Current State and Outlook of the Italian Fintech Landscape

1. Bio and track record: Silvano Lenoci, Partner at KPMG

Silvano Lenoci, who joined KPMG in 2000s, is currently Partner, Head of Corporate Finance Italy, Head of Start-up/Tech for the Italian network, Co-Head of Global M&A Banking and Insurance and Head of EMA Insurance Deal Advisory.

Silvano has extensive experience in M&A transactions, both at national, European and global level having successfully directed several transactions, working for important Financial Institutions and Tech companies, ensuring his experience also in public offerings and preparation of industrial plans, strategic analysis and reorganisation projects.

During the recent period, the range of activities undertaken as a financial advisor in the Fintech sector encompasses numerous initiatives, including but not limited to:

• Digital Payments:

i.the ongoing acquisition by FSI of Banco BPM Payments Business Unit and the set-up of a strategic partnership;

• Cyber Security:

ii.the acquisition by BV TECH of the 80% stake in Arturai Group in 2023;

• Insurtech:

iii. the acquisition by TDH Holding of the co-founder’s stake of Prima.it in 2022;

• Lending:

IV.the acquisition by Willoughby Capital of the 49% in Scalapay in 2022

2.Current State of the Italian Fintech Market

2.1. Overview of the Current Market Size

The Italian Fintech market stands as a dynamic and ever-expanding ecosystem. The sector has experienced significant growth, both in terms of market size and the variety of services offered. Italy’s Fintech market size is €1,879 million, with an estimated 2023-2027 compound annual growth rate of 11.7%¹Source: Statista Market Insights, Revenue of the Fintech sector in Italy that underscores the industry’s resilience and adaptability.

The Fintech in Italy covers several business segments along the entire business value chain. Digital payments continue to be a vibrant segment, with mobile payment solutions gaining traction among consumers (from Buy Now, Pay Later (“BNPL”), both private and retail, to Peer-to-Peer (“P2P”)). In the contemporary Italian Fintech landscape, strategic collaborations and partnerships have become integral to the growth strategies of both startups and incumbents.

Strategic alliances are not only prevalent within the Fintech sector but also extend to collaborations between Fintech companies and traditional financial institutions. These collaborations aim to leverage the strengths of both parties, combining innovation with the established infrastructure and customer base of traditional players.

2.2. Main Italian Fintech subsectors

2.2.1. Digital payments

The Digital payments industry comprises various electronic transaction methods, encompassing everything from online and mobile payments to the use of digital wallets and contactless technologies.

During 2023, there has been a notable shift in investing trends, as numerous investors redirected their focus towards Fintech companies possessing strong core payment processing capabilities and resilient business models. The prevailing concerns about a potential worldwide economic downturn, elevated inflation, and swift interest rate hikes in various regions probably played a role in the substantial deceleration, alongside the persistent downward pressure on valuations.

Simultaneously, there is a growing trend towards innovative payment solutions like mobile and wearable technologies. The market for digital wallets and shared savings platforms is expanding significantly, with a projected cumulative annual growth rate of 16.4% until 2027.²Source: Statista Market Insights, Transaction value of the Digital Payments sector in Italy

2.2.2. Insurtech

The Insurtech industry leverages on technology to innovate various aspects of the insurance sector, including policy development, risk evaluation, and the processing of claims.

During 2023, there has been a continuous and strong focus on the risk prevention side of insurance, particularly from general insurance carriers. This focus spanned quite a spectrum, from the use of sensors to detect and prevent leaks and fires before a major issue occurs to mechanisms to prevent and mitigate the impact of Cyber-attacks. Given the difficulty of pricing emerging risks, insurers have also shown interest in solutions able to help them understand and quantify specific risks in order to better develop related insurance offerings.

The industry is also increasingly leaning towards Insurtechs that act as ‘enablers’ within the existing insurance value chain, enhancing risk assessment and prevention capabilities. In addition, there is an increasing emphasis towards the customer experience, which is further increased by the implementation of data analytics.

2.2.3. Wealthtech

The Wealthtech sector involves the integration of technology into the asset gathering/private banking industry, focusing on investment management, personal finance, and wealth optimisation solutions.

