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Digital banks have made a sizable dent in the business of traditional banks in recent years. The popularity of digital banks continues to grow, and according to the numbers presented by Nokyc.com, customers are expected to deposit wealth worth $15.32 trillion in 2024.
VALUE OF DEPOSITS SET TO GROW BY 22.7% IN 2024
Digital banks continue to grow in popularity. According to the latest Statista Market Insights, customers worldwide are expected to deposit funds worth $15.32 in digital banks in 2024. Such a figure would indicate a year-on-year increase of an impressive 22.7% in annual deposits. The deposits in digital banks stood at $12.49 billion in 2023.
Digital banks are a recent phenomenon, but they have already made their presence known globally. In 2017, the deposits in digital banks were worth only $800 billion globally. The value crossed the trillion mark for the first time in 2018.
Such banks have really taken off in popularity following the COVID-19 outbreak and lockdown. The value of deposits annually have grown at an incredible rate, especially after 2020. The rate of growth is expected to slow down in the coming years, but according to the Statista report, deposits in digital banks will continue to grow at a healthy rate.
In 2025, deposits are expected to reach $17.57 trillion, following a year-on-year increase of 14.7%. By 2029, annual deposits in digital banks are expected to reach $22.62 trillion.
USER BASE TO CROSS 300 MILLION IN 2024
The user base of digital banks is also expected to show an splendid level of growth. The user base is expected to grow by 20.4%, on a year-on-year basis, to 301.8 million in 2024. In 2023, the total number of digital bank users was 250.7 million.
It is an impressive growth, considering the user base stood at just 18.95 million in 2027. However, the growth in the user base is expected to slow down beyond 2026. The total number of users worldwide is expected to reach 386.3 million in 2028.
Easier access to financial services in comparison to traditional banks is a key reason for 41% of Italian consumers turn to embedded financial services, according to a new study by Solaris and consulting firm Roland Berger. The ‘Disrupting the value chain for financial services - How to drive revenue growth with embedded finance’ study considered the views of 1600 consumers equally split across the four major European markets: Italy, Germany, Spain and France.
41% of Italian participants named product accessibility as the defining factor for using embedded financial services and products. This can be attributed to simpler applications and faster KYC (user verification) processes[MOU2] [AS3] : in particular, 75% of Italians are satisfied or completely satisfied with them.
That was ahead of 36% of respondents noting strong availability of embedded finance solutions at the checkout and 25% acknowledging improved user experience as well as 30% referencing attached benefits such as loyalty programs and payback schemes.
PREFERENCES OF EMBEDDED FINANCE IN ITALY: THE DEBIT CARD GUIDES ITS USE
The rise of cashless and cardless payment methods was prevalent in the types of embedded financial services that Italian consumers are currently using, with digital wallets accounting for 37%, ahead of credit cards 30% and online bank accounts 26%. Only debit cards (41%) are being used by more people than digital wallets. Interestingly, while buy-now-pay-later (BNPL) were noted by 18% of respondents across Europe, in Italy BNPL was by far the less popular embedded financial solution as acknowledged by 7% of those surveyed.
"The embedded finance market is increasing in maturity in Italy. Our study highlights that payment products, in particular such as debit cards, are a great chance for companies to integrate embedded financial products into their value proposition. This can satisfy the need for faster, safer and more attractive financial solutions that’s crucial for our partners' response to changing customer behavior”, commented Federico Roesler Franz, Managing Director of Solaris Italy. “These are products with which consumers are more familiar and, thanks to them, our partners can get to know their customers better and promote and reward customer loyalty”.
When asked what parameters would make a consumer more likely to use an embedded finance solution, more than a quarter (27%) cited that being able to obtain multiple products from one brand as a key factor, with digital wallets the most desired new product.
SECTORS AND CONCERNS OF EMBEDDED FINANCE BY ITALIANS
The study also revealed that more than half of Italian consumers (almost 60%) have used an embedded finance product from e-commerce businesses, followed by retail (27%) with travel (26%) and transport and mobility (37%). The research discovered that data security remains the largest area of concern in relation to taking out embedded finance products for 64% Italian consumers ahead of transparency (25%) and trust, as noted by a third (33%).
Italians' shopping is becoming increasingly digital. This is an evolution that also concerns the channel chosen to manage one's purchases thanks to the additional possibilities offered by the market. Over the past two years, consumers have increasingly appreciated the benefits of innovative online services to conveniently make their purchases and defer payments. Since June 2022, the use of "Buy Now, Pay Later" - online or in-store - has grown steadily, reaching +139.26%, and shows no sign of slowing down: in June compared to May, in fact, BNPL grew by 8.68% with an average amount financed of €149. And if the younger generations were the first to experiment with this new funding channel, with Millennials (29-44 years old) and GenZ (18-28 years old) still representing over two-thirds of users (67.95%), now the push is also coming from the older segments of the population. In the last year, in fact, the use of BNPL by the over-45s has grown by an average of +24%. These are some of the data highlighted in the latest Italian Credit Report – Trends & Insights by Experian, Data Tech Leader in the credit market, for the month of June 2024.
