- 18 projects made it into Spain's first regulatory sandbox.
Have you ever built a sand castle on the beach? Just playing and enjoying the moment while the castle is becoming more magnificent by the minute, without worrying your creative mind with that an ocean wave might sweep it all away, or that an evil by-passer could demolish your master piece with one precise kick?
In reference to another dreamy phenomena, many of the unicorns, the highest valued tech startups in the world, happen to belong to the Fintech sector. The disruption of financial services in Spain has gained huge momentum and new Fintech's seem to be popping up in the media almost every week, throughout the country, not just in Madrid or in Barcelona.
Although the company today has its HQ in Boston, the most notable example of a Spanish Fintech unicorn is Flywire, listed on Nasdaq on May 26, 2021. English media seem to have missed the very important fact that Flywire, founded in Valencia by Iker Marcaide back in 2009, is the very first, made in Spain tech company to make it to an IPO on the Nasdaq.
"Historical day for the world of technology and startups in Spain. Today, Flywire began trading at the Nasdaq, the prestigious U.S. stock market index where the big technology companies are located. The company created in Valencia in 2009, has in 12 years reached the Prime league of technology companies, becoming the first Spanish startup to achieve this", writes Spanish tech media Xataka.
Regulatory sandbox follows the EC's digital finance strategy
Both the European and the Spanish supervisory authorities are conscious of the increasing importance of the Fintech sector and the need for updating legal frameworks to allow for this rather complex ecosystem to further develop, in a creative yet controlled manner.
So for the sake of everyone's peace of mind, the European Commission presented a digital finance package on September 24, 2020. It included a digital finance strategy and legislative proposals on crypto assets and digital resilience.
It seems like great timing that Spain then followed suit on November 14, 2020, with the government signing the Law 7/2020 on digital transformation, including the creation of a regulatory sandbox for the crypto currency and Fintech ecosystem.
"The Financial Technology Law Review: Spain", gives further descriptions:
"The environment will be safe for participants to test new financial products and services, while ensuring that the stability of the financial system is maintained and potential risks are eliminated or adequately mitigated."
"Project promoters (for instance, tech companies, financial entities, associations representing interests, public and private centers of investigation) and regulators will enter into a protocol to establish the rules and conditions to which the projects and testing will be subject."
"Guarantees and protections will be afforded to sandbox participants, including informed written consent, personal data protection, rights of withdrawal, promoter liability, guarantees covering promoter liability, confidentiality and, for the regulators, the option to end testing in cases of bad practices or failure to comply with the protocol rules.
Also, it says, which might be the most valuable part: "entities that participate in the sandbox may have expedited access to regulatory authorization."
140 Bitcoin ATM´s in Spain
A year ago there were 66, today the number of Bitcoin ATM's in Spain have increased to 140, mostly to be found in Barcelona (30), followed by Madrid (16), Malaga (15) and Palma de Mallorca (15). The rest of the ATM's are placed throughout the country.
This is a small number compared to the total of 17,569 terminals in the US where 86% of them are concentrated globally. Yet, "Spain is the 5th country with the largest number of ATM machines to operate on Bitcoins, just behind Austria and the United Kingdom, which have a network of 157 and 199 units respectively", according to newspaper La Razon.
With the sandbox now in place, Spain has an opportunity to drive the needed conversation and knowledge spreading around this much-debated currency. Writes Investopedia:
"As the sandbox (in Spain) and the subsequent regulations develop, it could lead to the further widespread use of crypto currencies in the country and act as a model for the rest of the European Union nations."
18 projects made it into the sandbox
67 Fintech projects were submitted to be part of Spain's first sandbox. 18 of those have been given the rare opportunity to access the financial system in the country with 47 million people depending on its solid and secure function.
The winning projects will "be under the legal umbrella of the supervisors for two years, without being subject to legislation and regulation". However, it's emphasized that "access to the controlled testing space will not imply that they are granted authorization for the exercise of the activity, or for the provision of services, on an indefinite basis."
10 of the winning projects are: (translated from an article by Cinco Días)
1. Tokens from a mutual fund. The consortium formed by Onyze, Renta 4, Allfunds and IoBuilders will develop the Release and Custody of Tokenized Investment Fund Units project.
2. BME facilitates the financing of small and medium-sized enterprises by issuing instruments represented in the form of digital assets, based on the technology Ethereum.
3. Eurocoinpay has created a big data and blockchain payment gateway that allows you to pay quickly and easily with both cryptocurrencies and fiat money. The project aims to compete with giants like Visa, Mastercard or PayPal.
4. CaixaBank works on biometric identification applied to security and the prevention of money laundering in offices and digital channels.
5. Dalion. Banque March, Banco Santander, CaixaBank, Generali, Inetum, Liberbank, Insurer Hotline, Mapfre and Repsol provide digital identity management that allows each person to decide what information is part of that identity and to control who can access that data.
6. BBVA aims to improve the user experience when digitally applying for a loan, shortening the process times and incorporating new fraud detection technologies.
7. Digital custody in blockchain by Banco Santander allows for time stamps of contracts and documents, signed by clients with a guarantee of documentary integrity (for example, to open a bank account) in a distributed register, such as blockchain.
8. Consumer Pension is a project by Ibercaja and Pensumo based on linking retirement savings with consumption, redirecting the economic flows generated by the daily lifestyle toward future pension.
9. Cobertoo, a collaborative and social insurance for mobile phones in the digital market. The project is funded by Helvetia and seeks to ensure, for example, a mobile phone, among a community of users, without an insurance company.
10. Intelligent Insurance for deceased by My Digital Legacy applies blockchain, asymmetric cryptography and artificial intelligence to guarantee elements that go beyond the purely economic ones, such as the ability to express and fulfill the last will.
What will Spain's Fintech future hold?
I'm letting the experts take this one, quoting more of the data-rich article The Financial Technology Law Review: Spain:
"The Fintech sector in Spain is still expanding, mainly in sectors where intermediation between parties is fundamental (e.g., lending, FX, brokerage and investment services such as investment advice and portfolio management) and in the payments sector."
"Overall, the development of online payment platforms and big data, robotics and AI tools represent the most recent trends in innovation (to date, mainly crowdfunding and crowd-lending platforms and robo-advisers)."
"Finally, the main disruption in the global financial sector is still expected to result from ledger technologies such as blockchain. Although this type of technology is not yet commonly used, it is expected to emerge in Spain in many areas beyond just cybersecurity and crypto currencies."
Spain's tech startup ecosystem has been "accused" of mainly dedicating its efforts to copying proven business models from the US and Northern Europe. Looking at Spain's unicorns Cabify and Glovo, there is of course some truth in that. Will this new decade prove to the world that there is real innovation taking place in Spain? I believe so.
Peter Specht, Creandum, Swedish VC, as he was Looking at the Spanish tech ecosystem from an international perspective in 2021, concluded:
"(..) questions remain as of how much innovation originating from the Spanish tech scene has the potential to be a European or global category leader. We would love to see even more companies from Spain being the “first” ones coming up with business models or executing as a first mover in Europe."
As the Spanish regulatory sandbox allows for testing in the real financial market, with real consumers, on a 2 year-trial basis, mitigating risk, I would say there is now an excellent opportunity for Fintech founders in Spain to let their creative minds run wild, to come up with truly original ideas for business creation within the financial sector.
I for one, am really excited to follow the building of stable Fintech empires, or sustainable castles if you will, that can withstand the test of time, intelligent laws and regulations, and most of all, the guaranteed scrutiny from global contenders in the space.
--> I would love for you to share your thoughts or opinions in the comment section.
By Caroline Lagergren, founder of Expand To Spain