Could France Lead the EU’s Digital Comeback?

After starting the year at a five-year low, France may be in a position to lead venture investment in the EU out of the dark ages. The country has emerged as a rising star in Europe’s active financial technology (FinTech) sector, attracting a surge of venture capital investment that is fueling the growth of startups seeking to disrupt traditional banking.

Riding a $4 billion investment from Microsoft announced on May 14, a series of public-private partnerships and investment-friendly regulation have made France a formidable FinTech destination after years in the digital dark ages. According to PYMNTS author and noted economist David Evans, writing in PYMNTS on April 18, Europe has created relatively few leading digital businesses during the past three decades. “Of the 69 digital businesses worth $10 billion or more as of December 2023, Europe, which accounts for 21% of global GDP, had spawned just five: Spotify, Adyen, Revolut, Adevinta and Checkout.com,” Evans wrote. “Together they account for less than 1% of the total value of the 69 businesses. None is based in Germany, France, Spain or Italy, the four largest EU economies.”

Maybe someone in the French government was reading.

In 2023, the French FinTech sector experienced a notable shift in its deal activity and funding landscape. The year saw a total of 147 deals completed, marking a 12% decrease compared to 2022. This is much better than the European average which saw a 43% drop over the same period. French FinTech companies collectively secured $1 billion in funding throughout the year, reflecting a significant 79% decline compared to the previous year’s figures. Despite the decrease in overall funding, the average deal size in the French FinTech space remained relatively substantial at $6.8m, a 77% reduction which indicates a major drop in large deals.

Ledger, which provides security and infrastructure solutions to critical digital assets, was the largest French FinTech deal in 2023, raising $108m to extend their Series C funding round. The extension round maintained the company’s valuation at €1.3 billion. Led by Pascal Gauthier, Chairman and CEO, Ledger is a global platform for digital assets and Web3, with more than 6 million devices sold to consumers in 200 countries, more than 100 financial institutions and brands as customers, and 20% of the world’s crypto assets secured.

This FinTech boom has coincided with efforts by France’s president Emmanuel Macron’s government to boost the country’s startup scene and lure tech talent and capital. Through its La French Tech initiative launched in 2013, France has worked to cut red tape, encourage entrepreneurship, and promote itself as a business-friendly hub.

According to the French government quoted in daily newspaper Le Monde, in 2023, France benefited from 1,815 international investment projects, which are expected to maintain 1,391 jobs and create 57,863 new positions over the next three years, surpassing 2022 figures. Investors are likely drawn to reforms aimed at reducing labor costs, cutting corporate tax, and introducing a “green industry tax credit.”

Microsoft announced its largest-ever investment in France on May 14, totaling €4 billion. The company plans to expand its cloud and AI infrastructure, bringing up to 25,000 advanced GPUs to the country by 2025. Microsoft will expand its datacenter footprint in Paris, Marseille, and invest in a new datacenter campus in Mulhouse Alsace Agglomération.

“With this major project, the Grand Est region is making Alsace a benchmark region for artificial intelligence in France and Europe. This unique project, benefiting from a technological first, will strengthen the competitiveness of our regions and businesses, while guaranteeing the security of their data,” said Franck Leroy, President of the Conseil régional du Grand-Est.

Microsoft also commits to upskilling 1 million people in AI by 2027, partnering with government institutions, training services partners, non-profit organizations, and universities to launch new training programs focused on building AI fluency, developing technical skills, supporting business transformation and promoting responsible AI development.

Microsoft aims to accelerate 2,500 French startups with AI support through its new flagship program, Microsoft GenAI Studio. This initiative offers a comprehensive package of AI expertise, cloud credits, and collaboration opportunities with customers and partners. Microsoft GenAI Studio will run a tailored 4-month program at STATION F twice a year over three years and expand with a nationwide tour and localized actions to foster connections with regional players.

In 2019, France implemented significant regulatory changes for digital assets and initial coin offerings (ICOs). These changes include defining tokens as digital representations of securities, allowing token issuers to obtain optional visas from the Autorité des marchés financiers (AMF) for ICOs, and introducing a framework for a secondary market for digital assets with digital asset service providers. Registration will entail additional requirements such as internal controls, conflict of interest rules, and client communication, reflecting France’s commitment to establishing a comprehensive regulatory framework to promote responsible practices and investor protection in the digital asset and ICO space.

Investors and founders say Brexit has also worked to France’s advantage by prompting some FinTech firms and talent to shift from London. Bruno Le Maire, the Minister of the Economy, told LeMonde that his objective is to capitalize on the momentum generated by Brexit and attract an even greater number of jobs, businesses and, most importantly, sustained investment inflows.

The French government claims that since the start of 2021, the Parisian financial district has seen an influx of over 5,500 positions in the banking and finance sectors, with the bulk of major English-speaking financial institutions opting to establish their eurozone market operations in the French capital. Stéphane Boujnah, the chief executive officer of Euronext, a prominent stock exchange operator, encapsulated the situation, stating, “While it may not be remarkable when compared to London’s enduring prominence, it is certainly noteworthy when considering Paris’ previous status.”

One high-profile French FinTech success story is Lydia, a popular payments app among French Gen Z and millennials. The Accel and Tencent-backed startup is investing €100 million over the next three years to expand its digital banking services under a new app called Sumeria. Despite this significant investment, Lydia cofounder Cyril Chiche expects the company to achieve profitability in 2023.

Other notable French FinTech deals include Qonto’s €486 million raise in 2022, valuing the neobank at €4.4 billion, as well as sizeable rounds for Spendesk, Bleckwen, and Fintecture.