The Ecosystem of Europe
I. Europe in 2020
2020 was a year in the history of the world that left its mark in every respect and formed the basis for the formation of the new world order.
Caught in the pandemic in the middle of the digital transformation process, the European technology ecosystem seems to have quickly overcome the confusion experienced in the first weeks of the lockdown, and after a short adaptation period, it continues to grow at full speed.
Ecosystem in Post-Coronavirus
2020 was a year that has accelerated the digital transformation of Europe and squeezed a five-year restructuring in just a few months. As the travel, accommodation, events, and organization sectors, which have consistently high business volumes, have lost market priorities for consumers, it makes a room for new verticals such as remote working and distance learning systems. Months of (partial and wide-ranging) lockdown have forced even companies that do not allow remote work to invest in this area due to corporate policies.
Companies in the European ecosystem overcame the fluctuation experienced in the first months, especially with financial support packages offered by the European Union and local governments to start-ups, SMEs, and institutions. Although the amount and conditions of these financial packages differ among the member countries, it can be said that financial support is generally beneficial in closing short-term financial deficits of SMEs and airline transportation, accommodation, and organization companies, which have been severely damaged by post-pandemic restrictions.
Another group that suffered as much as the sectors that suffered losses due to pandemics and restrictions was the start-ups (pre-seed and seed) pushed back on the list in the second quarter of 2020 as a result of a more cautious approach to new ventures and business models by venture capital funds and angel investors.1 While financing rounds for small startups in Europe, in general, have slowed down, medium-sized startups have tried to downsize and get through this period with minimal losses.
1. https://www.eu-startups.com/2020/04/how-is-coronavirus-affecting-the-funding-land- scape-for-startups/
In the third and fourth quarters of the year, with the decrease in the restrictions and the adjustment of the market to the “new normal”, startup financing rounds in the region started to gain momentum again. As a matter of fact, recent studies2 reveal that technology companies in Europe gained 46% value in 2020. Among these companies, Adyen (payments, FinTech), BioNtech (HealthTech), Delivery Hero (online food/food distribution), Klarna (POS financing, FinTech), Spotify (music platform), Ocado (online supermarket), HelloFresh (online cooking kit distribution), Lieferando (online food/food delivery), UiPath (automation) and Zalando (e-commerce, fashion) highlight the importance of companies that meet the needs of consumers who cannot leave home during the pandemic.
This year, in parallel with the growth in the European startup ecosystem, it is observed that the number of unicorns has increased from 190 to 205. Among the companies that gained unicorn status globally, especially in November 2020, two companies from Europe stand out;3 Hopin, a London-based online events platform, and Gousto, a London-based online cooking kit distributor. The fact that these two companies (just like the other companies on the list) are active in sectors that gained importance after the pandemic proves the direction of the market demand and investor focus.
2. (Page 9) https://blog.dealroom.co/can-europe-become-the-most-entrepreneurial-con- tinent/
3. https://news.crunchbase.com/news/funding-recap-november-2020/?utm_source=cb_ daily&utm_medium=email&utm_campaign=20201204&utm_content=intro&utm_term=- content
Research shows that the European technology sector has gained four times the value compared to five years ago, and therefore has come a long way to close the gap with the A.B.D. and Asian ecosystems this year.
BREXIT
Another critical point for the European technology sector, other than the pandemic this year, was Britain’s exit from the European Union. Although the calendars for the UK’s official exit from the
European Union point to January 1, 2021, uncertainties remain for technology companies and foreign employees operating across borders as negotiations on the exit of the UK from the EU common market and Customs Union are still pending. This means continued uncertainty regarding the scope of operational and financial burdens, especially for verticals such as FinTech and RegTech subject to licenses and audits.
Recent surveys4 reveal that the combination of coronaviruses and Brexit worries 75% of the technology sector about access to capital. Brexit is projected5 to impose a financial burden of £1.6 bn on British companies under the regulatory compliance of the data alone. This is the tip of the iceberg for companies operating across borders. Indeed, statements made by the UK central bank revealed that the cost of the no-deal Brexit will be greater than the long-term economic impact of the coronavirus.6
4. https://sifted.eu/articles/london-tech-brexit/
5. (Page 25) https://neweconomics.org/uploads/files/NEF_DATA-INADEQUACY.pdf
6. https://www.theguardian.com/politics/2020/nov/23/no-deal-brexit-to-cost-more-than-Kovid-bank-of-englaand-governor-says
55% of global technology leaders have decided not to enter the UK market as a direct result of Brexit. FinTech companies such as N26 have been implementing their decision to leave the market since the beginning of the year, and many of their existing firms have still not completed their Brexit preparations. In the grand scheme of things, it seems likely that the Brexit deal will lower London in the global tech hub rankings and lead to the growth of other small hubs in continental Europe.
HealthTech and Coronavirus-Oriented Studies
The HealthTech sector, which has been at the center of attention of investors in recent years, has become even more important after the coronavirus. Due to the global redistribution of cards after the pandemic, the European Union was at the forefront among the regions that wanted to reestablish their authority by bringing solutions to overcome the pandemic more quickly. The European Commission, known for its continuous support to startups and companies working on innovative issues, continues to encourage startups by allocating a generous share from the budget for activities within the scope of combating coronavirus. In this context, 148 million euros of the 314 million EUR allocated by the European Union has been distributed to 36 companies through the European Innovation Council as of June 2020.8 Most of these companies operate in the field of products and projects that will be directly used in the health system such as ventilation monitoring systems, treatment wipes.
