France has yet to find its first fintech unicorn, but the country is rapidly making up ground with assistance for startups from government and private investment.

DisruptionBanking takes a closer look.

As a nation renowned for its creativity, the French are creative champions on a variety of fronts: fine arts, football, gastronomy, international diplomacy. The success has extended into the era of technology, with France being the origin of household names such as music-streaming service Deezer, fashion retailer Net-a-Porter and video-sharing platform Dailymotion.

In the field of fintech, France boasts Europe’s highest number of startups annually, in relation to population size, with almost 300 each year dedicated to innovating banking technology, or proposing a banking alternative. However, despite such admirable statistics, France has yet to produce a single unicorn. Explanations for the country’s limited tech success range from the tax policies of its previous president, Francois Hollande, to the prevailing business culture in France.

In late 2013, the French government founded the French Tech Initiative, releasing €200 million in funding to pour into accelerators, and €15 million for any startup with plans to franchise – the idea being “to capitalise on initiatives developed by French Tech members themselves and build on existing ideas to create a snowball effect”.

Backed by giant firms such as Business France, investment bank BpiFrance and Caisse des Dépots, French Tech campaigned nationwide to consolidate French fintech sparks and give them the support and tools needed to get off the ground. Accelerators and tech hubs shot up in nine different cities. Movement was also noticed amongst business tycoons, or what the French call the “entrepreneur-investisseurs’.

Truffle Capital, one of the early venture capital firms to focus on digital innovation, launched France’s first fintech incubator for the most promising startups. Billionaire entrepreneur Xavier Niel, founder of telecom company Iliad, purchased the crumbling ruins of Halle Freyssinet with the hopes of creating a campus for fintechs, and Alain Clot from Société Générale left banking to open France Fintech, a non-profit association for banking and finance-orientated startups prepared to deliver the innovative, problem-solving models the industry so desperately required.

The French Tech Initiative brought rapid results. By 2015, the French capital was home to 40 accelerators and, according to Forbes, boasted no fewer than 5,000 startups, with a growth rate of 1,000 new entrants per year. The hottest names include hardware wallet provider Ledger (valued at €75 million), crowdlending platform Younited Credit (€40 million) and mobile payment and card app Lydia (€13 million).

Despite its brief lifespan, the energised French fintech environment has generated hundreds of promising startups, which the country’s media dubbed the “fintech bonsai forest”. However, such transformation wasn’t a walk in the park: allowing competitive products to enter market niches that were previously well guarded by lethargic public offices and tough registration laws was akin to letting wolves into the sheep pen.

But after initial misgivings, big banks and insurance companies realised the benefits in experimenting with and applying technology. Reticence from traditional French financial institutions is being replaced by a culture of partnership. Investment from banks into fintech players has increased dramatically, with a study by KPMG last year revealing that 82% of traditional financial institutions planned to strengthen their partnerships with fintech firms over the next five years.

“The question today is how to turn France from startup to scale-up nation,” Nicolas Dufourcq, Executive Director of public investment bank Bpifrance, told the Financial Times. “What we’re trying to do now is to improve the chances of those startup companies to become worldwide leaders.”

This consolidation is supported by President Emmanuel Macron, who announced a €11.2 billion public fund to invest in startups last year. France has also been making overtures to UK-based fintech firms, extending an invitation to move to Paris, post Brexit. Among the benefits highlighted by Europlace, the organisation tasked with promoting and developing the Paris financial marketplace, are recent reforms to the country’s complex labour laws, access to funding schemes, tax incentives and capital.

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