Fintechs Solution

Context

In recent years, the proliferation of Fintechs has shaken up the financial services sector (online banking, crowdfunding, mobile payment, savings management, financial and decision-making consulting). The Fintech wave, which is based on the convergence of several types of disruptive innovations (data transmission, storage and use and artificial intelligence), is impacting traditional finance professions to the point of potentially revolutionising the production and marketing models within the sector.

Objective

As part of its role to provide development assistance (economic and social dynamism, access to credit and financial inclusion), the Bank sought play an active role in the development of Fintechs in Central and Eastern Europe (CEE). In anticipation of targeted investments, it wanted a comprehensive overview of the existing Fintech situation in six countries in the region and the associated investment opportunities, in particular in terms of Alternative Business Lending and payments.

Results

Four key success factors predominate in the development of Fintechs in CEE: dynamic underlying demand, favourable access to venture capital, strong human capital and tech-friendly local regulations.

The analyses carried out by the Ares & Co teams revealed:

• Significant macroeconomic heterogeneity among the six countries analysed (economic dynamism, underlying markets and maturity in infrastructure vs digital)
• An emerging Venture Capital/Private Equity ecosystem (mismatch between supply and demand for venture capital, low valuations and investor appetite and a lack of understanding of the specific features of early-stage tech ventures)
• Solid human capital (entrepreneurial culture and digital skills)
• Overall favourable regulations, reflected in local and regional initiatives (e-residency programme, sandboxes and innovation hubs)

Based on this observation, itself based on a detailed analysis of more than 300 Fintechs, the Ares & Co teams identified three channels to support the development of Fintechs in Eastern Europe:

• Equity investment: two targets identified, in line with the Bank’s investment guidelines
• Debt investment: three lending platforms selected, with provision of direct and indirect financing lines (via local banks)
• Proactive advisory and lobbying activities

Ares & Co also readjusted the Bank’s investment framework, in particular by reviewing the investment cycle, decision-making processes, all management indicators and valuation methods.

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