Fintechs in Europe are growing across borders and in addition to commercial aspects, such expansion triggers requirements to the companies’ governance setup. We have asked the international law firm, Bird & Bird, about the opportunities and challenges encountered by fintechs expanding internationally.
International expansion is often part of the plan right from the beginning for fast-growing startups. But for fintechs, the challenge is not merely a commercial or technological one. International expansion also triggers the need for increased focus on legal risks and governance.
The international law firm, Bird & Bird, advises businesses that are being changed by technology and the digital world, and over the past years, Bird & Bird has assisted an increasing number of fintech companies expanding internationally.
We have spoken with Annette Printz Nielsen, partner and Head of the Financial Services Sector Group in Denmark, about which challenges, opportunities, and tendencies she experiences in relation to the internationalization of fintechs.
Do you experience an increase in the appetite for international growth among fintechs?
We definitely see an increase, but I frankly believe that the ambitions and actually also the appetite usually is there right from the start. In my view, it is rather an effect of Danish and international fintechs reaching levels of maturity and capital where international growth becomes the natural next step. During the past five years or so, we have experienced significant growth in the number of fintechs, many of which have reached a size where their focus shifts from being national to becoming international.
Which markets do fintechs usually go to first as the most attractive?
It obviously differs a lot, but we see many Danish fintechs expanding in the Nordics as a start and subsequently in other European countries, whereas others go straight for the US market. For fintechs regulated and licensed by the Danish Financial Supervisory Authority, the UK has become less accessible in the wake of Brexit. Passporting their license to the UK is no longer an option. This means that if a Danish fintech wants to provide regulated services in the UK, they need to establish a company in the UK and apply for a separate license there. This affects timing and requires capital. The same applies the other way around. i.e. if UK fintechs want to provide payment services in the EU. As a result, we are experiencing an increased demand for assistance of establishment in the EU.
What do you consider to be the greatest challenges in relation to international growth?
Most fintechs expanding in the EU offer their services cross-border without establishing local branches or subsidiaries. Regardless of the business model, this usually requires resources and capital and may involve other business barriers. From a legal perspective, we experience that it can be challenging for a fast-growing organization where keeping up on the governance side is already a challenge, to handle and manage the legal risks triggered by expanding internationally. Besides the regulatory aspects this involves anything from ensuring compliance with local regulation being reflected in the company’s terms and conditions to management of employees and negotiating contracts under the laws of various jurisdictions.
Will we be seeing more internationalization in the fintech sector in the coming years?
I absolutely believe that we will. Many fintechs have not yet expanded internationally and we constantly see new ones coming up. Also, we are still only seeing the effects of “open banking”, being one of the important factors triggering the growth in the fintech market, and most likely the next trigger will be “open financial data”. Open Banking at EU level is centred around payments data. Access to other types of financial data will create new opportunities and may likely be an additional booster for the fintech market.