La nueva ola: why embedded finance is about to take off in Spain

With the country’s new Startup Law and other positive developments, fintech in Spain is poised for explosive growth

Max Cutler
March 15, 2023

Many countries across Europe are experiencing widespread technological innovation in their finance industries. But, perhaps as an under the radar pick, we feel Spain might be the most exciting up-and-coming market in Europe for technology companies. The intensity and speed of the growth of the financial technology sector in the last few years is extremely encouraging. 

Moreover, the size of the opportunity to further digitalize financial services should cheer both businesses and consumers alike, as the inevitable evolution of how we move and store money picks up pace. 

On the regulatory side, the environment is quite positive. European mandates have shaken up what once was a conservative banking sector. And with the introduction of the country’s new Startup Law, set to be introduced this quarter, the operating environment for fast-growing technology companies will be much improved, particularly in the areas of human resources, taxation, and investment. 

With all the fantastic momentum in Spanish tech, we at Swan see an amazing opportunity to march over the Pyrenees and bring our best-in-class embedded finance capabilities to the next generation of outstanding Spanish companies.

Read on to learn exactly why we’re so excited to take part in Spain’s fintech revolution!

Growing up! 

At the end of 2021, Spain had more than 650 fintech companies, according to a report compiled by BBVA, one of the country’s largest banks. That represents an over 8x increase on the number of Spanish fintech firms in 2015. 

On the fundraising side, there were over 300 investment rounds into Spanish fintechs in 2020 & 2021. In this time, some €600m were invested, with more than ⅔ of that allocated in 2021 alone. Illustrating how much space there is to grow, the €400m invested in 2021 was only 4% of the total in the UK during that year. For reference, the UK’s economy is not even 3x the size of Spain’s, which shows how much room there is to further invest in digitizing the country’s financial services sector. 

The relationship between incumbent financial institutions and startups has become less antagonistic recently. Instead of seeing rising firms as threats to their businesses, banks large and small have begun seeding their own venture capital funds, in order to spot the most promising fintech startups and provide them with capital, connections, and operating expertise. Both Santander and BBVA have staked multi-hundred million Euro vehicles that have invested in numerous unicorns.  

Such recognition that the game of innovation is not zero sum – growing the overall pie is valuable for the entire ecosystem, including incumbents – is worthy of celebration and is an excellent sign for fintech’s wider growth in Spain. 

And there is indeed room to grow! Spain’s fintech adoption ranks only 21st globally, behind countries such as Argentina, Germany, and South Africa. With more capital, expertise, and consumer interest, the fintech sector in Spain is on track for explosive growth in the next 3-5 years and beyond.  

Talking ‘bout my regulation!

When it comes to regulation, legislation from both the European Union and the Spanish government have shown meaningful political interest in further developing the fintech ecosystem. 

Payment Services Directive 2 (PSD2), an EU law that established new standards for banks and other payment providers across the economic bloc, was passed in 2018 and became active in 2019. PSD2 defined the standard for how financial institutions should support and work with technology. It is perhaps best known for creating the ‘Open Banking Standard’, whereby banks are required to provide access to account data and payment initiation via API.

In Spain, as in many EU countries, the enactment of PSD2 represented the moment in which legacy institutions simply could no longer ignore the impact of technological innovation on the banking sector. The logic goes: if you need to hire people to program APIs, you will probably keep them around and start new projects with them, outside of what is legally mandated. And that is what has happened, thrusting many Spanish banks kicking and screaming into the 21st century of finance. 

Bizum, the peer-to-peer payments app launched by a coalition of Spain’s biggest banks in 2016, is a perfect example of the revival. Already, something like 50% of Spanish citizens use it and the service has quickly developed other product features to go along with its core offering, with e-commerce payments as a prominent example. Interestingly, the big legacy players recently ended up allowing neobanks to participate in the project, demonstrating a much more accommodating attitude towards upstarts in the sector. 

On the legislative side, the Spanish government has finally passed what it calls ‘The Startup Law’. The law has quite a few aims but, generally speaking, it seeks to simplify the creation and administration of fast-growing technology companies operating in Spain. 

The legislation makes it easier to hire and retain foreign workers by establishing a new visa regime, giving residents without a Spanish passport more favorable tax conditions, and increasing the ceiling for stock-option grants by nearly 4x. For investors, they will be now subjected to clearer and more favorable regulation, while also enjoying tax incentives that promote investment in Spanish firms.  

Companies now pay a reduced corporate tax rate and enjoy a considerably more flexible and modern registration process when starting up. Incorporation will happen within a matter of days, rather than months, while various financial constraints, such as capital deposit requirements and notary fees, shall be reduced or eliminated entirely.

What can Swan do for you in Spain?

The opportunity to revolutionize financial services in Spain is clear. Legacy banks are increasingly onboard, capital is flowing into Spanish companies at an unprecedented rate, and new regulation is setting the tone for a business-friendly environment for years to come.

Our view here at Swan is that what is needed to take advantage of the opportunity ahead is, above all, expertise and technological excellence. Whether you are a European company looking to enter Spain as a new market, or a Spanish business seeking to expand revenue streams, we can be the backbone for your next step. 

Bringing Europe’s fastest and easiest solution for embedding finance to Spain will go a long way towards supporting those building the next wave of excellent fintech companies. ¿Hablemos?

Max Cutler
March 15, 2023
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