Portugal Fintech – Think big, start small and scale fast!

While Portugal’s fintech ecosystem might seem small compared to other European countries, it does boast distinctive advantages including a robust tech talent pool across a wide range of technical links with renowned local academic institutions. Essential Business talks to António Ferrão, Board Member of Portugal Fintech and Fintech Solutions Director. 

We meet António Ferrão at Lisbon’s Fintech House. It’s a place with an informal and relaxed atmosphere with young people sat around tables chatting enthusiastically in English, Portuguese, and even Russian.

It was born in 2016 from the collaboration between the non-profit association Portugal Fintech and the largest network of co-working spaces in Portugal, Sitio. Many of its clients are conservative institutions such as banks and insurance companies, and the thought of this traditional and wary dark-suited world forging a symbiotic relation with young, laid-back and casually dressed innovators amuses me.

The hub, which integrates the national network of incubators, has five official partners that continually invest in innovation and technology. It works closely to support these startups, which at Fintech House number some 90+ companies, with monthly mentoring meetings, conferences and workshops that promote an open dialogue with knowledge sharing – Banco BPI, Fidelidade (an insurer), KPMG, Morais Leitão (a law firm) and Visa.

Fintech House is impressive and is the largest fintech hub in Portugal. It publishes the annual Portugal Fintech Report, which has fast become the standard reference bible for the sector in Portugal and is certainly the most comprehensive publication about the Portuguese fintech ecosystem. It also launched Fintech Solutions, a consultancy exclusively dedicated to the creation of digital financial services.

António Ferrão came from a management consultancy background where he worked for seven years for multinationals in Africa – South Africa, Mozambique and Angola –, but had never really dedicated his time to financial services. “I got to know the team of volunteers that was setting up Portugal Fintech through my practical experience with a micro-credit NGO, and they invited me to think how, as a board member, I could structure the pillars of what we do,” he says.

And adds: “We were a group of people interested in showing that Portugal was a mature ecosystem in the financial sector, and could compete at an EU level. People didn’t really understand the scale and maturity of the startups system here, who the founders were, and who was investing in Portugal.”

A one-stop fintech shop

Portugal Fintech started as a group of interested parties that included venture capital companies, startup founders, and managers to describe what they were seeing in the market. For the launch of the first edition of the Portugal Fintech Report, they organised a cocktail party before the Web Summit and explained to guests that there was already an ecosystem in Portugal.

“We were not discussing the general entrepreneurial ecosystem in Portugal, but rather the fintech niche within it and the system, and that idea of being focused on the vertical has been with us since the beginning,” says António Ferrão.

“People wanted to have a more tangible grasp of where the Portugal fintech ecosystem was,” he continues. “Something they could actually see and identify. That’s when we thought about having something physical, a place where startups in the sector could meet, work together, and where we could provide all of their needs in a one-stop shop.”

From this idea emerged Portugal Fintech and Fintech House in Lisbon’s Praça da Alegria; its first home until moving to its present site close to the city’s Marquês de Pombal and Saldanha districts.

“Today, we are a not-for-profit association whose mission is to support fintech entrepreneurs and the ecosystem as a whole in accessing capital, partnering with mature players, regulators and talent,” he explains.

The capital to set up and run Fintech House has been a joint venture with its specialised partner Sitio, one of the best co-working companies in Portugal, managing a vast network of spaces. Portugal Fintech and the community is installed on the top floor. The idea was not only to create a space, but a community of services.

“Here at Fintech House you can run into Venture Capital (VC) representatives in the restaurant or organise meetings on the rooftop terrace with potential candidates that startups want to hire; everything that they need can be found in the physical space we have set up here,” explains António Ferrão.

“We aim to be the driver of the fintech ecosystem in Portugal and at an international level, with our minds focused on a startup mindset of ‘think big, start small, and scale fast’.”

António Ferrão remarks that over the past four years, the fintech sector in Portugal has consolidated and become more relevant at an international level, and although the market is a small one, it is nevertheless an important ecosystem because of the talent it has attracted, and as a launchpad to scale up startups to compete in the European market.

Currently, António says that there are around 150 startups who see themselves as fintech players, but actively engages with 90 of them who are members of Fintech House and also have a digital network, and 35 companies who have a physical office at Fintech House. “Part of these fintechs became purely digital after Covid-19 and so don’t have a physical space. We also have to adapt our services to this purely digital world.”

Investment streams

António Ferrão emphasises that Portugal is fortunate to have consolidated a relevant number of local venture capital companies who are linked to the wider international network of VCs.

“The challenge partly involves consolidating a strong network of business angels and early investors, which is critical given that in their embryonic phases, access to such investment makes the difference between those fintech startups that swim or sink.”

Beyond pre-seed and seed investment phases, as these startups begin to scale, António Ferrão says that much of the investment comes from oversea VCs.

He does point out that Portugal Fintech is completely separate from the incubators Startup Lisboa and Lisbon Unicorn Factory. “We are one of the few not-for-profit organisations with an incubation/acceleration space that is 100% privately funded, so we don’t get help from the government or Lisbon City Council. Instead, we rely on membership fees and our five private sponsor partners.

“These active sponsors are interested in understanding what is happening in the fintech market in Portugal, seeing the ecosystem together and checking out all the latest innovations emerging from the community. They also work with the startups and come and spend time at Fintech House with us once a week so that they can see the opportunities, and build co-creation partnerships with these startups.”

