“5 predictions for the Austrian financial services market & its CEE footprint” in light of the global Covid-19 pandemic

”5 predictions for the Austrian financial services market and its CEE footprint” in light of the global Covid-19 pandemic

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2020 was a rollercoaster for all of us, but “Life is a rollercoaster, you just gotta ride it!” Therefore I would like to invite you to have a look into the crystal ball, as it is important to position for the post-covid period.

Enjoy the read and if you like, let's talk!

Tobias Schaller, Founder mosaikProjects
Tobias Schaller; Founder mosaikProjects

mosaik supports companies in getting their strategies ready to execute — with empathy and openness. Life is full of opportunities — do we keep in touch?

Tobias

Background — Austrian financial services market

Historical ties and geographic proximity helped Austrian banks and insurance companies expand into Hungary and the former Czechoslovakia in the early 1990s. Their footprint has since broadened dramatically across the entire Central Eastern Europe (CEE).[1] Today Austrian players are present and have subsidiaries with substantial market shares in more than 25 countries.[2]

Austria’s economic landscape[3]

Strengths

  • Strong macroeconomic fundamentals.
  • Industrial and tertiary diversification; high added value.
  • More than 30% of energy sourced from renewable supplies.
  • Major tourist destination (11th in the world).
  • High public expenditure on R&D (3% of GDP).

Challenges

  • Dependent on German and Central/Eastern European economies.
  • Banking sector exposed to Central, Eastern and South-Eastern European countries.
  • Multiple layers of power and administration (federation, Länder, municipalities) compared to country size.
  • Underdeveloped venture capital market.

Statistics: countries where incumbent Austrian financial services market players are active.

Statistics countries where incumbent Austrian financial services market players are active.

Market developments in 2020

Especially at the beginning of the global Covid-19 pandemic in Europe back in Q1/2020, the uncertainty in all areas of business and society was tremendous. Nevertheless, the activities related to the Austrian financial services market remained high throughout the year.

New players, both established and challengers, continue to enter the Austrian financial services market. In addition, cooperation is becoming more and more relevant, while the market itself continues to remain highly competitive and challenging.

Below is a non-exhaustive summary of moves within the Austrian financial services

January

  • UNIQA completed the acquisition of AXA’s retail and corporate insurance business in Poland, Czech and Slovakia for approx. € 1 billion.

February

  • ready2order backed its international scale-up as a SME cloud-based point-of-sale service provider with a 5 million investment round.
  • hihealth simplified the invoice management related to private insurances and announced another middle seven-digit seed round in order to fund its expansion strategy.
  • Vienna Insurance Group acquired a 20% stake of the German mobility start-up ViveLaCar.
  • Speedinvest raised € 190 million for its third flagship fund. All cornerstone investors have returned. Major commitments include EIF, Erste Group and U.S. based NEA, one of the world’s largest venture capital firms.

March

  • Crowdinvesting platform Conda, part of the start-up ecosystem Startup300, launched conda-hilft.at to support small and young companies that were confronted with liquidity issues due to the pandemic outbreak.

April

  • Elevator Ventures participated together with Speedinvest in a seed funding round to boost international efforts of the Russian ecosystem for farmers Agro.Club in Europe and North America.
  • Bank99, the new bank of the Austrian Post, started operation.
  • The Austrian government established a € 150 million Covid-19 start-up relief fund in order to support its domestic start-up environment.

May

July

  • Elevator Ventures led a € 2,5 million funding round for Pisano, a tech start-up focused on customer experience.
  • The social start-up ESGplus closed a six-digit investment round to boost the expansion of its sustainability fund screening platform Cleanvest into Germany.
  • Austrian Financial Market Authority (FMA) prohibited Commerzialbank Mattersburg from continuing its business operations due to suspicion of fraud.
  • Boutique venture capital firm Calm/Storm Ventures established a new investment vehicle with a focus on early-stage start-ups and a maximum volume up to € 50 million.

