France is one of the biggest economies in the world, but its FinTech sector has lagged behind the UK and Germany. However, things are heating up.
France’s FinTech sector has witnessed a five-year growth. Last year, funding levels hit a new record of $848.2m, according to FinTech Global’s data. Between 2015 and 2019, a total of $1.8bn has been injected to French FinTechs, with investment increasing at a 45.6% compound annual growth rate in this period. Appetite is clearly rising for these services and France’s strong financial ecosystem and eagerness for innovation is only going to help.
Chip and pin cards have become the norm, but it was France that was the first country to implement the system. The country’s desire to stay in the driving seat of technological innovation can be seen by its number of growth initiatives. France’s government launched The French Tech initiative in 2013, which aims to support startups to grow their services through funding and networking.
NEOMA Business School Professor Marco Gazel said, “Besides the substantial number of FinTech startups – [there has been] more than 1,000 created in the last 15 years – other sectors supporting this new industry have developed a lot in recent years, such as startup incubators, which have proved very useful in the development of this area.” The country has around 250 incubators and is home to Station F, the biggest digital business incubator in the world, and Le Swave, the first wholly FinTech-focused incubator in Europe. “These examples show that there is a willingness of investors and also that there is already a culture of entrepreneurship in this sector,” he added.
The country is not only supported by a strong entrepreneurship from the sector, but there is also a nexus of engineering and skilled technology talent. A study in 2010 from Alberta Government claimed the country was home to the second largest labour force in Europe, with 1.2 million engineering workers. In other words, FinTech companies have a high-quality talent pool to tap in to.
France has got the hallmarks for a strong FinTech sector, but it is the complex regulatory environment which could be one of the biggest benefits to the country. There is a strong love -hate relationship between the financial market and regulations. While poorly implemented legislations can impede progress, if done correctly, they offer a lot of opportunities and protections for consumers and businesses alike.
Guillaume Bonneton, partner at technology advisory and investment firm, GP Bullhound, said, “The fact that French finance sector is heavily regulated creates an attractive environment for startups for two reasons. Firstly, it is more difficult for international [companies] to adapt to local rules, which means there is space for local companies to emerge.
“Secondly, there is less excess – for instance payday lending companies are banned in France, you can’t have interest-only mortgages and mortgage rates can’t explode after three years, like they do in many cases in the UK for instance. This means models are still quite healthy and there is space for growth and innovation.”
The fact companies in France are bound to meet requirements of both local and EU-wide legislations, has created a complex regulatory system to work through. One of the recent controversies around its regulatory measures is a tax on the profits of large technology firms. This tax is set to heavily hit enterprises like Google and Facebook. The tax law has angered the US government, which is looking to back up its businesses operating in the country. In a retaliatory effort, Washington has suggested it would implement tariffs of up to 100% on French products. If the new tax laws go ahead in France, it could really open the way for more FinTech startups to replace larger technology businesses.
The country also has a notoriously strict ecosystem for protections of individuals, both consumers and workers. This leaves a lot of hoops for businesses to jump through. “As France is a regulated market with high consumer protections, any FinTech that is successful in France will instantly gain global credibility,” said Elias Ghanem, global head of market intelligence at Capgemini’s Financial Services.
While it can be tough to meet the various regulations, they are there for a reason. Having a strong regulatory system helps to mitigate risks to the ecosystem and ensures a strong financial market, aimed at avoiding another financial crisis.
Adding to this, Gazel said, “That is why I believe that the effect of regulation will be beneficial to the sector. [Governments should accelerate the process of adaptation [and] creation of standards that take into account the effects of technology, especially when traditional institutions are eliminated from the process. For example, [when they are] replaced by startups, platforms, or even eliminated, as in the case of blockchain technologies. This seems fundamental to the real perception of risk associated with these new FinTech alternatives and thus the adoption by the general public.”
Regulation a double-edged sword
While having a strong regulatory ecosystem is helping the country build an attractive FinTech market, it is not without challenges. “The downside of heavy regulation in France’s financial institutions, is that it sometimes hinders emergence of new models,” Bonneton added.
Having a strict environment may foster secure operations and provide an advantage to the local businesses which have established expertise on the rules. However, a country cannot solely rely on having everything internal, it needs to attract international businesses. To do this, Bonneton believes rules need to be made a clearer for those wishing to enter the market. He said that France is an attractive market, so support should be offered to those looking to make the move.
Additionally, there needs to be more wiggle room for risk. “Financial regulation is beneficial in its stability, but it doesn’t allow for the risk – and therefore reward – of innovation,” Bonneton added. Becoming more relaxed around certain areas of regulation will help more startups emerge.
Discussing how to support the development of FinTech in the country, Ghanem said, “France does not have a public FinTech sandbox like there is in the UK, The Netherlands and Singapore and this could be initiated to foster FinTech development.”
Regulatory sandboxes have been popping up around the world and offer a great way for companies to test out their technology in a safe manor and not needing to meet various regulatory requirements while testing out products. However, until one is established in France, companies are going to face a hard time getting ready for the market, Ghanem argued.
Thierry Antonin, director solution consulting, EMEA continental at ACI Worldwide, said, “While the same regulations apply across all EU countries, the EU has not yet provided a perfect solution for all the issues facing FinTech in France. Additionally, there are still local regulations that FinTechs have to abide by.
“These regulations and regulators have been put in place before the idea of the Single Europe Payments Area – a payment-integration initiative of the EU for simplification of bank transfers denominated in Euro. Until we find a better alternative, we’ll have to make do. The European Central Bank and European Payments Council are playing a crucial role in resolving these issues to make it as easy as possible to grow a business in EU.”
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