A growing ecosystem

Portugal’s fintech ecosystem has grown considerably over the past few years, partly on the back of local initiative, but also because of the growing number of startups that have relocated to Portugal in pre-seed and seed phases and that want to use Portugal as a base for growth. Around 70% of fintech startups in Portugal are in the B2B segment and focused on doing business with other financial institutions.

One area of cooperation and partnership between the fintechs at Fintech House and the corporate world outside has been with the banking system, which is a good sign since it shows that they understand just how consolidated and mature the fintech ecosystem has become in Portugal.

Says António: “During the pandemic, we understood that there was a gap between these mature financial players and the fintechs, and that’s where I came in: to establish an advisory on Portugal fintech that resulted in Fintech Solutions, our advisory arm. We help the mature players adopt the technology from fintech and incorporate the technology in their products.

“The idea is that 75% of our ecosystem are B2B companies, so the fintechs at Fintech House rely on the corporate companies as they do not sell their products to the final consumer; these have solutions that can be adopted and incorporated by the banks or insurance companies, or can improve the customer experience and/or employees of these larger financial entities such as the banks,” explains António Ferrão.

Banks as partners

António Ferrão remarks that, generally speaking, different banks, being more conservative and traditional institutions have, despite their interest and obvious need, been cautious about adopting radically innovative technology solutions because of questions to do with security.

The banks, he says, still have difficulties in managing opportunities and testing new solutions in a reasonable space of time, yet they are starting to seek out new ways of providing bank services and understand what the future of banking will look like using Application Programming Interfaces (APIs) to other fintechs. As mobile and online banking solutions have proliferated in the market, the banks have sought to take advantage of this democratisation.

“Corporates typically really only look to established, tried-and-tested technologies; they are slow decision makers; and are averse to invest in a tool from a startup because they are afraid that the startup will be acquired. They still see the startup scene as immature and they don’t quite understand how solid, strong, mature and experienced some of the founders behind these startups are,” he says, adding: “We are in the market to see what the gaps are and try to plug these gaps with solutions from our fintech ecosystem.”

Open banking too is a huge potential area in Portugal, with the idea of aggregating a customer’s accounts into a centralised version of their financial life. It is still an area in which the banks in Portugal have yet to find an opportunity to provide that service to clients and make money from it.

One good example of an open banking company is Exthand, which offers one single API that connects over 1,600 banks worldwide, allowing clients to initiate payments and access bank data such as real-time balances and past payments. Based in Portugal and Belgium, and at a pre-seed phase, its targets are B2B companies such as payment service providers, banks, retailers and cash management companies, among others.

Insurtech

One of the areas of fintech that has grown in Portugal in recent years is insurtech and open insurance, which now accounts for around 20% of the total. As the market has become more consolidated, a lot of acquisitions and mergers had taken place in the past, and as they settled down, the insurance companies have become more aggressive in their digital transformation strategies and want to shorten their times to market, and look to providers who can partner with them to help them find new ways of selling insurance.

“The insurance market is very mature now, and they need new ways of redistributing insurance and finding ways of doing so in a more digital way that is embedded in the client’s journey as to how and why they buy their insurance, and that is key, and here fintech can help them,” explains António Ferrão, adding that insurance broking will also become more digital.

One such insurtech company is the fully digital insurance broker Mudey, which provides a platform to buy and manage insurance for 25,000 users and operates both in Portugal and Brazil. “It is really important to developing customised customer-centric insurance products since insurance companies may engage with customers throughout their lives, and change and adapt their products and services to a specific life event, customer need or wish. Its goal is to offer better services to policyholders and enhance greater market competition.”

Fintech Solutions

Portugal Fintech has also developed Fintech Solutions, a technology and solutions-driven consultancy agency based at Fintech House whose role is to create the financial services of tomorrow by helping financial players build truly digital products, with faster experiments, and connected to the fintech ecosystem. It emerged as the independent consulting arm of Portugal Fintech in late 2020.

“As the corporate sector began encountering new challenges requiring tailored solutions, we came up with Fintech Solutions to help build the products and solutions that take the best out of the fintech ecosystem. From the provision of scouting and matchmaking services, Fintech Solutions grew into an end-to-end fintech partner, providing product design services, along with corporate innovation management services,” explains António Ferrão.

Today, Fintech Solutions is dedicated to shaping the future of financial services through collaborative efforts and fostering the growth of all stakeholders within the fintech ecosystem.

Fintech Finlab 2024

The Fintech House one-stop-shop innovations don’t just stop there. It even has a Fintech Innovation Lab designed by its fintech ecosystem as a platform for experimentation and beyond. Matching startups, the lab provides context, tools and people to build real partnerships, and was built upon the direct feedback from startups and mature players on the challenges of open innovation in areas such as banking and insurance.

António Ferrão assures that the fintech ecosystem in Portugal is highly regulated and the trend is that it will be increasingly more so, while not stifling a greater cooperation and co-existence between innovative solutions, particularly regarding open banking, open insurance and blockchain.

It is why the creation of Portugal Finlab is a unique initiative whereby the three main regulating entities that are relevant for the fintech ecosystem – the Authority for the Supervision of Insurance and Pension Funds (ASF), Bank of Portugal (BdP), and the Portuguese Securities Market Commission (CMVM) – have joined forces to create a startups interaction platform to help a startup understand the legal framework that applies to its business, so its solutions can be compliant by design.