August

September

  • Linx4, the one-stop solution for usage-based equipment financing, closed a seven-digit funding round. The capital will also be used to establish an investment fund.
  • Morpher, one of the few fintech start-ups that uses blockchain technology to truly expand the known boundaries of technology, business and law, announced a $ 2.5 million funding round.
  • The digital investment platform Bitbanda announced the successful completion of Series A investment round of approx. € 44 million.
  • Bank Austria passed an ambitious and future-oriented coal exclusion directive. All coal companies that are customers have to get out of coal by 2028, otherwise they will not get any more money from the bank by 2021. After being challenged by Friday for Future, Erste Group and Raiffeisen International Bank stated their coal policy is currently under review.
  • The Crypto currency platform for retail investors Coinpanion received a pre-seed funding in the amount of € 330k.
  • Elevator Ventures participated in € 5 million Series-A funding round for the Turkish agro-fintech tarfin.
  • Raiffeisen Bank International partnered with Elucidae to deploy standardized financial crime benchmarking.

October

  • The B2C marketplace for trading bots Trality announced a € 1.5 million funding round to further invest in R&D as well as marketing.
  • ErsteBank & SwatchPAY! announced exclusive partnerships.
  • Bitpanda’s tech research project Pantos will be implemented on RBI Coin, an e-money pilot solution for interbank and intercompany payments.
  • Raiffeisen Bank International and C-Quadrat established the Austrian Growth Capital Fund with a target volume of up to € 200 million in order to close the equity gap for high-growth SMEs.

November

December

  • Speedinvest participated in a Series-B funding round of € 50 million of the French InsurTech Luko, which offers insurance for flats, houses, non-occupant owners, eScooters, buildings, and loans in less than two minutes.
  • Bitpanda is going to invest € 10 million to establish an innovation hub in Poland, Krakau.
  • Wüstenrot announced plans to establish its own bank for retail clients. Operations are scheduled to start on April 1st, 2021.
  • Uniqa Ventures made 15 investments during the Covid-19 year.

Let’s have a look into the crystal ball

What will the Austrian financial services market look like in the next couple of years? And will today’s major Austrian financial players remain prominent in the future?

So far, the outbreak of Covid-19 truly showed that we are living in a volatile, uncertain, complex and ambiguous (VUCA) world.

What is known is that the global pandemic is acting as an accelerator for global trends:

  • Demographic change: population growth, young vs. old countries, old vs. young generations, migration, urbanization, war for talent, etc.
  • Digital transformation: data and analytics, automation, connectivity, omnichannel approaches, user and customer experience, accessibility anywhere / anytime, etc.
  • Technology and innovation: exponential growth and agility of tech, artificial intelligence, security, adoption in ‘social service’ models, evolution of communication channels, blockchain, Open Banking, etc.
  • Sustainability: scarcity of resources, ownership of responsibility, climate change, etc.

Beyond this, we know that it creates opportunities as well as disruptions.

Based on recent market developments and global trends, below are five predictions for how the Austrian financial services market will evolve over the next four to five years[4] and how those predictions are impacted by the global pandemic.

1st prediction

CEE will continue to be a major market for Austrian financial services players.

a) At the same time, exposure to the CEE countries will remain a major risk.

b) Established Austrian players will continue their digital transformation, including the CEE business.

How is the prediction impacted by the global pandemic?

Austrian financial services players have continued to be very active within the year 2020. We have seen two big acquisitions within the insurance sector by the two major Austrian insurance players. Further, start-ups and scale-ups continued their collaboration with Austrian venture capitalists and incumbents to boost the development of the products and services of tomorrow.

Transformation to adopt from legacy systems, next to pivoting business models, will continue to be one of the most important drivers behind digital and business transformation for established Austrian financial services players.

2nd prediction

Neobanks (fully digital banks with no physical branches) will continue their growth story and reach a market share of over 25% (currently around 12%[5]) within Austria’s banking business.

