Internationalization and the conquest of new markets are two essential elements of the growth strategy of any multinational, and fintechs are no exception. Emerging in the 2010s, mainly in the field of payments, they were initially perceived as a threat to traditional financial services. Now recognized as major players in the sector, they have helped to optimize the efficiency, costs and competitiveness of an entire market. In the space of 10 years, fintechs have achieved record fundraising, with venture capital funding increasing from $19.4 billion in 2015 to $33.3 billionin 2020. In 2021, one in two customers used a fintech product, primarily for services such as peer-to-peer (P2P) payments, cross-border payments, e-wallet services and remittances.
After more than a decade of investment growth, however, 2023 marks a sharp break with a 38% drop in the value of financing. However, companies in the sector are posting growing turnover and are continuing to hire, and like Pennylane, Qonto or Swile, some French fintechs have managed to establish themselves on international markets. However, while deployment abroad is a clear path for a growing company, five major factors must be taken into account before launching.
Define a precise timetable
Identifying the right time to change scale and expand your presence abroad is crucial in any international development project. The company must find a balance between being robust enough to consider its expansion and resilient enough to face future uncertainties. Without an established presence in its new market, it will have to navigate consumer trends, existing competition, and the lack of brand awareness and recognition.
Like any other company, fintechs must establish the timetable for their expansion by analyzing, internally, their financial health, operational stability and the resources at their disposal. This assessment allows them to ensure that they are healthy and adequately protected. An expansion poorly prepared can strain their resources, reduce the scope of possibilities and damage the credibility of the company. By timing the right strategy, fintechs can grow rapidly, secure solid market share, and establish brand awareness in new territories.
Choose your target markets carefully
When selecting the right location, whether for an initial expansion beyond the domestic market or the next phase of an international expansion, the company must recognize that each market presents unique opportunities, risks, consumer behaviors, cultural nuances, and competitive landscapes. Identifying and addressing these factors is critical to a successful expansion.
Regulatory approvals are a key issue that all financial services firms, not just fintechs, need to consider. Firms looking to establish themselves in new jurisdictions where existing regulations do not allow them to operate will need to obtain approval, including UK firms looking to expand into the European Union (EU). In the fintech world, these approvals primarily concern electronic money institutions (EMIs) and payment institutions (PIs). Registering digital asset service providers (DASPs) is also a key step for many fintechs and the wider financial services sector. In a post-Brexit era, Ireland has for example proven to be a preferred destination for fintechs, particularly from the UK and the US, which initially established regulatory platforms and modest operations through which they were able to continue operating in the EU.
Any location strategy must also take into account the cultural nuances and operating environment of each market: culture and consumer behaviour impact the performance of the sector and will determine the marketing approach to be adopted in the territory concerned. In Ireland, for example, British companies are favoured by the similarity of cultural and consumer behaviours, as well as an openness to foreign direct investment (FDI). This makes the country a destination of choice for many fintechs and financial services companies wishing to launch on the US market.
Finally, the availability of qualified talent, the ability to recruit locally and to rely on potential talent pools, including multilingual teams, is essential. The presence of universities and higher education institutions, close collaboration between industry and academia, support from government authorities and, finally, political stability are all fundamental elements in the success of an international establishment.
Building your development strategy or go-to-market
Like all companies that want to succeed in new markets, fintechs must implement a market development strategy, or go-to-market, adapted to their new operational environment. A first step is to identify the organizations that can support them when they consider developing their international operations: government agencies, technology, innovation or R&D centers.
They can also gather valuable information by taking a close interest in companies that have succeeded in this bet in the target area. In Ireland, for example, the financial services, fintech and technology sectors include many multinationals (Stripe, Mastercard, Barclays, Aon, Zodia, R3, HSBC, Paymentsense (Dojo), Quantexa, Vodafone, Google, Meta, etc.) that have developed significant multidisciplinary activities in the country. Other companies, such as Paysafe, Corepay and Global Payments, offer an overview of the opportunities resulting from setting up their operations in the territory by drawing inspiration from the strategies deployed in Ireland to establish themselves and develop in Europe.
Finally, often considered as the “new kids on the block” when they enter a market, fintechs are not only in competition with other fintechs, but also with recognized and well-established players who already hold a significant market share. Relatively young and looking to develop, they must therefore understand the competitive dynamics they will face and study the best positioning to adopt to succeed in this new market.
Developing local leadership and corporate culture
A strong local management team is the key to success. Recruiting experienced profiles, with good connections and a deep knowledge of the market, can help companies to start quickly, recruit the right candidates, develop an institutional culture and establish the company within the local ecosystem to accelerate its growth, increase its brand image and increase its market share.
The most effective management teams can usually draw on experience gained in multinational companies in the growth phase, and have knowledge of expansion and growth. The success of these operations has given them the confidence to do business.
Planning for long-term growth to overcome obstacles
All growth is gradual and has its ups and downs, which is why it is important for companies entering a new market to plan for their long-term growth, setting realistic expectations. The challenges of obtaining regulatory approvals in new jurisdictions, battling for market share, recruiting teams and thinking about how to internationalise further come with many complications and risks, but also many opportunities and possibilities. Therefore, solid marketing strategies and offers tailored to the target market are imperative, as is ensuring that you are robust enough to withstand difficult situations and face the headwinds that are sure to blow.
When planning their project and throughout the decision-making process, fintechs – like others – must be aware of the risks and rewards that characterize international expansion. By doing so, the management team will be better equipped to manage the internationalization and expansion process – and the company will be more resilient in the long term.
0 Comments