The Portugal Fintech Report 2019
The Portugal FinLab is a communication channel between innovators – new players in the market or incumbent institutions – and the Portuguese regulatory authorities. Through it, regulators provide guidelines to the participants on how to navigate and operate in the regulatory system. The purpose of the Portugal FinLab is to support the development of innovative solutions in Fintech and related areas through cooperation and mutual understanding.
It is the outcome of a partnership between Banco de Portugal, Comissão do Mercado de Valores Mobiliários (CMVM), Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF) and Portugal Fintech. By joining all of the Portuguese financial authorities, we are able to create a better environment for the development of fintech businesses and/or projects, in order to follow the global growth trend of this sector.
STAGE OF DEVELOPMENT
COUNTRY OF ORIGIN
SEGMENTS IN WHICH THEY OPERATE
The first edition of the Portugal FinLab has reached its end. In hindsight, how has the experience changed your former perspective on financial innovation?
Hélder Rosalino - Innovation is something that, by its very nature, cannot be regulated in advance, without the risk of incurring in a crystallization of inefficient procedures and practices, only because the law so determines.
The truth is that innovation poses huge challenges for regulators.
This first edition of Portugal FinLab has the merit of providing regulators with specific knowledge on new technologies being used in financial services, new services being launched to serve customers’ needs, new business models for an existing service, etc. Moreover, Portugal FinLab has brought regulators and innovators closer, which is crucial when you think that the main challenge for regulators is to not jeopardise innovation while safeguarding security and minimizing risks.
Filomena Oliveira - Following the financial crisis, the perception of innovation as one of the major contributors to finance development and welfare growth has been challenged and its risks and benefits to society questioned.
Created through the coordination of the three financial Portuguese competent authorities, which also teamed up with Portugal Fintech, Portugal FinLab is a highly dynamic platform, proving that it is possible to enhance engagement and to preserve the benefits of financial innovation, while mitigating potential severe risks.
On a personal perspective, I would say that the first edition of the Portuguese Innovation Hub has strengthened my former holistic view on the huge potential of innovation to deepen economic inclusion, sustainable growth and social welfare.
João Freire de Andrade - It is public knowledge that Fintech can originate from banks, insurers, telco’s, the so-called “big techs” or startups. The Portugal FinLab showed that the latter are the most active group, which confirmed my former perspective on financial innovation: that these smaller companies are creating a solid solution for addressing some of the biggest challenges of the financial sector.
It’s also very interesting to see a massive interest from startups in being “Regulated by Design”. The previous experience of the startup founders in the ecosystem is huge and, combined with the cutting-edge technology they are developing, creates all the conditions to have innovation driven by technology in the financial sector.
Considering all the different participants and the innovations, what has surprised you the most?
Hélder Rosalino - The main surprises were, on the one hand, the high number of candidates, also coming from different jurisdictions, and, on the other hand, the diversity of innovative projects submitted.
Portugal FinLab demonstrated that FinTechs are eager to share their ideas and projects with regulators so that our feedback helps them to comply with the applicable legal framework.
Filomena Oliveira - I would say that speed, diversity with innovation, spanning a myriad of activities and intersectional synergies were aspects that, while not being a complete surprise, impressed me the most.
Financial innovation has existed since the civilization of man. However, its pace and popularization quickened in an unexpected way, encouraging new changes. These changes are occurring since the inception of new tools and models, to implementation and commercialization.
From the regulators’ point of view, this ever-moving scenario is confirming the need of a comprehensive understanding of innovative products, mechanisms and, most importantly, governance models. Only by holding this deep knowledge, regulators will be able to act effectively, predicting and managing the wider impacts of innovation, preferably before they occur, and promote nascent technologies that can play a key role in delivering innovative products and services by enhancing the quality, reducing costs or by increasing access for consumers and investors.
Manuel Caldeira Cabral- I would say I was surprised by many things, for example, the variety of thematic areas presented. Effectively, the covered areas were very diverse, such as RegTech, Lending & Credit, Banking Infrastructure, Payments & Money Transfers, Blockchain & Crypto, Insurtech, among others. Additionally, I would like to emphasize the level of participation of foreign companies, as it reflects a strong signal of how our country is currently seen outside, surging as an important incubator of technological projects which are innovative and attractive. In that sense, this project reveals an important signal of openness from the regulators to innovation, which contributes to reinforce the position of Portugal in attracting foreign investment for the sector.
Another stimulating aspect was the fact that the project saw technologic innovators from different dimensions, some were initiating activity while others already had a global presence.
Lastly, a reference with respect to the characteristics of each project, more exactly in terms of their impact, it was interesting to observe the existence of projects with an enlarged impact and others with a more restricted scope, although not less interesting.
João Freire de Andrade- What surprised me the most was the diversity of technology and business models these companies are bringing to the market: blockchain applied to equity fundraising; e-commerce payments; aggregation technology; Open Banking API’s; instant credit on the shop; and, even, student financing processes.
I AM LEFT WITH THE IMPRESSION THAT THE INNOVATION PROCESS IS STILL LARGELY UNSTRUCTURED AND THE CURRENT STATE OF GLOBAL KNOWLEDGE OF ITS GOVERNANCE IS VERY LIMITED.
- FILOMENA OLIVEIRA
Were you able to detect the formation of trends in the sector through the various participants and applications?
Hélder Rosalino - The fact that many applicants presented ideas/projects in the payments domain confirms that the revised Payment Services Directive will have a relevant impact in promoting innovation and competition.
Filomena Oliveira - I am left with the impression that the innovation process is still largely unstructured and the current state of global knowledge of its governance is very limited. Identifying and systematizing the core trends in the sector and their implications for the financial system can be ambiguous.
