Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Whilst Brexit troubles the UK’s financial world and entrepreneurs look elsewhere, sunny Portugal’s vibrant startup culture is providing an attractive post-Brexit base for fintechs, slowly looking to compete with Europe’s most prominently established fintech hubs.
Is it surprising to hear that Portugal is making a headway in technological advancement? On the one hand, Portugal is one of Europe’s oldest nations, founded in 1128. Antique, certainly, but also a nation built on forward-thinking maritime ‘founders’. Many of history’s great Western explorers were Portuguese: West Africa’s coast discovered by Prince Henry the Navigator; Africa to India circumnavigated by Vasco da Gama; and Europe’s first sighting of Brazil was carried out by Pedro Álvares Cabral. Brazil of course remains one of the largest countries outside of Portugal to speak its language as its mother tongue, with multiple countries in Africa also adopting Portuguese as a native language, including Mozambique, Cape Verde and Guinea-Bissau. The Portuguese are also credited with one of the most advanced ATM systems globally, and Europe’s longest bridge – the Vasco da Gama Bridge, Lisbon – at 17,185 meters. Portugal’s more bizarre world firsts include the first documented balloon flight in 1709, and it produces over half of the world’s cork. In recent terms, Portugal hosted this year’s Eurovision Song Contest after its first win in 2017, and Portugal are set to cause a storm in this year’s World Cup, captained by footballing talisman Cristiano Ronaldo. I would be biased in my support having Portugal as my sweepstake, but I think they may do well… What a game against Spain that was.
Onto fintech matters, let’s get the large numbers out of the way first. Last year, alongside the historic Eurovision win of Salvador Sobral, the transaction value in fintech amounted to US$5,580 million. By 2022, this figure is expected to almost double to a total of US$9,927 million. That would be an annual growth rate of 12.2%, with these figures calculated by stat giants Statista.
This is a fairly small figure in comparison to other European nations that are monoliths in the advancement of fintech (France, for instance, in the same year gained a transaction value of US$83,303 million), but Portugal is a far smaller nation, with fewer resources, but perhaps as much potential. It’s been fairly sluggish in its quick adoption of financial technology, but it’s certainly a tale of ‘Better Late Than Never’ here. Since 2016, the country has had somewhat of a lightbulb moment when it comes to fintech, building on its highly developed tech infrastructure (with Deloitte noting Portugal’s early adoption of other technologies and being a key European innovator) and it will surely keep growing exponentially once it really gets all regulations in check. This being, naturally, a large drawback for many hopeful entrepreneurs in the financial space.
Portugal already has many pros when it comes to the setting up of a company, however. For one, the Portuguese nation are an optimistic bunch, with an apparent “youthful and exuberant workforce”; talented young people, a cultural mindset, low cost of living and high quality of life, and the beautiful weather all contribute to attracting foreign workers. Already, Portugal has strong ties with fintech leader the UK (the Anglo-Portuguese Alliance of 1373 is also the oldest alliance in the world, too) and that looks even stronger due to Brexit’s chokehold on Britain’s financial state. Portugal’s global positioning (very literally) coincides with the UK (GMT) making business between the two countries extremely efficient, and it is being scouted as one of Europe’s main contenders for the post-Brexit fintech landscape. Asia and the US can all be reached in the same working day.
Already established is Portugal’s cluster of payment technology startups, an industry spearheading the growing focus of the fintech ecosystem which, again since 2016, has seen a huge increase in meetups between fintech-related groups, startups in the sphere, and the hosting of events. Perhaps one of the largest examples of technology meetups is The Web Summit, featuring such esteemed regular speakers as Mark Zuckerberg and Elon Musk. It has been hosted in Dublin for years, but has since traded its Emerald roots for the sunny shores of Lisbon. A controversial decision, perhaps, but it goes a long way in defining Portugal’s new found respectful position in terms of fintech.
Returning to Deloitte’s rundown of innovation, despite Portugal’s minnow of a market, Lisbon ranks as the 69th Global Financial Centre and has ranks 30th on the Global Innovation Index. It is also considered 23rd in the world for its educational system, with Lisbon housing three acclaimed universities for business and technology: IST; Noba SBE and Católica University. In other related news, Lisbon was nominated European Capital for Entrepreneurship in 2015, and branded one of 2016’s ‘hottest startup cities’ (pun intended?) by Wired.
