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The core challenges remain the same as always but are potentially being amplified by the current macro-economic environment.
1. Customers: customers, particularly in the B2B segment, will likely be looking to cut back on investments over the next years, making revenue growth for Fintechs harder
2. Capital: There is still investment capital available for start-ups, but clearly it will not be as easily accessible as it has been.
3. Talent: Access to talent is a challenge for all in financial services and will become more acute in the EU.
The no.1 cause of failure I see in Fintech firms is a lack of prudential management of cashflow.
Of the few businesses we have seen get into financial difficulty and some that have gone bankrupt, the same issues arise time and time again - overconfidence in success and over-spending.
A firm may raise some 3rd party capital and then get the false sense of belief that the tap never stops. They spend frivolously on growth assuming that more capital will be easy to come by; it isn't.
Businesses succeed or fail based on managing risk, not on assumptions that everything will go the way they have planned. Interestingly, all the data shows that women-led start-ups are the best at this! They are more likely to succeed, as women, in general, but with notable exceptions, are better at managing money and risk, then men.
Our focus at the LHoFT has been, since day one, on B2B given the capabilities of Luxembourg's finance centre. It makes little sense for a neo-bank to set up here, but it makes a lot of sense for a Fundtech or Regtech firm to have a team in Luxembourg given the makeup of the finance industry. As such, we estimate that we have a very strong Regtech presence in Luxembourg, be it that most are subsidiaries of firms HQ'd in other countries.
In parallel, we have a strong payment sector as a result of historical responsiveness, over the past 15 years, to regulations in relation to payments.
We also see a burgeoning focus on blockchain in regard to the securities sector. Luxembourg's language capabilities, particularly its strong grasp of English, the ability to apply for licenses in English, and the acceptance of English in contract law, alongside an accessible and open finance industry, make it very attractive to international firms looking for an EU base.
Given the size of the country, we will never be a market leader in Fintech, but we definitely punch above our weight.
McKinsey, recently rated Luxembourg as the 4th most attractive Fintech ecosystem in Europe.
Institutions in Luxembourg are struggling with costs, particularly compliance-related costs. Fintechs that are providing solutions related to compliance process, KYC/AML, compliance data management and reporting are in demand. There is also a growing need for solutions in ESG related compliance.
1. It is important to engage the whole organisation in digital transformation.
2. Education and training of staff is critical to ensure they are bought into the process of digitalisation.
3. Look not for solutions that will stand the test of time, but envision that change is a continuous process and technology will need to continuously adapt.
4. Appreciate that technology can be a competitive advantage and a core of business strategy, not just an enabler.
5. Look far forward - have a vision 10, 15, 20 years forward for your business, don't just look at the fires you need to fight today and tomorrow. Keep in mind that technology could help douse the flames.
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There is an urgent need for rapid transition to global sustainability. Business and industry have enormous social and environmental impacts. "Why does it matter?" is a bi-monthly blog that aims to elucidate this important topic through the eyes of our experts.
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