Even though it still accounts for a relatively small percentage of the market in Italy, interest in Wealthtech offerings is growing. The growing middle class has begun generating a demand for innovative banking products beyond basic cash accounts, encompassing solutions that include funding capabilities.

This shift reflects a broader trend towards democratising investment opportunities, traditionally reserved for high-net-worth individuals, through innovative approaches like fractionalised fundings. Alongside this development, robo-advisors are gaining prominence, catering to this growing customer base by providing straightforward access to trading and a variety of funding.

2.2.4. Cyber Security

The Cyber Security sector encompasses the development and application of technologies focused on digital security, network protection, data integrity, and defence against online threats.

In the Italian landscape, Cyber Security companies have continued to focus significantly on responding to the demands of their customers, including the demand for real-time monitoring. In particular, Cyber Security companies have embraced the use of AI and automation to develop more robust real-time platforms; they are now looking at generative AI as a mechanism to further improve their real-time compliance monitoring, assessment, and decision response solutions.

Over the last years, Cyber Security attacks have continued to grow in complexity, becoming increasingly challenging and time consuming for organisations to manage.

2.2.5. Lending

The lending sector includes, among the others, financial services focused on providing loans and credit facilities to businesses and individuals, often incorporating innovative technologies and models like Buy Now, Pay Later, which is steadily gaining popularity.

Italian lending Fintechs are demonstrating notable development dynamics, particularly in the area of digital platforms facilitating business financing, especially for small and medium-sized enterprises. 2022 was characterised by mega rounds and registered a substantial increase in the volume of funds provided, compared to the previous year, though this growth was more pronounced in business lending than in direct loans to private individuals.

Currently, a significant trend in this sector is the growing adoption of blockchain technology and the development of innovative products aimed at addressing new financial needs such as BNPL models, and products focused on environmental and social sustainability.

3. M&A and Venture Capital activity in the Italian Fintech Market

In an era marked by rapid technological innovation and evolving financial landscapes, the Italian Fintech sector has emerged as a hub of innovation and growth. This chapter aims to provide a detailed overview of the market, offering valuable insights into the dynamics shaping mergers and acquisitions (“M&A”) in this vibrant sector.

3.1. Overview of the M&A Fintech Landscape in Italy

The Italian Fintech market is a complex and diverse ecosystem comprising various segments like Payments, Lending, and Wealthtech among others. This diversity is underpinned by a collaborative spirit between traditional financial institutions and Fintech firms, fostering an environment ripe for strategic M&A activities.

Mergers and acquisitions have emerged as strategic tools that not only reflect the maturity of the Fintech market but also underscore the competitive forces driving companies to collaborate, consolidate, or reinvent themselves. M&A activities in the Italian Fintech sector have far-reaching implications, influencing market structures, fostering synergies, and propelling the industry into new frontiers.

Moreover, the Cyber Security sector is taking the lead as the most prioritised by investors and bigger players focused on amping up Fintech platforms to incorporate AI-based Cyber Security tools and technologies.

3.2. A selection of recent M&A deals in the Italian landscape

3.2.1. Digital payments

3.2.1.1. FSI and Iccrea partner with Banco BPM

On July 14, 2023, Banco BPM, Gruppo BCC Iccrea, and FSI have entered into a binding agreement to create a strategic partnership, giving rise to a prominent player in Italy’s digital payments sector. This collaboration, supported by KPMG Italy as financial advisor to FSI, is marked by an innovative and growth-oriented approach and aims to set new standards in the country’s Fintech landscape.

The joint venture will leverage on Banco BPM’s extensive network of over #1,300 branches and BCC Iccrea Group’s #117 cooperative banks with almost #2,500 branches, collectively representing nearly 20% of the bank branches in Italy.³Source: FSI and Banco BPM’s press releases

This initiative is underpinned by a commitment to digital and Fintech innovation, with plans to expand the customer base to other banks and financial operators in the domestic market, also following FSI and ICCREA partnership launched in 2022.