Fight for Survival
There are certainly reasons, however, for why it has taken so long to get Portugal’s fintech up and running for only the past couple of years. Let’s take a look at the few reasons why.
For one, there’s a distinct lack of funding in O Rectângulo. The ICLG has described that, in 2016, venture capital investment only amounted to a small US$18.5 million. In corroboration, Deloitte notes that a lack of early-stage funding has meant that many startup companies are unable to scale upwards and go beyond Series A seed funding at all. Holes also appear in the covering of regulation pertaining to capital raising. Most specifically in the country, crowdfunding and equity- or lending-based activity lacks a fully realised legal framework currently; something that needs to be addressed in order for Portugal’s small national mindset to scale to global markets. Foreign startups in these fields are therefore reluctant to operate in Portuguese markets too.
One fintech news-piece outlining regulatory potholes is that of Easypay, an ATM-based challenger bank. The company was established as early as 2000, but took a whole seven years to fully launch due to ‘regulatory issues’ cited by the Bank of Portugal (BoP). The BoP is the central bank which regulates all 150 national banks and the country’s financial system. As well as this, this useful article highlights how the government has struggled with high wages, low growth output and the instability of financial institutions. Indeed in August 2014, the collapse of Banco Espirito caused a huge loss in confidence for the banking sector. It has become a top priority for the banks to survive in Portugal, rather than innovate through collaboration with fintechs.
A Sunny Outlook
That certainly spells out bad news for governmental bodies and financial heads, but in spite of struggle and strife, the outlook still looks bright due to the emergence of fintech, and the recent help that the industry has been receiving from these institutions.
Rather conversely to the point above, João Vasconcelos – the Secretary of State of Industry and former Executive Director at Startup Lisboa – tells us of how there is a governmental mindset in prioritising innovation, and that banks are more open to the idea of new business than we are led to believe.
In the financial crisis of 2008, Portugal was the third country after Greece and Ireland to opt for the EU and IMF bailout package of €78 billion, however the economy has been recovering well. The government took great measures to cut expenses, resulting in economic growth. Successful strategies now seem to be bleeding into the fintech realm:
- The government announced a package of €200m to support startups. This is part of an incentive to draw foreign firms to relocate to Portugal. Other measures include providing the funding of daily expenses for entrepreneurs; the funding of acquisition of incubator services; the sponsoring of startups at international events; and investment from Portugal Ventures.
- The Lisbon Investment Summit (LIS) was established to be a bridge between local entrepreneurs and larger, global investors. In 2015, this helped Portuguese startups raise over €130m.
- Government incentive Startup Portugal Programme implemented new policies to support emergent startups. It extended financial assistance of up to €400m, and social security plans to all stakeholders from startups to accelerators to VCs.
- This programme is a 4 year plan covering 3 areas of operation: Ecosystem, Funding, and Internalisation. It includes the creation of incubators, fabrication laboratories and free zones for technological development and research purposes. It intends to increase international competitiveness whilst boosting resources and knowledge of the fintech sector within the nation. The country acts as the perfect entry point for the Brazilian market to access Europe.
- The idea of a sandbox principle is intended in new regulation, and the country sees itself as a progressive regulator within mainland Europe for this reason.
These measures have been building on the groundwork that Portuguese fintech has been paving for itself in the past few years.
Whilst that pre-given figure of US$18.5 million was discounted before, that was actually six times more than the figure in the previous year, 2015, which shows the sharp increase fintech has been experiencing in the country. Similarly, the financial behaviour of the Portuguese is lending itself well to the adoption of digital finance (pardon the pun):
- In 2011, Portugal had 1,624 ATMs per one million inhabitants. That’s 87% more than the EU average of 870 per one million inhabitants.
- There are 26 point-of-sale terminals per one thousand people. That’s 46% more than the EU average of 18.
- Card transaction per capita is 183. That’s 148% of the EU average of 74.
