Fintechs adapt to a stressed macroeconomic environment

The current market situation (rate hike, inflation, uncertain macroeconomic and geopolitical outlook) and the maturing of the ecosystem have changed the “rules of the game”. Players are now moving from a hyper-growth model, largely fueled by access to abundant capital, to models that can demonstrate profitable revenue growth trajectories in the short and medium term (“controlled growth” trajectory). , with investors increasingly favoring the latter strategy.

This new ecosystem tends to favor the players best positioned on this trajectory: they can take advantage of this context to consolidate the market. 

Fintechs operate and adopt several measures to converge on these winning models: 

• Refocusing the activity on the core business on product and/or customer dimensions;
• Geographical refocusing, with an end to the race to internationalize at all costs to focus on their key markets;
• Adaptation and adjustment of the payroll Consequently.

They confirm a positive dynamic of development

Despite this uncertain economic context, fintechs have confirmed their positive momentum in 2023: 52,4% of fintechs already generate more than €XNUMX million in turnover compared to nearly 36% of fintech in 2022 and 32% in 2021.

This development confirms the strengths of the players: 

• A suitability of products with customer expectations;
• A digitalization of the economy which continues;
• Personalized proven business models confirming the potential for a profitable monetization trajectory;

Personalized partnerships “at scale” intra-fintech or with institutional players

More than 52% of French fintech companies achieve a turnover of more than €1 million in 2023 compared to 50% in 2022.

As valuations adjust, the seed is showing more resilience

The rise in interest rates has resulted in a scarcity of capital and therefore an adjustment in fintech valuations, demonstrating the potential maturity of the ecosystem.

Investment files have thus become more complex in recent months: faced with this scarcity of capital, investors are more demanding, which has the effect of lengthening the time it takes to access financing.

Seed financing volumes were globally divided by 3, going from €503,6m raised in June 2022 to €174,4m raised in June 2023. Nevertheless, the number of operations remains significant (decrease from 67 to 49 operations, ie – 27% of operations on a like-for-like basis).

The relative resilience of the number of seed operations illustrates the growing involvement of “enlightened” investors: more and more business angels very familiar with the fintech ecosystem, being themselves former fintech founders, are in turn reinvesting in the sector.

Analysis of 2023 fundraising

…especially neo-bank players

The question of adapting models is all the more significant in so-called neo-banking models. which remains a heterogeneous segment in terms of the type of customer targeted, breadth of offer, international ambition and economic and operational model. 

The credit variable remains discriminating and therefore a strategic question for these actors:

• The initial strategy of neo banks with an international scope was apply for a credit institution license; today several players have at least temporarily given up on it. 
• This trend is mainly due to the length of the accreditation process, the associated cost (equity) and the facility offered by players specialized in “Open Finance” 

However, the credit component, which generates profitability, customer knowledge and retention, remains strategically essential; most players therefore seek to acquire it either organically or through partnerships (e.g. financing offer in partnership with approved players)

The new market environment favors the acceleration of M&A operations

Mergers and acquisitions transactions, 15 in number since the start of 2023 (compared to 33 in total in 2022 and 16 in 2021), concern in 40% of cases, operations between fintech.

Cross-border activity is sustained since 9 foreign fintechs have been acquired by French companies and 5 French companies purchased by foreigners.

These operations respond to both strategic moves, aimed in particular at develop in new countries, save time in acquiring critical size, develop new businesses, only taking opportunities. In fact, the fall in valuations and the cash or model impasse in which certain players have found themselves, paving the way for mergers. In this last hypothesis, the operation frequently takes the form of the purchase of assets.

Despite a slowdown and some downsizing operations, fintechs are a priori recording a positive net balance of job creation.

The economic context has forced a number of players to adjust quickly to a new market situation in particular by adjusting their payroll accordingly. 

Despite a slowdown and certain headcount reduction operations, recruitment nevertheless continued to meet the growth challenges of the players. with probably a stronger focus on revenue and monetization oriented profiles.  

According to our initial estimates, the balance of job creation seems to be positive in the first half, with persistent tension on certain types of profiles (eg IT developers, marketing).

The fintech sector remains an important recruitment pool with +40,000 jobs already created in France by fintech at the end of 2022.

Parity remains an essential area of ​​progress for fintechs: despite notable progress (37% of female recruitments in 2022 vs 35% in 2021), there is still a significant gap to fill.

Recruitment growth per year

In 2023, recruitment should continue by +23%, at a slower pace than in previous years.

Financial services embrace generative AI

The first wave of innovation in financial services relied less on technological innovations than on new uses (pools, payment, peer-to-peer, crowdfunding, etc.) and careful work on the customer journey.

Today, Tech is positioning itself in a driving role given the potential of the blockchain and in particular of AI, although it already occupies a prominent place in innovative finance models, with 30% of French fintechs already using AI.

The potential of generative AI today is considerable, with a contribution of new use cases which should concern: 

• The relationshipn customer, via the optimisation of customer interactions through bots, chatbots, etc.
• Risks, through the identification, analysis, management and rating of these
• Productivity (e.g. customer acquisition, targeting, operating costs)

These three dimensions are essentially at the heart of the models of banks and insurers, which suggests a major impact for the entire financial ecosystem, whether traditional or innovative.

Use by French fintechs of technological functionalities