Fintech sandbox: where are we in Italy?
Two years after the introduction of the regulatory Sandbox in Italy, here is an initial assessment: the development of competitiveness is good but the numbers remain low (for the moment).
A gym in which startups can practice the game of innovation without getting too hurt. This is the basic idea of the sandbox, a tool introduced into our system during the past legislature. Parliamentarian Giulio Centemero signed the amendment to the Growth Decree which opened the door to the sandbox in the fintech sector. The “regulatory” Sandbox has been in force since 17 July 2021, it became implemented after the study phase by the Ministry of Economy and Finance and the competent authorities. Two years after its entry into force, a press conference organized by Centemero attempted to outline the picture of the measure, its results and the areas to be improved. The conference was attended by: Laura Grassi , Director of the Fintech & Insurtech Observatory – Polytechnic of Milan, prof. Giancarlo Giudici , Professor of Corporate Finance at the Polytechnic University of Milan, Maurice Lisi , BPER Banca, Head of Digital Business, Francesco Martiniello illimity, Chief Compliance 8 Anti-Financial Crime Officer, Hon. Claudio Stefanazzi .
THE ITALIAN CONTEXT: A PROBLEM OF ATTRACTIVITY
The professor. Giancarlo Giudici reeled off the numbers of the Italian financial system. “The capitalization to GDP ratio before the financial crisis in Italy, talking about the market value, the characterization of the stock market, was 48% today, data at the end of 2022 and 33% – said the professor -. Italy is one of the few countries where this ratio is lower than it was before the financial crisis of 2008/2009. The average daily trades that took place on the stock market, which in 2007 were 6.2 billion euros, in 2022 were 2.2 billion, so practically almost 1/3. Among other things, the concentration of large listed companies is always high: before the financial crisis it was 88.5%, today it is 90%".
WHAT IS A SANDBOX
But what is a sandbox? Professor Laura Grassi, Head of Fintech & Insurtech Observatory – Polytechnic of Milan, and speaker at the conference, explained it well. “The sandbox is a norm, but even before that it is an idea, a proposal that has been made not only at an Italian level but also at an international level. The sandbox is the sandbox, that sandbox where children are allowed to play to allow them to experiment safely, where they can have fun. So that's the idea of a sandbox. In our case there are no children but, at least at the beginning, the start-ups, and the sand, obviously, is innovation". The idea of the sandbox, therefore, is to provide a space, a safe container in which startups can experiment under the control of the supervisory authority.
A TUTOR FOR STARTUPS IN THE SANDBOX
Prof. Grassi underlined how the system lacks a guiding figure for startups involved in innovation processes. “When children play in the sandbox they do so under the supervision and with the collaboration of an adult.” Metaphor aside, Grassi suggested the introduction of a tutor because "a startup may also have an interesting idea, but it is not certain that that idea has a market and it is not certain that that idea, from a regulatory point of view, can have a future." Given that the path of innovation is closely linked to that of financing, the tutor could come from the financial sector in order to "share their experience with the various startups, each for their own subject". This would help "startups grow but in the right direction, because it is important to give them space to innovate, but it is also important to be realistic".
THE MEASURABILITY OF THE RESULTS OF STARTUPS USING SANDBOXES
Another issue is that of measuring results. “How do we measure the success of a business idea that has had access to the sandbox – asked Professor Grassi -? The economic effect is a bit early to measure and the regulatory effect cannot be measured on a single startup." The solution proposed by the head of the Fintech & Insurtech Observatory is to introduce the criterion of measurability of results "as a target for startups that want to enter the sandbox because without cash flows no company survives".
THE ITALIAN WAY TO SANDBOX COMPETITIVENESS
The last point of the professor's speech concerns the competitiveness of the Italian sandbox compared with those of the European partners. “Why does an Italian startup have to choose the Italian sandbox over the Spanish, English or American one? Maybe we have to be distinctive by thinking about our characteristics – he said -. Italy is a country of craftsmanship, of entrepreneurship, we could combine this with the idea of sandbox to create our own specific sandbox. It would be nice if Italy were to propose an advancement of the sandbox model, placed on us, like a tailor-made suit, starting from what we as a country are rich in".
THE EXPERIENCES OF BPER BANCA AND ILLIMITY
As anticipated, the paths of innovation and financing are intertwined. “Innovations must be sustainable, in the sense that they must generate productivity. Therefore I see a very important role for traditional banking institutions – says Maurice Lisi, Head of Direct Channels at BPER Banca -. We come from an international market where the banks themselves have created funds to finance innovation. From a regulatory point of view , traditional banks could be facilitated, from a regulatory point of view, to invest more in these innovative ideas. BPER has started an experiment on the part linked to salary-backed loans and we have moved in a traditional bank context. Well, if I were to imagine a future evolution I would like to see many small business ideas that enter into the context of a sandbox with banks that allow the generation of more of the necessary cash flows. And maybe imagine banks and fintech together, why not?”. Francesco Martiniello, Head of Compliance and AML at illimity illustrates the two types of experimentation underway in his bank: an anti-money laundering initiative, which allows customers to bring their anti-money laundering data validation from one bank to another, without the two banks talk about each other, the second concerns digital financial instruments. Francesco Martiniello identifies among the "improvable" aspects. First of all, a clear distinction between product innovation and service innovation which suggests aiming towards service innovation rather than product innovation. The second theme concerns the regulatory exemptions that companies that enter the sandbox benefit from. “Whoever proposes in the sandbox should provide an indication of current or prospective regulatory feasibility, because sometimes there are community rules, we cannot change them – adds Martiniello -. This should lead to a proposal for modification or indication of guidelines. I come to the last point: one of the prerequisites for admission to the sandbox is to be in a sufficiently advanced state for experimentation, this means having employed capital".
THE RESULTS AND MEASUREMENT OF THE SUCCESS OF THE COMPANIES THAT PARTICIPATED IN SANDBOX
The results, in terms of numbers, are not exciting, the number of applications is around ten. An "excellent" number according to Prof. Grassi "for the first experience we had, but it potentially does not represent the true potential of the tool, for a communication problem". Many startups "especially fintech, therefore exactly the target, have no knowledge of the tool and are afraid that to participate they need an advisor which has a very high cost". Moreover, even in other countries, at the beginning, numbers were not the initiative's strong point. “The first sandbox in the UK a few years ago received the number of applications exactly similar to the Italian one – explains Prof. Grassi -, with a market that is much more attentive both in terms of startups and in terms of potential investors”. In any case, the Fintech DL will allow, in the next window, to admit many more applications, assures the Hon. Centemero. It is also not easy to evaluate and estimate the success of companies that access the sandboxes. “What the experience, especially English, teaches us is that many start-ups have used being admitted to the sandbox as a stamp of quality – explains Professor Grassi -. This message was also passed on to investors, so the success of the startups in the first sandboxes derives not so much from the fact that they took advantage of regulatory exemptions but from the fact that they received much more funding and therefore grew much faster than all the others".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/sandbox-fintech-a-che-punto-siamo-in-italia/ on Wed, 20 Sep 2023 07:12:22 +0000.