2023 has been a difficult year for the fintech sector, marked by high inflation, political unrest and a looming global recession. The current context of macroeconomic uncertainties has led investors to become more reluctant to take risks. This change in attitude reduced their willingness to make substantial investments, thereby putting an end to their investing mania.
But despite the challenges, the Portuguese fintech ecosystem has shown resilience, with investment, talent, business and innovation continuing to accelerate this year. This growth has been driven by significant developments in sectors such as artificial intelligence (AI), blockchain, digital banking, cybersecurity and open banking, and is expected to continue in 2024 as consumer demand for more personalized, more convenient and more secure services continue to rise and as businesses accelerate their digitalization efforts, says a new report produced by KPMG, Visa and Morais Leitao.
THE Fintech Report in Portugal 2023published last week, offers a comprehensive overview of the Portuguese fintech landscape, showcasing industry statistics and expert opinions, and highlighting the best fintech startups in Portugal. The report also captures fintech industry trends in 2023 and provides valuable insights into expected developments in 2024.
According to the report, the Portuguese fintech sector continued to see dynamism in 2023, with total funding exceeding €1.1 billion to date. Much of this went to startups in the blockchain and cryptocurrencies (34%), loans and credits (27%), insurance (18%), and regtech and cybersecurity sectors. (18%).
The deals closed this year are mostly early-stage companies, at the Series A stage and below, showcasing the rather nascent fintech landscape. Lending and credit startups take the lion’s share, accounting for 59% of all fintech funding raised in 2023, followed by insurance (30%), payments and money transfers (6%), regtech and cybersecurity (3%) and real estate (2%). %).
Notable deals include €39 million Series A from StudentFinanceCoverflex 15 million euros series Athe 2.3 million euro funding round from HolyWally and that of Visor.ai Fundraising round of 2.3 million euros. StudentFinance is a global fintech platform for professional mobility from Spain; Coverflex is a Portuguese compensation management platform that offers benefits, insurance, meal allowances and discounts; HolyWally is a wallet-as-a-service platform headquartered in Singapore; and Visor.ai is a no-code conversational AI platform for customer service automation headquartered in Portugal.
Emerging trends
The report delves into key industries and emerging trends in the Portuguese market. The first sector discussed is cybersecurity, an area that is growing due to the increase in cyberattacks.
Research from the American cybersecurity company SentinelOne find that financial institutions were the second most affected sector in terms of the number of data breaches reported last year, with institutions in the United States, Argentina, Brazil and China being the most affected. As of December 2022, financial and insurance organizations worldwide experienced 566 breaches, resulting in the leak of more than 254 million documents.
Data breaches cost the financial industry the second highest cost of all others at $5.9 million.
Ransomware attacks against financial services increased from 55% in 2022 to 64% in 2023, almost double the 34% reported in 2021.
This trend is expected to continue, making prevention crucial. Additionally, European legislation, such as DORA, will require organizations to implement proactive cybersecurity measures from 2025, making preparations even more urgent, the report says.
Another trend highlighted in the Portugal Fintech Report 2023 is open insurance, a model that presents significant advantages for both consumers and insurers. For consumers, open insurance enables tailored solutions, improved accessibility and an improved customer experience. For insurers, open insurance allows them to access broader markets by collaborating with diverse partners, realize efficiencies, as well as opportunities for innovation and new revenue streams.
The report also addresses the transformative impact of Web3 on traditional finance and its implications for Portugal, highlighting three key Web3 use cases being explored by banks and fintech companies, namely custody, payments and tokenization. Notable examples include Loyalty And BNY Mellon in the custody of digital assets, PayPal’s stablecoin initiativeAnd Visa pilot for settlement with USD Coin.
These organizations are adopting tokenization and blockchain in hopes of improved efficiency, reduced costs, and enhanced security. They are also looking to capitalize on the transformative potential of these technologies in the financial sector and take advantage of the digital asset frenzy.
But despite the opportunities, the report notes that financial institutions face challenges when adopting Web3, including a lack of expertise, security and interoperability issues, and regulatory constraints.
To overcome these obstacles, it highlights the need for banks and fintech companies to actively engage with regulators and participate in industry experiments to shape standards and best practices. One example is the ongoing Guardian project by the Monetary Authority of Singapore, involving financial institutions like HSBC, OCBC Bank and Standard Chartered, which seeks to explore Web3 concepts.
As various countries move toward Web3, the report anticipates a model of regulators working with industry to define rules and laws, providing clarity and legitimacy. He concludes by emphasizing that banks and fintech companies that actively learn and test Web3 technology will have a competitive advantage.
A rapidly evolving regulatory landscape
The fintech regulatory landscape in Portugal is undergoing a rapid transformation marked by the introduction of groundbreaking legislation, such as the Portuguese Startup Law, as well as continued advancements under the European Union Payment Services Framework.
Portuguese law on startups, published in May 2023, introduces significant changes to the tax regime and includes a more favorable stock option regime for startup employees. The law aims to foster innovation, stimulate competition and ensure the financial well-being of consumers and businesses.
At the same time, at the European level, the European Commission proposed a package of payment services, including a proposal for a new directive on payment services and electronic money services (PSD3) and a new regulation on payment services (PSR1). The proposal aims to amend and modernize the existing Payment Services Directive (PSD2) to close critical gaps, encourage innovation and respond to the rapidly changing electronic payments landscape in the EU.
Crypto Asset Markets (MiCA) Regulation Next Year will take effectmaking the European Union the first major jurisdiction in the world to introduce comprehensive and tailored rules for the cryptocurrency sector.
The Regulation identifies and covers three types of crypto-assets, namely asset-referenced tokens, e-money tokens and other crypto-assets not covered by current EU legislation. The legislation regulates the issuance and trading of cryptoassets as well as the management of the underlying assets, where applicable.
By strengthening consumer and investor protection and financial stability, MiCA aims to promote innovation and the use of crypto-assets.
Featured image credit: edited from Unsplash