3.2.1.2. Nexi signs a strategic agreement with Banco de Sabadell to acquire Paycomet

On February 27, 2023, Banco de Sabadell and Nexi entered into a strategic partnership in the digital payments sector across Europe.

As part of this agreement, Nexi will acquire an 80% stake of Banco de Sabadell’s merchant acquiring business for €280 million, after its carve-out into Paycomet. With an enterprise value of €350 million for 100%, this transaction will involve #380 thousand merchants and approximately €48 billion of transaction volumes.⁴Source: Nexi and Banco de Sabadell’s press releases

3.2.2. Insurtech

3.2.2.1. Groupama Assicurazioni sells G-Evolution to FairConnect

Groupama Assicurazioni, a leading international insurance and banking group, has successfully signed an agreement to sell 100% of the share capital of G-Evolution, a leading provider of telematics services and specialised in the use of advanced AI algorithms for data analysis for support in the insurance sector, to FairConnect, a prominent provider of connected insurance solutions in Europe.⁵Source: Groupama Assicutazioni and FairConnect’s press releases

3.2.3. Wealthtech

3.2.3.1. M&G partners with Moneyfarm

Moneyfarm, the leading Wealthtech company that enables users to create and manage investment portfolios based on investment targets and their risk appetite, announced on January 26, 2022, the partnership with M&G, with the intention of providing direct investment services to UK consumers.

M&G Wealth, the UK-based wealth management division of the company, invested €53 million in Moneyfarm and plans to leverage on its current technology, digital capabilities, and investment guidance paths to support its own uniquely branded offering. Additionally, M&G and Moneyfarm will jointly investigate various opportunities to collaborate in additional European wealth markets.⁶Source: M&G and Moneyfarm’s press releases

3.2.4. Cyber Security

3.2.4.1. BV Tech acquires a majority stake of Arturai Group

On February 9th, 2023, BV Tech, a prominent Italian entity in the fields of information and communication technology as well as management consulting, strategically enhanced its market footprint by acquiring a majority stake in Arturai Group with the support of KPMG Italy. Arturai, recognised as a leading provider of multi-cloud security and web performance solutions, operates across several European countries. This acquisition cements BV Tech’s position in the Cyber Security and digital transformation arenas.⁷Source: BV Tech and Arturai’s press releases

3.2.5. Lending

3.2.5.1. Scalapay’s Series B financing round

Scalapay, a leading payment solution in Southern Europe specialising in BNPL services without interest, secured $497 million in a 2022’s Series B investment funding.⁸Source: Scalapay’s press releases The funding round, led by Willoughby Capital, that was supported by KPMG Italy, featured participation from players such as Tencent, Tiger Global, Gangwal, Moore Capital, Deimos, and Fasanara Capital. This achievement has elevated Scalapay to unicorn status.

Scalapay’s BNPL offerings, including Pay in 3, Pay in 4, and Pay Later, enable customers to defer payments and choose between three instalment options. The company aims to enhance the customer purchasing experience by reducing the financial burden.

3.2.5.2. Aidexa’s financing rounds

Aidexa is the first digital financial institution in Italy with an open banking system dedicated to SMEs, with top customer experience, fastest time to credit answer and best NPS score. In 2022 it raised €12 million from investors to improve bank’s solidity and there are market rumours that Aidexa will launch a new round in 2024.

Aidexa’s potential customer base is around #800k in the small business segment, one of the most attractive niche markets in terms of risk-adjusted profitability in Italy.

On 24 February 2020, PBI S.r.l., major shareholder of Aixeda, entered into a co-investment agreement with #30 investors for a total capital raised higher than €40 million. More than #300 potential investors were contacted, including: #4 institutional investors, #6 family offices and #20 angel investors.⁹Source: Aidexa’s press releases

3.3. Venture Capital at a glance

The Italian Fintech ecosystem experienced significant growth in the second half of 2022, marked by large-scale deals such as Satispay’s €320 million funding, Scalapay’s €441 million round in February 2022, and Moneyfarm’s €53 million financing.¹⁰Source: Satispay, Scalapay and Moneyfarm’s press releases However, the trend shifted in 2023, witnessing a slowdown in M&A transactions and a pivot towards a stronger focus on the Venture Capital (“VC”) ecosystem. In fact, based on BeBeez Private Data’s elaborations, the fundraising activity of Italian fintech startups and scaleups has seen a quiet year, with €200 million raised in #32 rounds. This contrasts with the notable success of 2022, which concluded with a total fundraising of €1.05 billion spread across #28 rounds from #26 companies. This shift was accompanied by a notable downturn in the Fintech market, characterised by reduced valuations and investor risk appetite, leading to an increased emphasis on developing new technologies and business models, supported by incubators, events, and organisations.

