The fintech market in Italy is worth more than EUR 4 billion in terms of disbursements, with a 2.2-fold growth in 2021 compared to the previous year. This sector of the economy, dedicated to 'alternative finance' is increasingly on the radar of traditional banks and credit institutions.
According to Italia Fintech, there is still plenty of room for growth, with our companies asking for around EUR 660 billion from banks in 2021. Alternative finance, therefore, still represents a drop in the ocean of corporate credit, but indicates exponential growth compared to the past.
What makes the difference, however, and what is giving the fintech sector an edge is that banks have realised that in lending start-ups reside the technologies they need to offer customers the streamlined and flexible user experience they increasingly demand.
SMEs' difficulties and problems with banks
The general credit crunch that we have seen recently in all markets has been felt most by SMEs, which have been increasingly penalised by a regulatory system that has tended to protect banks' capital and prevent the accumulation - as has happened in the past - of mountains of non-performing loans, loans that first go bad and then become uncollectable.
In these cases, companies are discriminated against on the basis of size: the smaller they are, the more, all other things being equal, they are considered risky. And the more banks are forced to set aside capital, to the point that for loans of a certain size (which Kpmg estimates to be EUR 50,000 for Italy) these not only do not produce margins, but represent a cost.
Further factors that make it difficult for small and medium-sized companies to obtain credit from traditional institutions are the guarantees required, the high interest rates and the non-existent margins for negotiations. The bank knows it has the upper hand and makes the small entrepreneur feel all its power. It is also increasingly the case that the bank prefers to make money from selling financial products rather than from lending to businesses.
The importance of looking at fintech as an opportunity
Digital lending for SMEs in Italy has well exceeded EUR 3 billion, more than France, Spain and Germany. The sector is therefore showing great interest, yet people continue to talk about the 'risks of fintech'.
In reality, fintech is a very high-growth sector that creates high value-added jobs, new employment and growth opportunities for those coming from traditional finance, new services, more competition and a general increase in productivity.
If we in Italy looked at fintech with this lens, instead of just thinking about risks, constraints and controls, we would realise that apart from the digital lending segment in which Italy runs fast, we are generally far behind.
Italy's digital lag
In Italy, we are lagging behind on the digitalisation front, as the Desi index reminds us every year - which places us fourth to last ahead of only Greece, Bulgaria and Romania. We are also lagging behind in terms of investments in fintech. In the first half of the year, Europe invested 10.4 billion in fintech (source: Dealroom/Sifted, which forecast about double that by the end of 2021); of this figure Italy accounts for less than 1%. We are behind the UK, which typically plays at another level, but above all we are behind France, Germany, Sweden, Austria, Switzerland and often even Spain and the Netherlands.
Like more structured companies, SMEs have articulated needs that require specialised advisory support. At the same time, many SMEs embrace digitalisation, especially when it can make access to credit easier, faster and more convenient to obtain. Digital lending, understood as the direct provision of finance by non-banks providing medium- to long-term loans to businesses for the purpose of financing growth projects, acquisitions or supporting refinancing could be one of the keys to solving this dilemma.