financial services players in the U.K. into their own borders by offering a more legally friendly market. Analysts also warned, however, that U.K. companies could potentially lose access to the EU market under this initiative.

It’s unclear exactly how the rules would impact the FinTech space, especially as the European Commission and other jurisdictions around the globe have yet to fully clarify how they will regulate FinTechs. But it’s clear that Europe has its eye fixed on the industry.

B2B FinTech’s Role

Dombrovskis’ emphasis on emerging technologies like AI, blockchain and cloud computing could be especially poignant considering the solutions are key focuses for one area of FinTech in particular: B2B payments.

The latest news and analysis from Innovate Finance and Pitchbook, released this week, finds that Europe’s B2B FinTech industry is booming. As of September 11, 2017, the B2B FinTech market has secured nearly half (46 percent) of all FinTech funding in the EU, a steady increase from past years: B2B FinTech landed 34 percent of total FinTech funding in 2015 and 45 percent of total funding in 2016, researchers said. So far this year, B2B FinTech has secured $948 million in investments, with the number of large funding rounds (those at least $20 million) nearly doubling since 2015.

In its “State of European FinTech: Current Trends & Prediction” report, Innovate Finance highlighted the upward trend of B2B FinTech investment.

“This is due to many factors, including regulation, increased collaboration and emerging technologies,” the report concluded. “White labeling of FinTech products and solutions enables incumbents to act more nimbly whilst allowing B2B FinTechs the ability to scale rapidly.”

The corporates themselves that are now enjoying attention from FinTech innovators have expressed increasing interest in FinTech investment, with corporates doubling their participation in FinTech investments in recent years. Nearly a quarter of all FinTech investment rounds are coming from corporate venture capitalist units, the report said, with 44 percent of large funding rounds (those at least $20 million) attributed to corporate investors in 2017.

The ongoing partnership between traditional financial institutions and FinTechs could also be encouraging investment in B2B payments players. But according to Innovate Finance, regulation plays a key role in this trend as well. Companies are looking at regulations like MiFID II to reevaluate their processes and architectures, while PSD2, the report noted, is driving development of APIs (critical to integrated corporate-facing FinTech solutions and to banks looking to partner with B2B FinTechs), as well as driving the creation of targeted solutions using open banking data.

With the European Commission assessing its approach to FinTech regulation, any initiative is sure to make an impact on the ability for B2B FinTechs to continue to innovate and proliferate. Innovate Finance, too, highlighted blockchain and artificial intelligence as key drivers of the B2B FinTech industry.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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