The European Startup Monitor (ESM) cites Lisbon as the hub of the startup ecosystem, with 17% of “scaleups” set up there, closely followed by Braga and Oporto. In the country as a whole, financial firms and large tech companies are already established: BNP Paribas has 4000 engineers based here; Siemens has 2500; Cisco/Fujitsu has 300; and IBM has 400. Returning to digital bank Easypay, its ‘abypay’ ATM network became the first Portuguese competitor to challenge the SIBS-managed Multibanco network. The company has around 4,000 client companies with only 17 workers. In 2016, it transferred €84 million across 3.1 million transactions.
Similarly, launched in 2014, is Banco BNI Europa, Portugal’s fastest growing digital-only bank, and is a magnificent example or successful merging and collaboration efforts. As recounted here, it has recently partnered with Parcela Já to bring a new payment system for customers’ credit cards, and joined with Belgian company EDEBEX to create an online platform for purchase and sale of invoices to Portuguese companies with cash requirements. Elsewhere, it has signed a deal with Creditshelf to invest €15 million in the German SME sector, joined Raisin to offer term deposits to German SMEs; and invested £45 million in the UK’s MarketInvoice, a P2P online invoice finance marketplace. Mega.
And the success stories for Portuguese fintechs don’t stop there. In the KPMG Fintech 100 2016, one of its ‘Emerging Stars’ was Portugal’s own Feedzai, a data-science company which uses machine based learning to keep payment networks, banks, and retailers safe, by preventing financial crime. It uses an amalgamation of machine learning and human intelligence to power global payment systems. It’s ‘Fraud Prevention That Learns’ software can both predict and prevent payment loss before it occurs and detects up to 10 days earlier than other solutions. KYC is achieved through machine learning; understanding how their customers make purchases online or in-store helps to detect fraud further. It was founded in 2009 by Nuno Sebastião (CEO), Paulo Marques (CTO) and Pedro Bizarro (CSO). It reportedly received a hefty, multi million pound investment from Citigroup.
Courtesy of Deloitte’s hub report, to demonstrate the current health of Portugal’s building fintech ecosystem, here are its prominent accelerators, investors, and startups:
Associação FinTech e InsurTech Portugal
Second Home Lisboa
- Private equity – Portugal Ventures
- R&D Business Angels and Public funds – Fundação para a Ciência e Tecnologia (FCT), Fundação Champalimaud
ComparaJá – a financial product comparison platform, from mortgage loans to personal credit, to credit cards and more. It was founded in 2015.
James (FKA CrowdProcess)- not just voted one of Lisbon’s hottest startups in 2016 by Wired magazine, in April 2016 CrowdProcess won the award for best startup at Money 20/20. Now called James, its software uses machine learning to make assessments about credit risk. The company was founded in 2011 by Pedro Fonseca (CEO), Sam Hopkins and João Menano and has offices in Lisbon and New York, and works with hedge funds based in New York and London.
Loqr – provides Identity Authenticity security services, with its platform as a service (PaaS) Loqr Adaptive Authentication Platform, and is one of the world’s leading client recognition and access management systems. It was founded in 2015 by Jorge Silva, José Ribeiro Dias and Ricardo Costa, based in Braga.
Magnifinance – a financial management platform to successfully manage billing and documentation. Magnifinance offers a service which captures and records banking transactions, and can create information from images of invoices. Based in Lisbon, it was founded by Andre Silva, Diego Nesbitt and Jorge Rodrigues dos Santos, and established in 2015.
Petapilot – Founded in 2014 by Valter Pinho, Petapilot offers software for data analysis and digital audit services. Its main product Colbi is an analytical tool for commercial and financial information serving sectors including government financial regulation, consultancy and distribution.
Seedrs – the top European equity crowdfunding site, investing money in growth companies and startups. Whilst based in London, its co-founder Carlos Silva is Portuguese, with an office based in Lisbon.
Ultimately, Portugal’s main aim in the European quest for fintech supremacy is drawing new talent to its rapidly growing ecosystem, being fully backed by its government and entrepreneurial minds. More knowledge of fintech’s many sectors can come from foreign talent which, currently, is lacking. But given the surge in the last couple of years in funding and opportunity, Portugal’s sunny climate is looking even more attractive as a post-Brexit destination for the next big things in financial technology.
If you have any thoughts about Portuguese fintech, let us know in the comments below, or you can tweet us.