DIGITAL SPAIN: A CURRENT ACCOUNT

With real time payments now a real thing, interest in online platforms for financial transactions is on the rise.

THE GLOBAL MARCH of Industry 4.0 is galvanizing commercial and industrial efficiency. On an industrial scale, Spain is keen on the digitalization of its SMEs. Paloma Real, Country Manager of Mastercard, present in Spain for 50 years, observes that the benefit for those firms, “…is that, ultimately, they have more efficient management of their business cost savings and the ability to use purchasing and payment intelligence to adapt their supply to demand, as well as to open up and expand.” And meanwhile, advances at the retail level are fueling a new era of consumer convenience in the financial arena.

CUE THE FINTECHS

According to The Spanish Fintech and Insurtech Association (AEFI) the local fintech sector is accelerating across all business verticals. Indeed, Spain has around 500 active fintechs today, ranking it among the world’s largest ecosystems, poised to capitalize on the disruptive nature of digitalization on traditional business models. Spain is also fourth by investment volume in fintech, where most players boast an average decade of financial experience; to date just 5% have gone to the wall.

VIRAL GROWTH

The pandemic, while deleterious for most economic sectors, has largely had the inverse effect on ICT enterprises as the world migrated online. In a TBY interview, Country Manager of Visa España, Eduardo Prieto, commented on Spain’s 52% rise in e-commerce sales subsequent to the pandemic. “In fact,” he says, “…the use of digital payment methods and e-commerce was already growing pre-pandemic, and likewise the number of cash transactions had taken a downturn [with] 23% more users saying they have shopped online for the first time since confinement.” Spanish consumers increased contactless payments by 45% in 2020 by sector data. Paloma Real comments that, “We were the first brand to enable mobile payments through Santander bank, with the competition arriving a year later.” Internal studies indicated that, “…70% of the population will continue to use electronic payments rather than cash.”

A NUMBERS GAME

One economic consequence of the pandemic is slashed tourist numbers. As Jaime Domingo Yoldi the General Manager of UniversalPay notes, “In Spain, one in five card payments are made through cards not issued in Spain.” Depleted tourist numbers have thus meant fewer foreign cards, whereby, hotel chains, airlines, and other links in the value chain have suffered.” Yet he, too, notes that, “…at the same time […] most small ticket purchases are now made electronically.”

THE REGULATORY FRAMEWORK

Another consideration of digital adoption is security. The route to security is customer authentication initiatives based upon international legislation, namely PSD2, the European regulation on payment services. Frontrunner Spain has been gradually applying PSD2 since 2018. This framework is a springboard for the fintech industry providing uniform security, while crucially liberalizing financial data beyond the confines of traditional banking.

SHARING THE RISK

To help innovators contend with the often preclusive cost of innovation Spain operates its own Financial Sandbox. Such testbeds of new technology and services avoid the cost of taking a potentially unsuccessful product to market, by allowing it to be improved or abandoned at the drawing board.

A key player in the local ecosystem is AEFI, which categorizes fintechs by a system of 12 verticals according to such areas of activity as crowdfunding, currencies, cryptocurrencies and blockchain, among others.

THE INTERNATIONAL DIMENSION

Spain’s fintechs lack the scale of English, German, or French counterparts, which has presaged the search for collaboration. Notably, then, in July of 2021 the governments of Spain and Germany signed a cooperation agreement to test a cross-border digital identity in the form of a pilot program that would ultimately enable citizens to prove their identity and share electronic documents digitally. The pilot, features in the plan of the European Commission for a European digital identity, geared at giving each citizen a digital identity portfolio for secure access to both public and private digital services across the Bloc. Carme Artigas, the Spanish Secretary of State for Digitalization and Artificial Intelligence sees the collaboration as progress on the European path to data sovereignty. Given its international relevance, the scheme is open to the participation of other EY nations.

MORE COMPETITIVE TOGETHER

Given the push to make the digital route the public’s preferred payment method, the banking universe has stepped away from traditional competitive practices, with another’s strengths now viewed as tools to use collaboratively. Established in 2016 as an initiative of the Spanish banking system, Bizum—owned by 23 banks operating in the Spanish market united in advancing innovative payment solutions—today has over 17 million active users and operates with 33 affiliated banks and 19,800 online establishments. Digital finance has gained notable traction in Spain. It is interesting, for one, to note that the abovementioned enterprise has even achieved the enviable status of generic recognition, with Spanish people now saying, "I’ll send you a Bizum."