  • Generation Z (born between 1995 and 2010) are digital natives and expect services to be accessible anywhere and anytime.
  • Neobanks will connect with other ecosystem players to support seamless user and customer journeys.
  • Funding rounds by venture capitalists will continue to boost the evolution of Neobanks, enabling new brands to become further established.
  • Alongside traditional and new banking players, global technology companies will further expand their online business into banking services.

How is the prediction impacted by the global pandemic?

“Two out of every three people are using FinTechs”, EY stated in its recent Global Fintech Report, where they have consulted 27k consumers in 27 markets (published early February 2020). People are getting more familiar with using new products and services.

Covid-19 accelerated the world’s migration to a digital economy as the whole world had started to work remotely and companies were forced to cope with the new situation. At the same time, venture capitalists remained strong during the pandemic outbreak related to FinTechs. A recent research by MEDICI shows that Neobanks became one of the most funded sector, next to Lending, InsurTech, Payments and WealthTech. And according to Fincog, a new wave of Neobanks, specializing in niches and based on BaaS and open APIs infrastructure, is already on the way (e.g. STASH, rebanking or papara). A recent survey of BCG identified that during the pandemic in Austria, the usage of branches was reduced by 13%, while mobile Banking service usage increased by 19%. Besides that, global technology companies like Amazon and SaaS e-commerce enablers like Shopify continue to explore options on how to expand their revenue share — e.g. related to embedded finance, the seamless integration of financial services within the product offerings of non-financial businesses.

In short, the future remains dynamic. Make, Buy and/or Ally will continue to be the main drivers for the overall Austrian financial services industry.

3rd prediction

At least one InsurTech company will enter the Austrian financial services market and challenge the position of established insurers.

  • Unlike their banking counterparts, Austrian insurance companies have not yet been confronted by InsurTech firms competing for ownership of end-customers.
  • Established Austrian players are already collaborating with start-ups and have started to drive their own digital transformation.
  • However, challenger InsurTech companies who are already active in other markets (e.g. Germany, France, Netherlands) can easily enter the Austrian market.
  • With the right risk appetite and capital injection, existing market participants could also adapt their business by vertical integration and become a challenger to InsurTech.

How is the prediction impacted by the global pandemic?

Collaboration between InsurTechs and Austrian insurance companies remains high and is likely to continue.

At the same time, InsureTech’s competing for the ownership of end-customers were able to continue their growth path. The French InsurTech Luko, for example, has not only a smart business model: Luko is also backed by their shareholders to continue their social and environmental impact mission.

4th prediction

The Austrian start-up ecosystem will develop further, and the venture capital market maturity level will rise.

  • Austria’s start-up ecosystem and its international ties to cities known for their entrepreneurial culture have developed steadily over the past few years.
  • However, based on various start-up hub rankings[6] as well as statistics,[7] Austria and its capital Vienna rank midfield compared to other countries and cities. According to WEF, the following two factors influence the rankings: attitudes towards entrepreneurial risk and administrative requirements such as the cost or time of starting a business.
  • The latest governmental program, presented in January 2020, aims to follow a best-of-vision for Austria’s start-up ecosystem and catch up with the more advanced start-up hubs.[8]
  • In particular, the adoption of legal frameworks and initiatives related to providing risk capital will support the Austrian start-up landscape evolution.
  • In addition, initiatives such as Moonshot Pirates will continue to encourage young minds to dream big and adopt entrepreneurial thinking (see also Impact report 2020).

How is the prediction impacted by the global pandemic?

Although the capital Vienna was able to climb seven leather steps within the 2020 startupblink ranking, Austria and its capital Vienna continue to rank midfield to comparable other countries and cities. However, Austria is able to attract. And with Plug&Play and TSH collab two well-known international players have opened their doors in Vienna during pandemic.

Unfortunately, the discussions to update the legal frameworks related to start-ups have not been finalized during 2020. Tangible and concrete results for the so called “Austria limited” will hopefully follow during 2021.

In September the Austrian ministry of finance invited several experts to a round table in order to kick-off a nation-wide initiative to enhance financial literacy competence across Austria for all ages. Specialized start-ups like SAVEE are happy to support with their mission to enable a positive relationship to money, wealth and risk taking.

