Only now, some 7 or 8 years after the global financial crisis are economies of the European Union finally reaching pre-crisis levels. Despite self-congratulatory politicians, growth can be best described as tepid, and certainly well below previous peak levels. New deflationary demons lurk beneath the surface and guards are still up. Putting aside political optimism, economic growth is what Europe desperately needs.
However, in search of growth potential, Europe needn't look far. As the European Commission itself estimates, there are now more than 20 million small and medium sized enterprises (SMEs), representing 99 percent of all business across the EU. We continue to believe startups and SME will be potential drivers for economic growth, innovation, employment and social integration in Europe.
While regulation is one vital component enabling sustained growth – a task where both the Commission and the European governments must remain vigilant not to overburden and suffocate business – another component is the SMEs themselves.
Three key elements for growth in Europe are “innovation, innovation and innovation”
This was said by Matti Vanhanen, the former Prime Minister of Finland, in the early 2000s. This, at a time when Finland’s tech industry and economy was booming. Yet without investment, sustained innovation cannot thrive. Now though it seems SMEs are attracting investment, in areas where innovation can be seen to deliver profitable business models - such as in FinTech.
Investment in FinTech
According to an Accenture report, investment in financial-technology (FinTech) companies more than tripled between 2008 and 2013 and grew by more than 200 percent globally in 2014. This compares to a meagre 63 percent growth in overall venture-capital investments. Things are changing, and how the capital is being raised is just as much part of the change. The emergence of crowd investing and online marketplaces is facilitating deal flow and making it easier to spot companies at distinct growth stages.
Within Europe, Ireland and the UK are emerging as growth engines, accounting for 42 percent of all European investment in this area. However, the rest of Europe is catching up, as last year the value of FinTech investment in the region grew more than twice as fast as in the UK and Ireland. The most significant levels of investments were in the Nordic countries ($345 million), the Netherlands ($306 million) and Germany ($82 million).
There is no one-size-fits-all solution on how to improve the economy and business in Europe. New business ideas, creating and providing people with jobs are one of many indicators, but at its heart is the creation of opportune environments for innovation, to reinforce an innovation culture and to attract investment. Technology and innovation have made it ever easier and cheaper to start a company. Today, failure is not as costly as before, and young companies are not afraid to be bold. With technological advances, and readily available knowledge sharing online, SMEs are hungry and they’re growing in numbers. The same can be said of disruptive SMEs in the financial sector.
The Digital Single Market
In Europe, one major initiative gathering pace is The Digital Single Market. It aims to prepare the EU for the digital age, thereby boosting the speed and agility of SMEs and startups, including those in fintech. By tearing down old regulatory walls and moving from twenty-eight national markets to one, Commission eurocrats estimate this initiative will add €415 billion per year to Europe’s economic output and create 3.8 million additional jobs. Just what Europe desperately needs. The age of European FinTech is now and within reach.
Finally, as the future of innovation and technology develops, opportunities will emerge as more countries in Europe support the growth of their young companies. Future innovation cycles will be more intense and deliver greater change than previous ones. Good and positive news for everyone, not only for the innovators and entrepreneurs behind the SMEs, but also for customers and investors alike.
Denisa Mäki, Grow Advisors
Political advisory, strategic communication and policy analysis. Subject matter expert in EU affairs, legal research and analysis of EU and International law.
Grow Advisors offers consulting and professional services on crowdfunding, crowd investing and p2p finance globally. Our advisors develop platforms that connect startup ecosystems, set up marketplaces and co-investment models, structured investment instruments, and find innovative ways to create finance solutions globally.
Sources used for the article:
Accenture report, 'The Boom in Global Fin Tech Investment' http://www.fintechinnovationlablondon.net/media/730274/Accenture-The-Future-of-Fintech-and-Banking-digitallydisrupted-or-reima-.pdf