The deep dive: FinTech ecosystem in Italy

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

The Italian FinTech ecosystem has been expanding exponentially and attracting investments. In the Q3 of 2022, FinTech investments in the country reached $492 million, bringing the total investment projections for 2022 to $1.35 billion. SMEs, the backbone of the Italian economy, are aiming to be better served by banks by leveraging FinTech solutions.

If FinTech ecosystems in all European countries were able to attain the same level of performance as the best in the region, the upside could be substantial. The number of FinTech jobs in Europe would grow by a factor of 2.7 to more than 364,000; the volume of funding would more than double to almost €150 billion from €63 billion; and valuations would grow by a factor of 2.3 to almost €1 trillion—almost twice the combined market capitalization of Europe’s top ten banking players as of June 2022.

Who is under the radar?

We have witnessed significant progress in the Italian FinTech ecosystem over the last few years, said, Niccolò Gamaleri, Senior Director at Royal Park Partners on the Italian FinTech market Initiatives such as the Bank of Italy MilanoHub (i.e. the Bank of Italy hub, established with the aim of supporting the development of innovative projects and fostering the digital evolution of the Italian banking and financial market) are a step in the right direction in propelling Milan as the Italian fintech hub competing with London, Berlin and Paris.

In London, the Bank of England started a FinTech regulatory sandbox already in 2016. Additionally, we see it as a positive sign that companies such as ScalaPay, Satispay and Casavo have raised significant later-stage capital attracting high-quality international investors. Our analysis shows that c.75% of the transactions in Italian FinTech are in the Seed/Series A stage.

Gamaleri added, The challenge that we see is that as these companies grow they will need to tap deeper pools of capital. We are seeing a “gap” in the Italian market of growth equity investors focusing on Series B/C of $25 million as the Italian Fintech-focused VCs are mainly supporting early-stage companies.

“This gap between Series B/C and late-stage private equity players will necessarily have to be covered by international VCs and Growth Equity investors. This means that founders need to have a European and global perspective in terms of their addressable market in order to appeal to international VCs, and develop solutions that are relevant beyond the Italian market”

Why does it matter now?

Italy, the fourth largest European economy, ranked 12th for VC investment in Europe by 2021. In recent times, VC funding in the country has grown 2.6 times, with influential funds from CDP Venture Capital, the National Innovation Fund, Enea Tech, and more. This means that the Italian start-up ecosystem is set to flourish.

In Italy, from 2016 to today, the funds raised have grown at a compound annual growth rate (CAGR) of over 60%. In 2022, they reached 1.040 billion euros, with a significant increase from 900 million in 2021 and 247 million in 2020. However, it should be noted that fundraising is highly concentrated, with 94% of funding going to FinTechs with collections of over 100 million and annual revenues exceeding 5 million.