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.

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.

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.

While in North America (USA and Canada) and Great Britain more than 70% of the credit granted to companies comes from financial sponsors including direct credit funds, with the remaining share financed by the banking system, the balance of power appears to be reversed in Europe: in France, bank credit is 55% of the total.  in Italy at 47% and in Germany at 37%, compared to 22% for the United States. Non-bank direct lending volumes – so-called shadow banking – are very significant globally and are characterised by high growth. However, 58% of this stock is concentrated in North America, with capital available for direct lending financing  amounting to $182 billion globally, for total AUM of $546 billion.

Following these numbers and trends, together with experts such as Claudio Scardovi, Senior Partner and Private Equity Leader of Deloitte Italy, and Luigi Cutugno, Partner Corporate Finance and Debt & Capital Advisory Leader at Deloitte Italia, we tried to better understand what is the direct credit state of the art in Italy and why it could be a useful tool to finance the current green and digital transition, looking forward to the future growth and development of the entire Italian business industry.  

"The ECB's recent decision to reduce the Official Discount Rate seems to indicate a return to "normality" for the credit market, which will lead to greater access to and a lower cost of financing for Italian SMEs, with positive effects on growth and profitability. The green and digital transition of Italian companies cannot be financed only by the public sector or the banking system. Resources must necessarily also pass through private savings and, in this sense, Direct credit represents a fundamental financial instrument as well as an opportunity for growth for companies, investors and banks", stated Claudio Scardovi, Senior Partner and Private Equity Leader of Deloitte Italy. "The growth of Direct Lending in Italy would largely benefit the banking sector itself, which is increasingly reorienting itself towards asset and wealth management, with progressive diversification of sources of income and asset risks assumed, with less dependence on the economic value created by the Official Discount Rate, which is destined to fall. Italian banks, in the last two years, have largely benefited from the rise in rates, especially in terms of record dividends and profitability. Italian banks will be able to support the development of direct credit, both by raising private savings to invest and by working in partnership with mid-market funds  already active in this sector through origination and co-financing activities on their customers," continues Scardovi.

Direct Credit: a tool that is still little known and used in Italy

Looking at investment activities, Italy's share of private debt amounted to just €2.9 billion in 2023, recording, according to Aifi, a 12% drop compared to 2022, with more than two-thirds of the disbursement granted to large companies. The number of deals fell by 37%, from 262 to 164, involving 109 companies. Of these, 55% were loans, 38% bonds and 7% hybrid instruments. Moreover, more than 30% of mini-bonds are subscribed by the banks themselves, with limited use of basket bonds (diversified mini-bond portfolio). At the same time, funding from private debt operators active in Italy increased by 14% in 2023 to €1,141 million. Independent funding, which accounts for 96% of the total, comes mainly from the public sector and institutional funds of funds (46%), followed by banks (19%) and pension funds and provident funds (16%).

"Considering the vast universe of over 10,000 companies in Italy with a turnover between 30 and 100 million euros, the considerable growth potential of the private debt market is evident, which can be seized by further developing funding from institutional investors, hopefully supporting it with tax benefits. This would make it possible to increase product penetration among Italian small and medium-sized enterprises and reduce dependence on the banking sector to finance organic growth projects (mainly investments) or through external channels (e.g. M&A)," comments Luigi Cutugno, Partner Corporate Finance and Debt & Capital Advisory Leader at Deloitte Italia.

More credit for businesses and low-risk investments

Direct credit is characterized by longer weighted average loan durations (over 5 years the average duration in the United States, over 6 years in Italy), against an average cost competitive with that of banks (6.8% in 2023, according to Aifi). "This form of credit guarantees Italian companies more credit, for longer, at reasonable costs, and represents a low-risk investment opportunity (default rates are currently very limited  ), with attractive and uncorrelated net returns compared to other assets in the portfolio for both institutional and retail investors," concludes Cutugno.

Officine Credem in Reggio Emilia - a place that embodies innovation and contamination - will host the new stage of the roadshow dedicated to fintech, the last appointment before the new edition of the international Milan Fintech Summit event to be held at Allianz MiCo in Milan on 8 and 9 October.

Milan Fintech Summit, now in its fifth edition, is promoted and organized by Fintech District and Fiera Milano, through the activities of its knowledge unit, Business International.

Scheduled for 25 June, the Emilian event represents a new important opportunity to explore trends and innovations in the sector, foster networking and promote the growth of the fintech ecosystem in Italy. Dedicated to university students, the entrepreneurial fabric of the area and those who want to learn more about all the facets of the fintech revolution that has redesigned the world of financial services, the meeting is organized in collaboration with Credem, partner of the roadshow.