For the first time the Spin off Austria conference took place in November, in order to promote that entrepreneurship must be a third mission for Austrian universities alongside research and teaching.

Well, from a global perspective, the venture capital maturity level of Austria is still a rising star. But recent activities and initiatives listed in the above section of this article “Market developments in 2020” are building confidence that the Austrian financial services ecosystem will keep its traction.

5th prediction

Austria will become one of the most advanced countries on the sustainability and environmental fronts. Austrian financial services firms can additionally profit from boosting this agenda through their CEE positions.

  • EU initiatives such as the action plan: Financing Sustainable Growth (May 2018) and the European Green Deal (December 2019) are changing regulatory frameworks and market behaviour.
  • Commitment to improve the environment and combat climate change will shift from corporate social responsibility to the risk management agenda.[9]
  • Fundamental initiatives towards sustainability (e.g. operational changes) will support companies in the war for talent.

How is the prediction impacted by the global pandemic?

Sustainable finance will emerge stronger from Covid-19 rebalancing. The term ESG (Environmental, Social & Governance) was well discussed by several consultancies, incumbents and start-ups active in asset and wealth management during 2020.

Initiatives on EU level continue to shape the market. Notably, climate protection is a huge agenda item from a regulatory perspective, and it will impact more than the asset & wealth management business. The demand for sustainable and zero free emission products and services for both retail and corporate financial services businesses will rise.

In view of ongoing regulation, it is more than ever important to set up appropriate processes and systems for the management of climate risks and their disclosure. The EU is expected to release its revamped sustainable finance action plan in early 2021. This will chart out the next wave of measures, including proposals for a green bond standard and an overhaul of the Non-Financial Reporting Directive, which sets climate disclosure standards for large companies.[10] In addition, other global initiatives like TCFD (Task Force on Climate-related Financial Disclosures) are shaping industry standards.

Austrian incumbent financial services players and their interconnection with the local country-specific start-up ecosystems have a unique position within the CEE market. There is a huge responsibility and, at the same time, opportunity to position themselves for a better future and circular economy at large scale.

Get in touch

mosaik supports clients in getting their strategies ready to execute — with empathy and openness.

As a business and management consultancy we focus on strategy, corporate development and project management.

Paper (respectively the screen) is known to be patient. Let’s talk instead. And find out by phone or in person whether and how mosaik can support YOU to get YOUR strategy ready to execute.

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About

This is an updated version of the article “Five predictions for the Austrian financial services market and its CEE footprint”, which was initially authored by Tobias Schaller and published with Capco in February 2020.

Since summer 2020, Tobias acts as an independent trusted advisor via his own consultancy mosaikProjects.

The update provides insides based on latest available data and recent market activities and reflects the five predictions in light with the global Covid-19 pandemic throughout 2020.

References

[1] Austrian Federal Ministry of Finance; Structure of the Austrian Financial Sector

[2] mosaikProjects research

[3] https://www.coface.com/Economic-Studies-and-Country-Risks/Austria

[4] The predictions were initially authored by Tobias Schaller and published with Capco February 2020.

[5] mosaikProjects research 2020; considering direct banks from established players and new challenger banks that have already entered Austrian financial services market.

[6] e.g. www.valuer.ai / www.startupblink.com

[7] World Economic Forum; 2019; The Global Competitiveness Index; sub-indices related to business dynamism

[8] derbrutkasten.com; January 2020

[9] www.rmmagazine.com/2019/03/01/taking-action-on-climate-change

[10] https://www.globalriskregulator.com/Subjects/Regulatory-Relations/Expect-2021-to-be-a-busy-year-for-European-regulation

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Welcome, nice to have you here! I am the founder of mosaikProjects (www.mosaik.pro). We support companies to get their strategies ready to execute.

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Tobias Schaller

Tobias Schaller

Welcome, nice to have you here! I am the founder of mosaikProjects (www.mosaik.pro). We support companies to get their strategies ready to execute.

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