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The French fintech (r)evolution

Since 2015, over $27bn has been raised by Fintech start-ups in Europe, of which about 50% in the UK (Pitchbook, 2021). The Fintech ecosystem in this country combines innovation, market experience, and capital. Those three pillars constitute an undeniable asset which will probably keep driving the hegemony of the UK over other European countries in the next few years and decades, despite Brexit.

Even if Fintech firms cluster in London, we have seen an increasing number of start-ups flourishing in other European countries in the last decade, especially in France. At first sight, the French Fintech scene might appear nascent, but it has been built on robust foundations and has ambitious plans to rise to the top as Europe’s tech capital. But can they topple the UK?

The French tech ecosystem was not built in a day

We know France as the country of food, wine, and luxury, but less as one of the world-leading countries for innovation. However, with global industry giants like Airbus, Thales, Total, Veolia, Orange, and Air Liquide, they are a formidable force.

France has a strong history in terms of pioneering financial services and technologies. In 2006, Gemalto was born from the merger of Axalto and Gemplus International, becoming the world’s largest manufacturer of SIM cards. The impact of Gemalto on the global payment industry has been important, it opened the door for multiple innovations: NFC, contactless payments and user authentication solutions for secure online banking, to name but a few.

Another major example is Worldline/Ingenico. Founded in 1974 and 1980 respectively, the merger of the two French companies in February 2020 has created a European powerhouse which is one of the largest players in the payment space worldwide. Like Gemalto, these companies have been pioneers in their fields and have helped develop numerous technologies which enable the payment world as we know it today, such as smart terminals, payment services and mobile solutions.

Strong shifts towards a business-friendly environment

Over the years, French companies have benefited from a strong pool of talent with one of the highest percentages of researchers in the labour force in the world, the second leading source country of Fields Medal winner and now one of the world’s most popular destinations for talent from abroad. Brexit presents the country with a new opportunity to strengthen this even further. The French government has recently reviewed and updated their tech visa to make it simpler for start-ups to employ foreign tech talent. The French Fintech scene may be hoping to attract UK-based foreign talent that may have grown weary with the circumstances Brexit presents to them.

With London currently claiming home to three times the number of Fintech's as Paris, there is much work to do, but the ongoing political turbulence from Brexit could provide an opportune moment to strike. The French tech industry has made a U-turnover the last decade - we should forget old stereotypes of traditionally risk-averse graduates from top universities wanting to work for a big company rather than create or join a start-up. Cedric O, Junior Minister for digital affairs, recently commented “building French tech has been a trans-partisan priority for over 10 years, and we’re reaping the fruits now,”.

As in many other countries, the current crop of French workers have travelled more than their predecessors, are used to working in multicultural environments, and are looking to shake things up.

Conscious of the strong barriers imposed by the rigorous French regulatory system, the government has launched several initiatives to foster innovation in the country, making France highly competitive in the European market, including:

  • The creation of networks gathering start-ups, industry experts and investors to encourage knowledge-sharing (French Tech Initiative)

  • Facilitating access to diversified funding, including capital, crowdfunding and Initial Coin Offerings (PACTE law)

  • Tax benefits (including tax-free investments in French start-ups for business angels and R&D tax credit benefits)

  • Significant investments in IT infrastructures (€20bn investment programme to spread ultra-fast broadband around the country)

  • Creation of BPI France in late 2012, the French Sovereign Fund, which invests in start-ups, SMEs, and mid-cap companies.

Alongside government initiatives, many incumbent firms and French entrepreneurs have played a decisive role in the growth of French tech. One of the key examples is the creation of Station F, the biggest start-up incubator in the world with 51,000 square metres of dedicated space in Paris. Led by Xavier Niel, the founder and majority shareholder of the French internet service provider and mobile operator Iliad (known as ‘Free’), this incubator hosts no fewer than 1,000 start-ups, which benefit from the community to meet other entrepreneurs in a campus designed for total and collaborative immersion.

This supportive and favourable environment has enabled the number of entrepreneurs and start-ups to grow significantly, which happened alongside the increasing financial firepower coming from institutional and corporate investors. Ardian, Aster Capital Partner, Idinvest Partners, Kima Ventures and Partech Partners are now among the largest institutional investors in Europe, while Orange Digital Ventures is investing in fast-growing companies in EMEA such as Monzo and Yoco.

Efforts seem to be paying off

Looking at the Fintech sector, it seems that efforts have started to pay off: since 2015, French start-ups have raised a total of $1.6bn, growing at a 47% CAGR, split over 230 deals (Pitchbook, 2021). France is putting in the work to grab the opportunities brought about by Brexit, especially in attracting tech talent and some of the world’s best entrepreneurs.Overall, the number of deals per year has grown from 27 in 2015 to 51 in 2019, before decreasing to 32 in 2020. The decrease in 2020 is aligned with the global market trend. Timelines for fundraising being impacted by numerous turbulences arising from the coronavirus pandemic; pushing investors in 2020 to focus on later-stage businesses with a clear path to near term profitability (France has a lot fewer of these), driving the median deal from just $1m in 2015, $2.9m in 2019, up to $6.1m.

This focus has enabled fast-growing French start-ups to raise significant funding rounds, boosted by foreign VC funds as recent fundraises show:

  • Lydia (P2P payments, $131m Series B)

  • Quonto (business bank, $115m Series C)

  • Luko (home insurance, $60m Series B)

  • Spendesk (expense management platform, $56m Series B)

  • Alan (health insurance, $54m Series C)

To name but a few foreign blue-chip investors, the companies mentioned above have convinced Accel, DST Global, Eight Roads, EQT Ventures, Index Ventures, Speedinvest and Tencent to back their missions.

Looking forward

With direct access to the 500m consumers across the European market, a highly qualified and entrepreneurial workforce, and an increasing global awareness of the quality of its tech start-ups, France is ideally positioned to become a major pole of tech and fintech innovation over the next few years and put London to the test.

The French government is undoubtedly bullish in its aspiration and conviction, giving French tech a target of 25 unicorns by 2025 (vs. 7 as of 31 Dec 2020). The French Next40/120 programmes will help enhance public awareness and give these start-ups the resources to fulfil their ambitions.

We would not be surprised to see in the next few years true global leaders emerging from this energised French Fintech environment: Don’t say you haven’t been warned!


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