Venture capital investment in financial technology companies saw a significant decrease in the third quarter of 2023, continuing the pattern of reduced funding deal volumes. Despite this general downturn, there was a notable resurgence in mature startups, which contrasted with their performance in previous quarters. This resurgence, particularly in late stage investing, appears to be a market correction following the previous year’s funding challenges. However, the lasting effect of this improvement on early-stage investments is still uncertain.

During this period, the sector observed a few digital banks re-entering the VC market and a sustained interest in AI-based Fintech models. In addition, there has been a strong trend related to launching digital banks to compete with foreign institutions.

More specifically, Intesa Sanpaolo launched Isybank in June 2023, while Unicredit revamped Buddybank in October 2023, updating the homebanking app to keep up with competitors. Yet, these positive trends were insufficient to counteract the overall downward trend in funding across different sectors and regions. Late-stage startups fared relatively better than other stages, but valuations across the Fintech sector continued to face challenges. The future recovery in Fintech venture funding may hinge on creating more exit opportunities through IPOs and M&A activities, which could potentially kickstart a new growth cycle in the sector.

4. Future outlook: envisioning the trajectory of the Italian Fintech market

Throughout 2023, Fintech funding experienced significant restraint as numerous investors refrained from undertaking substantial funding commitments amid a multitude of market challenges. These challenges included notably elevated interest rates, which fundamentally posed a challenge to existing business models.

The following key trends will be defining the Fintech industry’s future:

1) Fintech investors are progressively placing higher importance on companies that can showcase substantial top-line revenue growth and quicker routes to profitability.

2) The payments sector will remain active, with a strong focus on consolidating the existing businesses and launching new in-house solutions to achieve greater scale and reach and take advantage of significant scheme changes across all markets.

3) Corporate Ventures will embrace start-ups able to help them operate more seamlessly and efficiently: corporate fundings will likely focus on solutions able to help their corporate customers operate more effectively and transform digitally — from Cyber Security platforms to solutions that help financial processes.

4) The role of accelerators and incubators in fostering innovation cannot be overstated. In Italy, numerous entities are nurturing startups, particularly in their early stages. This nurturing is creating a pipeline of innovative companies, making them attractive targets for M&A.

5) The enthusiasm for AI is poised to grow further: scaleups will highlight their established AI capabilities as they seek funding and establish business partnerships, while new startups will be nurtured and expanded to harness AI as a transformative factor in operational efficiency and services. The involvement of major tech giants will be pivotal in advancing generative AI Fintech solutions.

6) ESG considerations are becoming increasingly prominent in the Fintech sector. This will further increase its impact in a period that requires sustainability and solidity.

7) The concentration of Fintech startups in Northern Italy, especially Milan and Turin, is a significant factor in the M&A landscape. However, the potential for growth in Southern Italy, supported by training programs and fiscal incentives, represents untapped opportunities for strategic M&A, also thanks to the increasing hubs launched through universities.

4.1. Conclusion

In conclusion, the Italian Fintech market presents a landscape with several opportunities and challenges. Predictions indicate continues growth in digital payments, the influence of emerging technologies, and the impact of global trends such as ESG considerations. Furthermore, the heightened significance of startups and technology enablers in the Fintech environment is expected to increase in the upcoming years, even though 2023 registered an 81% decrease in investments compared to 2022, with only €200 million raised.¹¹Bebeez Private Data The role of M&A will persist as a strategic lever, enabling companies to capitalise on these opportunities while addressing regulatory complexities and market dynamics.