Italian Banks and Digital Lending: a Test of Strength

The operators of the Italian financial market consider it fundamental to combine innovative technologies with the traditional financial sector to promote their business, and SMEs are not an exception. Such a decision has already changed some approaches to the provision of financial services, however, the regulatory framework is still behind the rapid development of innovations, and the current legislation has significant gaps that need to be filled as soon as possible.

In the words of Italian financial market operators, fintech is "the space for finding opportunities." The most common and established operations are various forms of digital payments, but deposit management, investment, and lending, especially digital lending, are becoming increasingly attractive.

According to statistics compiled and distributed by the Supervisory Authority at the Polytechnic University of Milan (Osservatorio del Politecnico di Milano), in Italy, the lion's share of fintech transactions is digital payments, with an increase of 9% and a total of 240 bln euros in 2018 (latest available data).

According to estimates by Ivano ASARO, Director of the Supervisory Authority for Innovative Payments (Osservatorio Innovative Payments), the average annual growth in this market segment is 10%. Speaking of payments made by enterprises, in 2018 the growth was 16%, which means the use of electronic digital payments by the business community for ever-smaller amounts. Nevertheless, compared with other countries, Italy is still in the 25th place concerning digital payments — 65 operations per year per person.

To intensify and stimulate electronic digital payments, as well as to combat tax evasion, the Italian government restricts the use of cash (currently it is 3 thousand euros per transaction, in 2020–21 this number will be 2 thousand euros, and since 2022 — 1 thousand euros). At the same time, electronic digital payments are stimulated and encouraged in every way: partial VAT refund on a bill from a store, lottery draws among the digitally-paid checks, cash bonuses, etc.

Eric LASSUS, the Managing Director of Treezor, announced the launch of the French platform “Banking-as-a-Service” (BaaS) in Italy, acquired in 2019 from Societe Gènèrale. The start of operations is scheduled for 2020. In addition to electronic digital payments, traditional Italian banks rely on fintech to expand their financial service options. The most promising is digital lending. Its mission is to guarantee access to credit for SMEs, thereby expanding the potential lending market. One of the most active players in the field of digital lending is the Italian bank Banco Bpm, whose key feature is open banking.

The gap between the regulatory framework and the development of innovative technologies, as well as the diversity and complexity of many by-laws governing the fintech sector, make it difficult for banks and the business community to comply with established legislative requirements.

In this regard, the regtech (regulation technology) sphere has developed rapidlу. Regtech is when the technology is used to assist enterprises in complying with established rules and regulations to make them more efficient. Global investments in regtech in 2022 will amount to $76 bln, compared with $10.6 bln in 2017 (the latest available data).

At the same time, the annual amount spent by the global banking sector to comply with established rules and regulations is $270 bln. Between 2008 and 2017, global penalties paid by banks totaled $300 bln.

Image courtesy of Wired