In Portugal FinLab, we notice that Distributed Ledger Technology and Artificial Intelligence were the most popular technologies employed in the projects across the two batches, which accompanies the main international trends, namely, security token offerings, robo-advisors and RegTech solutions.
These technologies provoke a major change in the financial system but whatever the final disruptive effects, the financial markets must be characterized by reliability, transparency, efficiency, integrity. In a single but powerful word: trust.
Manuel Caldeira Cabral- When we look at the applications, I believe one can draw a trend. First and foremost, note that in the new business models there is a blurring of the boundaries which segment the financial markets. About 40% of the projects involved more than one supervisor, which places interesting challenges to supervision and reinforces the interest and singularity of this project that gathered the three financial supervisors. Another aspect which also emerges from new businesses is the effort of making easier and cheaper what currently is difficult and expensive, thus benefiting the consumer. It can also be seen that technological innovators are working increasingly
with data, that is, the use of big data has had an accelerated development in the last few years. A lot of this development is supported in Artificial Intelligence, running on top of Machine Learning techniques that are feeded by enormous amounts of data of innumerous formats. Let me also emphasize particularly Insurtech.
For the purpose of the Portugal FinLab, two projects of this thematic were presented, one related with multirisk insurance in housing and another about motor insurance. I believe it is evident that technological innovation’s influence in the insurance sector is strong and shows a tendency to grow even further. Its link with digital technology is imperative since the consumer seeks, by default, a product which is easy to acquire, to use and equally as transparent as possible. The digital technology that is currently being used in the sector, at the level of AI, Machine Learning, Big Data, IoT, Robotic, etc, allows levels of development and efficacy which, either from a technical point of view (actuarial) or from an administrative one (eg. Claims management), or even from the commercial one (eg. Analysis of consumption habbits), are much higher than the ones achieved so far.
The digital and technological development has dragged a strong process of change in the way we live, thus I dare to say that this new technological approach influences most of the sectors in society and, obviously, the insurance and pension funds’ sector is equally hit by these winds of change.
João Freire de Andrade- B2B is a massive trend between the participants. The majority of participants created technologies, products and/or services to help other businesses be more efficient.
This is an important characteristic of the Portuguese Fintech landscape and stresses the importance of the Portugal FinLab as, typically, the target of fintech and insurtech companies are banks and insurers, both heavily regulated entities with immense compliance requisites.
The FinLab enables the participants to fine tune their offering to these entities.
With regards to the international scope of the innovation hub, was Portugal FinLab a goood vehicle to bring foreign comapnies and talent to Portugal? What other tools does our country have that may provide us with a competitive advantage?
Hélder Rosalino - Portugal FinLab may be seen as a good vehicle to bring (and retain) companies and talent to (in) Portugal.
The significant number of international participants in the Portugal FinLab made that clear. The main drivers are: fluency in English, technical skills, regulators’ proximity, synergies with FinTechs already established, amongst others.
Filomena Oliveira - Most definitely. Probably taking advantage of Brexit impetus, and side by side with other national initiatives, Portugal FinLab contributed by opening a window, fostering the visibility and the credibility of Portuguese innovation and innovators. The number of foreign applicants to this first edition speaks by itself.
For the first time this century, in 2018 the UK was the top foreign investor in Portugal. A rather unusual number of European countries publicly declare their intention to scope the Portuguese financial ecosystem. Nevertheless, there’s still much to do to reach the maturity level the country still needs to be in the forefront of the innovation field.
Going to the second part of your question, the advantages of our country are almost undisputable. I believe that Portugal is now perceived as a start-up nation and a hard-tech location. The economy has witnessed a paradigm shift over the past decades. Rather than exporting goods and tourism, the country has positioned itself as a financial services exporter.
Social and political stability, time zone, weather, culture, cost of living, language skills and a growing pool of highly qualified human resources with an international mindset are strong drivers to convert Portugal in a privileged destination of foreign investment and an hub for financial innovation.
National cohesion and political commitment will be crucial. Despite the big advances of the past decade, Portugal’s tech scene is still very incipient. The dispute for high tech talent is worldwide so we need to retain skilled local talent and keep attracting foreign expertise.
Manuel Caldeira Cabral- As said previously, the significant percentage of foreign projects presented reveals that Portugal has known how to keep track with this wave of innovation that is spreading, fast, throughout the world. In the past years, Portugal has asserted itself as an attractive country for startups and for the development of competence centers from large technological multinationals. This has been achieved by public policies which contributed to the growth of Portuguese startups and to the attraction of foreign investors and entrepreneurs. It seems clear to me that the Portuguese market, as a whole, has become most desirable for the development of solutions which are technologically innovative and which, in some cases, lead to substantial changes of behavior and positioning of the players in the market. The creation of an Innovation Hub is another excellent example of the commitment, in this case by the financial regulators, on the development of this ecosystem, with a strong potential to promote Portugal as a target for foreign investment.
João Freire de Andrade - I agree. That 30% of the applications came from international companies is the best indicator of the scope of this innovation hub. Portugal is seeing an exponential growth of its startup scene, not only from local entrepreneurs, but also international entrepreneurs which are relocating here.
This isn’t solely due to the charms of our country – the natural beauty, good food and nice people – but for the key elements of tech talent; an increase in the number of companies reaching unicorn valuation; the existence of specialized investors; and a growing interest from international investors looking for quality with reasonable prices.
Additionally, the openness of the Portuguese regulators – that chose to listen to the market and co-organize a ‘onestop- shop’ program to help these entrepreneurs – is a
crucial ingredient to this amazingly positive combination.