In addition to the investments made through the European Innovation Council, the European Union continues to provide financial support to research and innovation projects within the scope of the Horizon 2020 Project. While 23% of these funds are used by educational institutions and 30% by private institutions, the majority of the funds (42%) are allocated to research and technology organizations.9 The Union is planning to invest a total of EUR 1 Billion by the end of the year in researching the coronavirus and its consequences and developing solutions.10
BigTech and Europe
Despite the change and intensity in agenda brought by the pandemic, the European Union continues to take action on competition and data security violations of BigTech companies.
> The regulation that will pave the way for banks and FinTech to develop NFC-based payment methods for Apple users was introduced in Germany last year. A similar regulation is planned to be integrated into a Europe-wide regulation. According to the draft evaluated by the European Commission, the new rules will increase the competition in the payment market by preventing access bans for phone manufacturers.
7. https://www.techlondonadvocates.org.uk/wp-content/uploads/2018/10/GTA-release. pdf
8. https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1007
9. (Page 3) https://ec.europa.eu/info/sites/info/files/research_and_innovation/research_ by_area/documents/ec_rtd_coronavirus-research-projects-overview.pdf
10. https://ec.europa.eu/info/sites/info/files/research_and_innovation/research_by_ area/documents/ec_rtd_coronavirus-research-projects-overview.pdf
> The “Digital Services Act”, which was presented to the public in January 2020 by the European Commission, is a study conducted to update the European internet regulations, which have not been amended since 2000.11 The Draft aims at making the activities of BigTech companies transparent and curbing them so that local companies have the chance to uptake in the market. When the new rules come into force, it is anticipated that BigTech companies that make money by offering the products and services of third parties to the consumers will change their business models.
> A press release issued by member state ministers in November 2020 revealed12, it is revealed there in that the work on preventing terrorist activity by expanding data encryption standards in the cover of messaging services such as Whatsapp without violating data protection laws. On the other hand, personal data and cybersecurity activists criticize these studies intensely.
> In addition to the breach of competition, apple’s decision on tax exemption (amounting to EUR 14.3 billion) could be taken to the judiciary by the European Commission, hurting Ireland’s position as a technology hub.
11. https://ec.europa.eu/digital-single-market/en/digital-services-act-package
12. https://www.ft.com/content/c5336824-140c-49ee-85a4-c8197f829bfd
II. What Awaits Europe in 2021?
It seems that Europe will make use of the digitalization wind that started with the pandemic in the years ahead. Infrastructure studies in automation, distance education, and remote working are likely to be reflected in 2021. It is expected that investments made in areas such as mobility and HealthTech will remain in the coming year, and additionally, areas such as FinTech and electronic commerce will emerge.
Electronic Commerce: OECD’s research shows that the e-commerce industry has expanded after the pandemic to include new firms, customers, and product types.13 In the European Union, it is seen that shopping made via phone and internet increased by 30% compared to last year. In the UK, the new rate corresponds to 31.3%.
Although this increase in electronic commerce is considered a milestone in terms of digitalization, it also poses an obvious threat due to the increase in coronavirus-oriented fraud incidents, cybersecurity, and data security violations. It is thought that cyberattacks targeting financial players increased 238% after the pandemic.14 This means that banks, FinTech, and electronic commerce platforms are reviewing cybersecurity and data security standards and adding ReTech investments to their 2021 agendas. Legislators who want to prevent fraud incidents in Europe strive to encourage major electronic commerce and media platforms to share more data with each other.15
FinTech: 2020 has been a year that brought digital finance applications in the member countries in Europe closer to each other in terms of FinTech. Thanks to this year’s acceleration of the adaptation process even by traditional countries such as Germany within the scope of mobile banking, contactless payments, WealthTech applications, the FinTech sector has overcome the shrinkage process it experienced in the first months of the pandemic. Although the amount of financing in March and the last period of the year slowed down, this year, FinTech companies in Europe hit an investment amounting to EUR 4.3 billion in total.16
13. http://www.oecd.org/coronavirus/policy-responses/e-commerce-in-the-time-of-Kov- id-19–3a2b78e8/
14. https://www.carbonblack.com/resources/modern-bank-heists-2020/
15. https://techcrunch.com/2020/11/06/europe-urges-ecommerce-platforms-to-share- data-in-fight-against-coronavirus-scams/
16. https://sifted.eu/articles/european-fintech-oct-roundup/
Although the pandemic has increased the demand for digital banking, investment, and payment-oriented products, research reveals that the neobanks in Europe are under more economic pressure than traditional banks. This is due to the direct effects of the pandemic, but the testing of neobanks’ unsettled business models with pandemic and limited financing opportunities.
17. https://www.mckinsey.com/industries/financial-services/our-insights/detour-an-al- tered-path-to-profit-for-european-fintechs
On the other hand, the acceleration of the e-commerce industry requires retail and e-commerce companies to make breakthroughs in integrated payments, POS financing, and banking to offer different channels and experiences to customers. It is among the most obvious examples of this situation. Zara and H&M’s collaboration with Klarna is one of the clearest examples of this situation. Speaking of Klarna, PayPal’s adoption of POS finance applications initiated by Klarna in Europe shows that integrated finance has become a trend. Another impressive example to be given in this regard is the Amazon and ING Germany’s collaboration under financing SMEs in Germany, which they launched this summer; Increasing examples of such integrated banking and finance (“embedded finance”) can be interpreted as FinTech trends will be closely followed not only by banks but also by electronic commerce platforms in 2021.
https://softtech.com.tr/en/2021-softtech-technology-report/
Quoted from the 2021 Softtech Technology Report