During the day, several topics will be addressed with experts and protagonists of the Italian fintech ecosystem: the sector as a career opportunity, its impact on the entrepreneurial fabric and the environment. There will also be a moment to enhance the realities that were born or move in the Emilia-Romagna area.

A particularly significant milestone both in terms of content and the host location: inaugurated in March 2024, the "Officine Credem", inside the Reggio Emilia Innovation Park, represents a meeting point for the generation and development of innovative projects. The space, with an important history that has seen several moments of rebirth, was chosen for the creativity and innovation inherent in the project, both strongly characterizing elements of the fintech sector. In fact, despite the fact that finance and technology are two extremely technical drivers of development in the sector. The industry constantly demonstrates the ability to express great creativity and inspiration, which are crucial for the extreme variety of services that impact on the daily lives of people and companies. This year, the Milan Fintech Summit tells its story through one of the inspirational arts par excellence: music. The fifth edition, starting from the pay-off "Smells like fintech spirit", will recall the songs of the most famous artists: each session refers to the title of a well-known song and speakers, partners and participants will be able to contribute to the creation of the "soundtrack" by sharing their favorite song for the official playlist of the Milan Fintech Summit.

Clelia Tosi, Head of Fintech District: "Fintech District promotes initiatives that support innovation in the financial ecosystem, so it is very significant for us that one of the appointments of the Milan Fintech Summit roadshow is held at Officine Credem with which we share the value of innovation as inspiration. The Emilian territory is rich in innovative entrepreneurial excellence and in this new meeting we want to turn the spotlight on these and enhance them. The edition of the great annual event is approaching and the program is enriched every day with guests and ideas, a mirror of an ecosystem – the Italian fintech one – in continuous evolution and now consolidated at an international level".

Umberto Pellegrino, Head of Business International, Fiera Milano's knowledge unit: "This second stop of the Milan Fintech Summit Roadshow expresses a sense of speed that reflects the rapid evolution of the world we live in. A transformative process that well mixes with iconic places of innovation and creativity, such as those of Reggio Emilia. Spaces that also inspired Fiera Milano when it decided to open its doors to a new path oriented towards hosting new generation events with an increasing focus on sustainability and emotions. A new approach that this summit, in particular, has been able to interpret perfectly, succeeding, especially on this occasion, in bringing the world of financial technology and innovation closer to that of music and culture. A combination on which we think it will be necessary to focus in the coming years to generate moments of meeting and discussion with high added value, capable of stimulating that critical thinking, which is so important for looking to the future".

Piergiorgio Grossi – Chief Innovation Officer of Credem: "We are thrilled to host the second stage of an important Fintech District event at Officine Credem, after Rome. The event is dedicated to open innovation, evolution and change and involves other players of the new Reggio Emilia Innovation Park. The event of 25/06 represents an important opportunity to celebrate the synergy between students, entrepreneurs and our territory, enhancing its potential and promoting a future of shared growth and development."

THE PROGRAM OF THE DAY

The day will open with the "MFS University" session, reserved for university students. Moderator Costanza Cicero from Starting Finance will lead two discussions on how fintech can make everyday life easier and how to pursue a career in this sector. The first round table will be attended  by Francesco Di Gennaro of Clickbando, Leonardo Capotosto of Funnifin and Fabio Ugolini of Truescreen; the second  will be attended by Oreste D'Ambrosio of BuildLender, Davide Pagliara of Quarkpay and Federica Rossi of Subbyx.

In the afternoon, however, the doors will open to companies. Chiara Padua and Umberto Pellegrino, the Co-Heads of the Milan Fintech Summit, will open the event together with Simone Chiesi of Credem.

The first keynote speech, entitled "Nessun Dorma: Making Your Way of Communicating Effective, Engaging, and Authentic," will be delivered by Reinout Bosman of Coach Stage Education.

This will be followed by the round table "Sarai - Integrated finance: what possibilities of fintech for the entire entrepreneurial fabric". Moderated by Roberto Bellini of Assosoftware, Piergiorgio Grossi of Credem, Clelia Tosi of Fintech District and Vice President of ItaliaFintech and Mattia Ciprian of Modefinance will speak.

This will be followed by a focus on the positive impact that fintech technologies can generate entitled "The sun has gone out", in which Alan Gallicchio of Ecomate and Davide Raffaetà of Agatheia will speak.

