Portugal’s fintech ecosystem passes €1 billion. We take an inside look.

[EU-Startups] Portugal’s fintech ecosystem passes €1 billion. We take an inside look.

Today, the Portugal Fintech Association has released the 2022 edition of the Portugal Fintech Report – and it shows the sector is resilient and growing on a global level. We took an inside look to find out how startups are fueling the fintech frenzy in Portugal and what the future holds. 

Each year the Portugal Fintech Report highlights the different Portuguese fintechs’ that are showing promising signs in the national and international panorama. It looks like Portugal is growing an exciting ecosystem of finance-based technology, particularly in the rising crypto and blockchain markets which accounted for an incredible 75% of all fintech funds raised. 

Payments and Lending & Credit are still the main two verticals for startup innovation (representing 39% of startups), but blockchain and crypto are rapidly taking up space – now representing 17% of the ecosystem. 

Portugal is therefore clearly at the forefront of a new era of fintech development, harnessing these modern technologies to make advancements for a more advanced financial world. Investment is clearly backing this and it could mark a new stage of the broader Portuguese startup ecosystem, one where it can begin to create a reputation for fintech innovation.

“The Portuguese fintech ecosystem showed strong traits of resiliency during 2022. In a year of uncertainty and contention, Portuguese startups closed several rounds and increased total funding for the period. As a destination, Portugal continues to receive an influx of larger startups that open their offices to take advantage of the talent pool but also from the sense of community” 

João Freire de Andrade, founder of Portugal Fintech

We wanted to find out more, so we got some insider thoughts. 

How startups are driving fintech innovation in Portugal

When it comes to innovation, startups tend to be a major driving force. Bringing bold, daring ideas and a preparedness to be agile, startups help test the frontiers of industries through fresh innovation. As Portugal’s fintech market grows, we wanted to see how startups are helping fuel this, and how they are taking on a lucrative, crowded market. 

“Startups are a key driver for fintech innovation in Portugal. Around 75% of our ecosystem is built by B2B startups that accelerate the transformation of financial players, helping them accelerate transformation. This is especially important in smaller economies, where each player has less space to invest and build alone. Startups become critical third parties to provide top digital experiences. Additionally, Portugal has become the entry market for several startups entering the European space, bringing new experiences and services for the fintech space.”

What about Portugal’s startup ecosystem as a whole? 

Portugal’s tech startup ecosystem has been flourishing in recent years. Home to a well-nurtured talent pool as well as a destination of choice for many digital nomads, it is now a country where many growing companies and innovators set up European roots. It’s now the home to Web Summit, one of the most celebrated startup events in Europe, and with 7 unicorns and counting, the small nation is undoubtedly a startup hub in the making. 

We took a look at Portugal’s startup ecosystem in 2021 and earlier this year looked at what trends we expected to grow. 

Now, though, we turn to the expertise of Portugal Fintech. 

Portugal has greatly benefited from its talent pool, which served as an anchor to gain the interest of international startups and investors. On top of that, Portugal gathers key characteristics for any startup. A growing community of VCs, capable of speeding growth in the early stage that support the connection to international VCs in later stages. Small market but tech savvy and open to trying new products. An open society ready to welcome their teams and easy to conciliate with international and global cultures. Lastly, one of the most relevant points, Portugal has been developing specialized ecosystems that focus on providing support to each vertical, for example, fintech, making it easier to enter and test the market.

What role are digital nomads playing? 

For sure digital nomads play a role in the growth of the fintech ecosystem, especially in the community feeling and the talent provided to the startups. However, the volume and relevance of the ecosystem go way beyond digital nomads. The Portuguese fintech ecosystem has raised more than 1 billion euros so far (source: Portugal Fintech Report 2022), and is starting to present its unicorns (Feedzai and Anchorage) as well as a growing number of Seed and Series A investments rounds. The Fintech House (the Portugal Fintech physical hub in Lisbon) has inaugurated a new building offering 400 workstations for their 80 startups community. These are all indicators of organic growth, grounded on resident talent and entrepreneurial spirit.

The key fintech trends to watch

Looking for the traditional banking and insurance sector, there are three critical trends for the fintech ecosystem – embedded finance, digital lending and ESG. The first two are clear signals of the traditional sector looking for new revenue streams beyond the financial services or even entering the financial services (case of banking as a service). Corporate innovators are looking for ecosystems and a product mindset that can complement the traditional structure. On digital lending, a note should also be made about open banking. After an initial wave of account aggregation and PFM (Personal finance managers), banks are now exploring how to take advantage of open banking for consumer credit and others. ESG appears as a trend greatly influenced by the introduction of taxonomy and a calendar for adoption, but it is important to highlight the potential role of fintech startups in this transition.

In parallel, cybersecurity grows on the back of the traditional sectors but also due to the growing blockchain and DeFi ecosystem that faces pressure to guarantee security and trust.

What does the future hold for Portuguese fintech? 

The Portuguese ecosystem is passing through a very positive moment. The Portugal Fintech Report 2022 shows that it was resilient to the economic shocks of the year, especially in the VC side, and that it even became stronger with new talent entering the market. The challenge now is how to strengthen the ecosystem structure to better serve all stages of startups. On the regulatory side, there is plenty to be done to make financial licenses accessible to startups. There is new legislation opening doors to the creation of sandboxes, but clarity is still needed on how they will work. On access to finance, Portugal still must grow its community of investors, to increase competitiveness and be capable of answering larger rounds. Institutional funding will also play a bigger role, especially through incubators and other institutional channels. Finally, talent will remain the main bottleneck for growth in the near future. Portugal is reconverting a lot of talent through coding schools and that is making a difference but the fintech ecosystem still struggles to find talent, especially for senior IT positions.

From our perspective, as the nonprofit representing the ecosystem, Portugal Fintech will continue finding clear offers for startups in all stages in the 4 verticals of corporate players, talent, capital and regulation. A clear example is the launch of the Fintech House Scholarship, which will start granting office packages to 5 early-stage fintech startups.

Portuguese fintech: resilience in times of turbulence

As uncovered in the report, Portuguese fintechs’ have now raised more than €1 billion, which is a milestone well worthy of celebration. It not only shows resilience in the market, but also maturity, and highlights that Portugal is ready to take on a fintech reputation on a global level. 

Supporting this growth is ecosystem players such as Portugal Fintech, who, alongside sharing this report, have just launched the Portugal Fintech Scholarship, a scholarship for new startups that guarantees support for six months at the Fintech House

Source: EU-Startups