Gaël Denis, Partner and Fintech Leader at EY Luxembourg, discusses the first year of the support program for startups, EYnovation, and its convincing results. He also shares his views on the development of the Fintech sector in Luxembourg and gives a glimpse of the road ahead and the measures that must be taken to turn the country into an envied hub.
(Featured Image: Gaël Denis, Partner and Fintech lead at EY Luxembourg / Image Credit: EY Luxembourg)
Mr. Denis, to what extent does EY Luxembourg make the support of startups – and Fintech startups in particular – a priority?
The emergence of Fintech is a natural evolution of the digitization of companies, products and services, and of Internet 2.0 in the sense of connectivity. Historically, we have a strong presence in the TMT – Technology, Media and Telecommunications – sector and in the telecom sector in particular. We have dealt with many mobile payment issues in the African and South American markets. When the first Payment Services Directive (PSD) was launched in 2009 in Europe and mobile payments were facilitated, we already had a sensitivity on the subject and positioned ourselves to support the startups that launched and wanted payment licenses or an electronic money institution status. It was during this period that we launched our first packaged offer for startups so that they could benefit from the services of a Big Four! Startup business models today are much more complex and innovative than in previous decades. Their needs are also more sophisticated. However, they ask for the same services, the same technicality, the same experience and skills as a large company. We work with them over time to retain them and work for a better return on investment.
Through our successive support programs like our very first one, EY Open Doors, which was launched in 2008 to support American startups in their expansion into Luxembourg, we have experienced successes and failures, but more importantly, we have succeeded in making them evolve and enriching them to enter the current EYnovation program which was launched in 2015. In addition to a dedicated team, we deploy managers and senior managers from our business lines to coach startups and answer their questions on a daily basis. If the latter require a particular technicality, we then call on our network to provide the solution. We rely on intellectual capital of unique knowledge and services. Over the years, we also realized that startups wanted, first of all, to connect with potential customers and partners and this is precisely one of the strengths of our network.
What do you think of the Luxembourg ecosystem of startups?
The Luxembourg ecosystem is based on the usual pillars: investors (i.e., venture capital, business angels), startups, customers, public institutions (i.e., infrastructure, grants, lobbying) and expertise (i.e., consultants, incubators, accelerators).
The pillar of expertise is a real highlight of our Luxembourg market, in particular thanks to the density of consulting companies in Luxembourg and their diversity, whether at strategic, operational or technical levels. I think that the country has made great strides on the presence of incubators and accelerators. Over the past 24 months, this has resulted in the launch of numerous startups.
At a client level, financial institutions are starting to use Fintech solutions. Even if we still do not have a blockbuster in our ecosystem, there are more and more interactions between the two parties. The banks are finally aware of the need to rethink their business models and allocate resources to make the digital transition. Of course, there will not be a revolution overnight and not all banks will adopt the Fintech in order to digitize. Nevertheless, the stakes for banking institutions are enormous in terms of preserving their relations with their customers and managing a large retail network and IT infrastructure.
As for investors, we know that this remains a point of improvement for Luxembourg. There are initiatives that are taken through several funds – the Digital Tech Fund or the Luxembourg Future Fund – but the number of fundraisings is still limited. Luxembourg needs to connect more with international investors and build on its network, particularly in the area of private equity.
The most important objective for the Luxembourg ecosystem is to maintain attractiveness in terms of setup costs. The provision of public infrastructure works very well in other countries. This motivates private actors, entrepreneurs and startups to settle here, invest and help develop the ecosystem. The distribution of roles is paramount and everyone has to bring his or her skills and play their part in the ecosystem.
And the position of Luxembourg in the fintech sector?
The Fintech sector plays a large part in the Luxembourg ecosystem. One element that could definitely help Luxembourg position itself as a leading international platform is the entry into force of the PSD2 in 2018, which will enrich the interactions between the banks, the existing Fintech startups and the new incoming ones. We are following this very closely at EY and believe that Luxembourg has a role to play in the payments sector through this new directive. This will oblige the countries of the European Economic Area to liberalize access to bank accounts to third parties who can offer payment services. Moreover, this obligation will entail more interaction between banks and startups. The implementation approach and the development of new initiatives around this directive will be a major challenge for raising awareness of the Luxembourg ecosystem locally and internationally. If the country succeeds in applying it as agilely as the original PSD, then it could see the growth of its ecosystem accelerate.
Beyond the Fintech domain, regulatory technologies (RegTech) is full of initiatives and has now become a priority to develop and adopt It is necessary to find digital solutions, automation, control and communication of information between the regulated companies and the regulator. What is important here is the possibility of reducing compliance costs to deal with ever more drastic and resource-intensive regulatory constraints. Here again, Luxembourg can play a big role thanks to its experience in the consideration of numerous regulations.
According to you, what is the best way to become a recognized Fintech hub?
I think that Luxembourg has a card to play at the level of Blockchain technology. There is much talk about the use of this technology for the Asset Management sector, one of the flagships of the financial industry in Luxembourg. Applications are waiting, and many companies are developing a Proof of Concept. The first applications should, in my opinion, emerge in the course of 2017 even if they will be only beta testing. The use of these large-scale applications are not yet on the agenda. The current adoption involves only a few banks. Mass adoption will take place globally in the next decade. In Luxembourg, it is also possible to imagine a convergence of skills between the financial sector and the technology sector, as the Blockchain also has an impact on the connected goods sector and should enable Luxembourg to diversify.
I believe that a hub and a favorable ecosystem for startups will necessarily imply the development of our Luxembourg University. We need to be able to accommodate more foreign students in Luxembourg and encourage the emergence of researchers, young entrepreneurs and new ideas.
In recent years, Luxembourg has succeeded in building a real ecosystem with more than 200 startups, incubators and accelerators. The foundations have been laid. We must now build the economy of tomorrow. This will involve greater involvement of the public and private sectors. Innovative solutions should also be pursued to facilitate investment in startups in Luxembourg.
I am firmly convinced that the role of the private sector is to provide skills, time and investment, whereas the role of the public is to provide low-cost infrastructure.
What is your assessment of the first year of the EYnovation program?
We are very proud of this program. After a year of existence we have had very good returns from startups which highlight the availability of our coaches, the quality of the follow-up and the connections that are made. We are, of course, waiting to be able to enrich our selection of startups and to refine our process of selecting startups. The choice is always complicated when it comes to identifying the right stage of growth of companies. Today, we support a dozen startups. We do not necessarily want to follow many more, as we aspire to work on the quality of the time spent with each one of them. Through the program we also see that we have a good contribution from our current customers who enjoy spending time with our startups and at the events. Finally, I would like to point out that this program is evolutionary because, even if most of our startups are called technological, we also encounter many that are outside this scope and that would be well-served by our support.
What are the benefits of the program internally?
Does it have an impact on the culture of the company? Yes! It is an initiative that is being actively promoted. We ask our startups to make presentations at events with employees, which not only allows them to perfect their pitches but also to increase their visibility and to receive a lot of feedback from our employees. Innovation demands a mind set. It is a long-term job that is fundamental to infuse this spirit of entrepreneurship to the greatest number. Our managers are already passionate, and coaching startups allows them to mix up their daily routines, which they appreciate being able to do, as well as to put their experience and skills to use to serve the community. There has been a real modernization of the image of the company both internally and externally, which increases the loyalty of our employees and our customers.