“Climate tech companies took the centre stage when it comes to attracting investments”
How does fintech remain a disruptive service throughout Europe & The Americas? And why will the appetite for ESG investment be a hot topic this year, and what has been the catalyst for this surge? We asked Manuel Silva Martinez, General Partner, Mouro Capital, on the fringes of the Money2020 Amsterdam conference.
By Jan Jaap Omvlee
How does fintech remain a disruptive service throughout Europe & The Americas?
In Europe, fintech continues to drive innovation, receiving widespread interest from investors. By the end of June 2021, European fintechs had secured €32.5 billion of investment, compared to the €37.6 billion secured across the entirety of 2020. Fintech remains a disruptive service throughout Europe for a variety of reasons, but chiefly because of its ability to integrate financial services within other environments and ecosystems, as demonstrated by the rise of embedded finance in the region. According to research from OpenPayd, embedded finance has the potential to raise €720.78 billion of revenue for European brands by 2026. Embedded finance exemplifies the disruptive potential of fintech by allowing any business to integrate financial services into their core product, enabling seamless customer journeys.
Latin America has been the region which has been receiving the strongest growth in fintech funding over the past few years. In the first half of 2021 the region saw approximately $3 billion of investments which was 1.5x more than the whole of 2019.
While there have been several verticals towards which the funding was directed, most was directed to providing better digital experiences than incumbent offerings and offering a broader suit of services to underserved users. This was successfully achieved predominantly by lowering cost to serve. As an example, neobanks don’t have to rely on expensive legacy processes and core banking systems and are able to align cost to serve with the unit-economics of their customer base.
However, if we look at the proportion of banked adults in the region, we see that compared to other emerging regions such as Asia and Africa, little progress has been made and over 45% of the population remains unbanked. In Mexico, for example, over 50% of people are unbanked, over 30% have no access to any financial products, and just 31% have access to credit products.
This flow of capital towards digital first experiences brings a challenge of market saturation as most propositions are targeting emerging consumers in urban settings. While we see an increasing number of start-ups building infrastructure that will help bring more financial services to the market, there is a risk of these providing a slightly different product to the same target rather than growing the base of the population.
We see that the real innovation in the sector will allow to enable a widespread adoption of these services. While some key barriers such as high-cost to serve, customer education and reaching the last mile still exist, innovative business models that are unlocking entirely new services and product are emerging. Graviti (www.graviti.com) for example is a platform that allows unbanked and low-income families in Mexico to buy appliances like heaters and washing machines and pay through flexible instalments, no down-payment and late fees. Graviti solves the credit-risk challenge through internet-connected meters on the appliances, which allows the collection of usage data and the ability to switch-off or limit the usage should customers fall behind their payments.
Why will the appetite for ESG investment be a hot topic this year, and what has been the catalyst for this surge?
There are a range of factors that have catalysed the surge for ESG investment from investors. New regulations and policies, as well as increased consumer and media interest in environmentally and socially sustainable business practices all point to how ESG reporting has entered the limelight. Shareholders themselves are demanding a more environmentally and socially conscious approach to running businesses. This has ultimately led to an increase in asset managers, risk assessment teams, and credit agencies turning to this data to make sure any companies they do invest in are aligned with regulatory requirements and broader positive ESG outcomes.
With the world focused on sustainability, energy and social issues, and with all eyes on COP26, Climate tech companies took the centre stage when it comes to attracting investments. Climate tech companies have raised a record $32.3bn so far this year, of which 28% went to Europe-headquartered startups.
Whilst money is increasingly flowing towards green-finance initiatives, we are still in the early days. A combination of stakeholder pressure, technological advancements, and regulations such as the EU’s Sustainable Finance Disclosure Regulation (SFDR), will catalyse rapid innovation in the sector – but much still needs to be done to agree common standards and ways of measuring and reporting on not only financial impact, but a business’ double and triple bottom line.
As investment in climate tech continues, it’s important to note the impact that fintechs are having on ESG related issues. Fintech for example has the potential to affect positive change for the climate. Allocation of capital towards new ESG assets and the rise of new-banking offerings are among the biggest trends in the climate fintech landscape today.
New ESG assets are investment vehicles, such as marketplaces or platforms, that enable retail and institutional investors to allocate funds towards companies having a measurable positive social and environmental impact. This includes green bonds and reforestation and initiatives as well as carbon monitoring and offsetting. But it’s not only about allocating assets towards green projects, we are also seeing a rise of green-banking offers for consumers. New green neobanks and investment vehicles that target climate conscious and digital savvy consumers are seeing growing traction as consumers seek new ways for their money to match their values, for example.
About Manuel Silva Martinez
Manuel has a wealth of experience as General Partner of Mouro Capital. Prior to this, Manuel was Partner and Head of Investments at Santander InnoVentures, a part of Santander Group’s global corporate venture capital fund, focused on early stage FinTech investments. Manuel also spent nearly a decade at BBVA where he was a founding member of BBVA Ventures based in San Francisco.