"This increase in the use of Buy Now, Pay Later demonstrates consumers' continued focus on convenience and planning their spending so they can make purchases at the most convenient times, without having to immediately commit money to the full amount. The data we find on the market, with the particular diffusion of BNPL among younger users and in Southern Italy, demonstrate its role as an inclusive tool for population groups with traditionally lower purchasing power," commented Armando Capone, CEO of Experian Italia. "Experian works with every type of organization that uses BNPL, from specialized fintechs to traditional financial institutions, to provide visibility into BNPL activity and advanced analytics of consumer payment behavior to drive informed decisions and timely, faster actions, with greater confidence."
"In recent years, Buy Now Pay Later (BNPL) has experienced an exponential rise in Italy, establishing itself as a payment method increasingly appreciated by consumers and requested by merchants. This trend is mainly driven by young people, but the charm of this payment method is also conquering the older generations, with a significant increase among the over-45s. This growth is also favored by the expansion of BNPL beyond its traditional reference sector, fashion: Klarna, for example, has recorded an increase in the average age of its users thanks to collaborations with national and international players in the electronics, ticketing, travel and furniture and DIY sectors. Italy, in this scenario, stands out for a growth rate of BNPL similar, if not even higher, than that of countries with more experience in the sector, such as the United States and the United Kingdom. A figure that testifies to the global diffusion of this innovative financing model and its ability to respond to the needs of an increasingly wide audience," commented Gessica David, Head of Partner Success, Klarna Italy. "Ultimately, BNPL is an evolving phenomenon that is revolutionizing the payments landscape in Italy, offering consumers greater flexibility and convenience in purchases and companies new opportunities for growth. At Klarna, we are proud to contribute to this credit revolution with cutting-edge services and Experian is the ideal partner for us as it allows us to have innovative solutions available to assess the riskiness of subjects and promote a safe use of BNPL."
AFTER BOOMING IN 2022, BNPL GROWTH IS ALIGNING WITH GENERAL SPENDING PERIODS
The trends highlighted by the Experian Report regarding the trend of BNPL over the years have clearly highlighted an explosion in its use during the pandemic period, which has seen Italian consumers forcibly rely more on e-commerce and online platforms. Since 2023, the use of BNPL has continued to grow (+40.4%) but in a more organic way and aligned with periods of generalized spending, incentivized by holidays, offers and sales. The first half of the year, in fact, shows a decrease in the use of BNPL of -4.23% compared to the July-December 2023 period, precisely because spending related to summer sales, Black Friday, holidays and Christmas offers was concentrated in the latter. BNPL then started to grow again in April, reaching +8.68% in June: in the second quarter of the year, in fact, BNPL requests grew by +10.5% compared to the January-March period.
June 2024 demand trends |
|
Reference period/Products |
Buy now pay later (BNPL) |
June 2024 vs May 2024 |
8,68% |
June 2024 vs June 2023 |
40,45% |
June 2024 vs June 2022 |
139,26% |
H12024 vs H22023 |
-4,23% |
Q12024 vs Q22024 |
10,50% |
The clothing sector attracts the largest number of requests, accounting for 82% of the total. This is followed by use for purchases related to outdoor activities such as gardening or camping (6%), for the purchase of sports equipment (4%), for travel expenses related mainly to transport and accommodation (3%), for the purchase of jewelry (3%) and, finally, of personal care products and services (1.5%). The arrival of the summer sales therefore portends a new increase in requests.
GENZ AND MILLENNIALS EXPAND USAGE, BUT SO ARE THE DEMANDS OF THE OVER-45
Demographically, younger population groups naturally account for the majority of BNPL customers, and usage continues to expand month after month: since May, enquiries have increased by +9.14% for GenZ and +7.54% for Millennials. However, GenX – which includes the 45-60 age group – is also gaining more weight, accounting for a quarter of the total number of users (25.5%) and both GenX and Baby Boomer requests have been increasing since last year, by +36% and +26% respectively.
Incidences of generational classes and requests for June 2024 |
|||||
Products/Generations |
SENIOR (+79 years) |
BABY BOOMER (60-78 years) |
GEN X (45-59 years old) |
MILLENNIAL (28-44 years old) |
GEN Z (18-28 years old) |
Percentage composition |
0,20% |
6,32% |
25,53% |
40,08% |
27,88% |
Change in requests from May 2024 |
6,92% |
9,09% |
9,94% |
7,54% |
9,14% |
Change in requests from June 2023 |
10,00% |
25,78% |
35,71% |
37,83% |
53,95% |
THE SOUTH IS THE LARGEST USER OF BNPL, IN NAPLES THE USE IS +48% IN JUST ONE YEAR
Going into detail about the national distribution, BNPL is most used in the South, which accounts for 36.6% of total requests, with a more incisive growth than in the other Nielsen areas considered: the year-on-year variation is in fact 42.7%, more than 6 percentage points compared to the North. The North East is the area where BNPL is least used, with only 13% of requests. The North West and Centre are equivalent with about 25% of the total, although the Centre has recorded significant growth since last year of +44%.
This evidence also emerges by considering the data of the main Italian cities analyzed by area: 7.68% of total requests are concentrated in Naples, up 48% since May 2023, while only 0.87% are concentrated in Venice.
June 2024 Inquiries by Nielsen Areas |
|||
Area Nielsen |
Composition % |
Var % vs Maggio 2024 |
Var% vs June 2023 |
Area 1 (North West) |
25,28% |
9,28% |
36,71% |
Area 2 (Nord Est) |
12,83% |
7,15% |
35,26% |
Area 3 (Centro) |
25,31% |
13,33% |
43,87% |
Area 4 (South) |
36,59% |
5,82% |
42,72% |
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