Fintechs increasingly focused on business services

It's still not time to celebrate for young financial startups (fintechs). In the first quarter, capital raisings fell by another 59% (in value) globally, notes the latest study from Crédit Agricole. France is no exception. “The amounts raised in recent years by the best French fintechs have stagnated at 6 billion euros in total,” notes the third edition of the Fintech 100 rankings produced by Truffle Capital and Finance Innovation, in partnership with BPCE and Sopra Steria. The study identifies the 100 best French fintechs based on their turnover, number of employees or funds raised.

This year, Qonto, Ledger and Younited Credit are on the podium. Across the world, the rapid rise in interest rates has put an end to the period of easy money that flooded technology start-ups for several years. This paradigm shift has reshuffled the cards in this young sector which emerged around ten years ago. Last year, due to lack of fresh capital, 10% of French fintechs went out of business or were bought out, notes the Fintech 100. In the lead, the insurance start-up (insurtech) Luko, resold recently at Allianz for a pittance.

“The bursting of the fundraising bubble is at the origin of a radical change which forced the sector to begin to mature,” explains Bernard-Louis Roques, co-founder and managing director of Truffle Capital. Fintechs are now placing more importance on their ability to generate an operating margin and become profitable. Until 2023, they were often obsessed with all-out growth, which created aberrations. » The fintechs that are doing better are those that raised the most capital during the good years and therefore still have enough cash flow to continue growing. “This ensures their sustainability, allows them to continue to grow strongly and to innovate, for example by having more and more recourse to artificial intelligence,” says Bernard-Louis Roques.

Above all, almost three quarters of these young start-ups (72%) have an activity geared towards businesses, such as Qonto (banking activity for VSE-SMEs), Swile (restaurant vouchers) or Alan (corporate health insurance). One of the main reasons is linked to the fact that, from the start, these start-ups charged companies for their services, which allowed them to generate turnover. This was not the case for fintechs dedicated to individuals (neobanks, payment services, etc.), which often launched with free offers or prices disconnected from reality on the ground. This explains the difficulties encountered by insurtechs and certain fintechs specializing in lending.

At the start of the year, the October platform (formerly Lendix) sold its technological infrastructure (October Connect) to Sopra and “radically reduced” its capacity to lend. “Insurtechs and companies dedicated to loans have often favored the frantic conquest of market share without taking into account the risks,” explains Bernard-Louis Roques. As a result, they attracted “bad risks”, that is to say customers that insurance companies or banks did not want. “Fintechs have had to change their mode of operation and they have become much more selective,” adds the expert. Those who will do best are those whose sectors have the most barriers to entry,” he adds.

The transition to maturity also implies continued concentration in the sector, which in France has 2,000 start-ups and nearly 15,000 employees. Especially since valuations have fallen. Nearly half (45%) of the companies surveyed by the Fintech 100 study say they have external growth projects. “The crisis is not over and the concentration movement will accelerate in all fintech sectors,” anticipates Bernard-Louis Roques. Some companies will make acquisitions abroad, mainly in Europe, or seek to diversify. The majority (68% of the Fintech 100 list) already have one foot outside France. Others will be bought by large companies such as banks or insurance companies. Anglo-Saxon players could also make their market in France. How many fintechs will still be in business in five or ten years? This is difficult to say, because new growth is emerging every day, despite the period of financial scarcity, the end of which no one predicts. “In ten or fifteen years, fintechs will represent more than 20% of the financial industry,” predicts Bernard-Louis Roques. Most will undoubtedly be geared towards businesses.