It will then be time  for keynote speeches held by Anna De Stefano, IAG Member and Club degli Investitori and Angel Investor and Legal Design Expert, Massimo Ruffolo of Altilia and Vice President of ItaliaFintech. The keynote session will be closed by the Bank of Italy which, through the intervention of Adriana Dolores (Deputy Head of Milano Hub Innovation Centre), will present in detail the possibilities of participation in the new call for proposals launched on 5 June and dedicated to payments. The Central Bank's participation confirms the focus on the fintech sector.

The event will also showcase "Mastercard for fintechs", Mastercard's Platinum Partner program designed to support fintechs, equipping them with world-class tools and skills to guide them in their continuous growth and push them to the next level.

The day will end with "T'appartengo", a moment of pitch of companies born or operating in the Emilia-Romagna area that will present their companies and solutions. Speakers: Alessandro Del Bene of 01Sistemi, Giacomo Barigazzi of Axyon AI, Enrico Malverti of Ematrend and Salvatore Iiritano of Revelis.

Since OpenAI released its groundbreaking large language model (LLM) platform in late 2022, companies heavily involved in artificial intelligence (AI) have experienced a veritable renaissance.

According to Finbold research, the 10 largest AI companies have seen their market capitalization skyrocket by $5.4 trillion in just over a year and a half and are now cumulatively worth $10.314 trillion.

Though Nvidia (NASDAQ: NVDA) has arguably been a star of the boom and has grown by nearly $2.5 trillion, it is far from the only winner.

For example, Microsoft’s (NASDAQ: MSFT) involvement with OpenAI enabled the firm to finally overtake Apple (NASDAQ: AAPL) in early 2024 and become the world’s biggest company.

Others, such as Meta Platforms (NASDAQ: META) and IBM (NYSE: IBM), were also major beneficiaries.

The data, however, also shows a significant concentration of gains, with Nvidia accounting for nearly 50% of all inflows and the 3 biggest companies making up 78.64% of the Big 10’s total market share.

AI IS STILL NOT A SILVER BULLET

Despite the staggering success of firms like Nvidia and Microsoft, mere involvement with artificial intelligence technology has also proven not to be a silver bullet for wider business woes.

Few examples of this are as stark as Elon Musk’s Tesla (NASDAQ: TSLA), which, despite promising to use AI to develop fully autonomous vehicles, has seen its market cap decline nearly $50 billion since ChatGPT’s release.

As Justinas Baltrusaitis, a co-author of the research, pointed out:

“However, Finbold’s analysis shows that AI is not a guaranteed path to growth, as evidenced by the mixed performance of different firms in the sector. Though some - Nvidia most prominently but others, such as Meta and Palantir (NASDAQ: PLTR) - have found their stocks driven to great highs thanks to their involvement with the technology, some have declined despite their best efforts.”

Ultimately, despite the initial successes of the industry, the true impact of AI technology on business and the stock market is yet to be seen as the industry matures.

The cryptocurrency bull market of 2024 has reignited interest and investments in the world’s major digital assets, with both their prices and holding addresses rising significantly from the prices seen during the ‘crypto winter".

Finbold found that, in the first six months of 2024, the total number of addresses holding Bitcoin (BTC) worth more than $1 increased by 7.3 million - nearly 10% compared to the start of January.

Similarly, the number of Bitcoin millionaires saw a sharp rise from 96,736 just after New Year to 126,733 on June 11, 2024.

The growth in the number of addresses is, however slower than in 2023 and at the current rate, 2024 will add only 60% as many new addresses and only 85% as many new BTC millionaires.

FEWER ADDRESSES ADDED IN 2024 THAN IN 2023 DESPITE THE BILL MARKET

The relative stagnation in the price of Bitcoin since it reached a new all-time high (ATH) of $73,084 on March 13 might have somewhat dampened the enthusiasm, especially paired with the prices consistently staying above the previous ATH.

On the other hand, the approval of Bitcoin exchange-traded funds (ETFs) in the U.S. in January may have inverted the standard logic that there may be fewer actual users than addresses.

As pointed out by Andreja Stojanovic, a co-author of the research:

“Simultaneously, the January approval of BTC ETFs in the U.S. may have inverted the logic and may also explain the relatively slow growth compared to 2023. Major financial institutions that operate the funds - such as BlackRock - may hold vast amounts of BTC associated with numerous investors in a single address.”

Still, a strong BTC price move in either direction could likely lead to an explosion in the number of addresses, either by showcasing that the cryptocurrency has significantly more room to grow or by presenting an enticing buying opportunity.