What Mario Draghi’s appointment as Italian PM means for fintech

Mario Draghi’s surprise appointment to lead a national unity government in Italy was welcomed by financial markets and political experts alike last week. The former European Central Bank chief has promised an ambitious programme of reforms, and fintech is expected to be a key part of the plans.

In his first address to parliament on Wednesday, Draghi pledged to invest a large share of the money Italy receives from the EU Recovery Fund in digital infrastructure and technological upgrades. Vittorio Colao, the former chief executive of Vodafone, has been appointed minister for innovation and digital transition.

Last year, Italy was one of the worst performers in the EU’s Digital Economy and Society Index, which tracks the digital competitiveness of member states — with only Romania, Greece and Bulgaria further behind.

Colao has yet to unveil the details of his plans, but he is expected to focus on extending high speed internet access across the country and passing legislation to encourage the use of digital payment methods. He outlined similar priorities last year in a 53-page recovery and resilience plan that was ultimately ignored by the previous government.

“Draghi’s focus on innovation . . . is undoubtedly good news for the fintech sector and the appointment of minister Colao is a clear message of a strong push on the [tech and innovation] agenda,” said Corrado Passera, chief executive of digital bank Illimity and a minister in Italy’s last technocratic government.

Digital payments have long been seen as a way to combat tax evasion in Italy, where an estimated €130bn, or 8 per cent of GDP, escapes tax authorities each year.

Successive governments have encouraged the shift from cash to cards, and payments companies have been among the country’s most successful within Italy’s fintech sector, with companies like Nexi becoming continental players. 

Less than 40 per cent of all payments in Italy were digital before the coronavirus pandemic, but experts believe that the combined impact of Covid, plus the arrival of the EU funds, will drive further change.

The pandemic caused some strain for Italian banks and insurers whose relationships with customers are still often based on branches, according to a recent report by PwC. Sudden lockdowns and prolonged working from home “forced experimentation of new ways of collaborating remotely through digital solutions”, encouraging traditional institutions to try more partnerships and strengthen collaboration with younger tech-focused companies. 

However, the sector has continued to face challenges despite regulatory support and favourable legislation in the past.

Illimity, which specialises in small business loans and distressed debt, grew its assets to €4bn by the end of 2020, its first full year of operations. It posted a return on equity of 5.5 per cent despite the impact of the pandemic and said it expects to increase it further this year.

Such rapid growth, however, is not the norm. Out of the 278 Italian fintech companies analysed by PwC, only 37 had an annual turnover above €1m, and 70 per cent employ 10 people or less.

The consultancy says low levels of investment and a focus on more mature companies, as opposed to start-ups, have been key challenges. In 2018, for example, a single deal — a €100m investment in insurance company Prima Assicurazioni — accounted for a third of all the money invested in Italian fintech start-ups. The rest trickled down to 34 other companies.

The lack of investments in the Italian ecosystem has encouraged several larger fintechs like Moneyfarm, Soldo and OvalMoney to move their headquarters abroad.

Still, Illimity’s Passera remains optimistic, highlighting progress on initiatives like open banking, which forces institutions to share customer data, enabling new competitors or collaboration with third-party developers to build new services. “Digitalisation is changing the entire banking sector, innovation will play a significant role in its future . . . increasingly, [fintech] banks will act as disrupters for the sector and will emerge as new winners,” said Passera, who previously ran Italy’s largest bank Intesa Sanpaolo.

“Without inferiority complexes toward other countries, [while] trying to follow their best practices, there’s a great potential in Italy.”

Quick fire Q&A

What’s your name? SeedFi

When were you founded? March 2019

Where are you based? San Francisco and New York

Who are your founders? Chief executive Jim McGinley, chief operating officer Eric Burton, chief technology officer Rodrigo Menezes, head of marketing Greg Berman and head of product Bernardo Menezes.

What do you sell, and who do you sell it to? SeedFi is a financial health start-up helping underserved Americans build credit, save money, access funds and plan for the future.

How did you get started? The founding team wanted to help underserved communities after spending years working together at mission-driven start-ups and big banks.

How much money have you raised so far? $69m ($19m equity and $50m debt)

What’s your most recent valuation? N/A

Who are your major shareholders? Founders, Andreessen Horowitz, Flourish Ventures, Core Innovation Capital, and Quiet Capital

There are lots of fintechs out there — what makes you so special? We’re helping struggling consumers escape cycles of debt and build long-term financial health, which is more important in today’s economy than ever.

Fintech fascination 

Mark Carney joins Stripe: Speaking of high-profile former central bankers, Mark Carney, former Bank of England governor, has added to his growing list of post-BoE jobs by joining the board of payments group Stripe. Carney is already head of impact investing at Brookfield Asset Management, and he has been active in pushing finance firms to do more to fight climate change. Carney said he wanted Stripe’s payments infrastructure to help encourage “strong and inclusive economic growth”.

More bad news for Ant Group: Anyone hoping Jack Ma’s Ant Group would be able to put its recent travails behind it after reaching a restructuring deal with Chinese authorities last month are likely to have been disappointed this week. At the weekend, regulators confirmed new rules governing how platforms like Ant fund their loans, which analysts say could hit Ant’s valuation. Pressure on the company has boosted rivals who charge much higher interest rates, raising fears that a drive that was officially intended to reduce credit risk in the economy could actually spur more defaults. An investigation by the Wall Street Journal sheds some light on why authorities may be willing to put up with such an outcome.

Transferwho? TransferWise has become one of the best-known names in fintech over the past decade, but co-founder Kristo Käärmann says the name doesn’t suit it any more. As of Monday, it will just be “Wise”. The change reflects the company’s efforts to expand beyond its roots as a simple money transfer service into a broader platform for internationally-minded consumers and, especially, businesses. 

Wirecard fallout: The Wirecard saga continues to produce new ways to shock even the most jaded of financial journalists. This week it emerged that a senior investment banker at UniCredit continued to moonlight for now-disgraced Wirecard CEO Markus Braun until just before the payments company collapsed. Jana Hecker, who had worked with Wirecard in a previous role at Deutsche Bank, ran up around €800,000 of invoices with Braun, who is currently in police custody after being accused of being the linchpin of a criminal racket that conducted “fraud in the billions”.