Seizing the moment: Didier Valet on fintech, AI, and Europe’s next big opportunity

Varsity co-founder and former Societé Generale Deputy CEO Didier Valet explores the “crossroads” moment for embedded finance, his excitement around AI in finance, and why Europe can lead on innovation. 

During my 25 years as a banker, the industry saw fundamental change. I started in banking when it was transforming and fast growing. There was a lot of innovation in the 1990s and early 2000s. The amount of dynamism and momentum in developing new products was huge. 

After the financial crisis, day-to-day banking became more complicated for obvious reasons. The race for return through leverage and uncontrolled product innovation led to the GFC. And when you have such harmful mistakes, regulation has to be strengthened.

Banks had to strengthen their risk management and amend their risk appetite, both in the ways they innovate and the clients they work with. The risk/profit ratio needs to be right, and this isn’t always the case for small businesses, from the bank’s point of view. 

But new technology is stepping in. Fintech companies are fast and efficient at turning low-profit market segments into real assets thanks to technology and data. They’re building the path to profitability that banks haven’t been able to thus far. 

And they’re doing this with a more holistic view on serving small businesses. Actually making life easier for small business owners and operators, rather than simply selling products. 

How embedded lending meets the moment

Embedded lending is rising at the perfect time. Fintechs that were successful in the first wave—like neobanks and insurtech—have to find a new space to compete with incumbents. Traditional banks have caught up on some of the things that made those new players stand out, particularly around the customer experience for private people. 

But they’re increasingly falling behind in what small business clients really need. 

Here’s an example. At Societé Generale, we had a sizable leasing business. But the team weren’t happy to go for small tickets, the day-to-day financing needs of mid market companies. They felt that the guarantees they received from these companies weren’t strong enough, and any fraud or default would quickly make it unprofitable. 

There are lots of companies that could serve these needs, but they don’t want to become a bank. So embedded lending is perfect for that space. For two reasons: 

1. Banks are working with legacy technology, so they’re not as agile as fintechs; and
2. The risk appetite around credit, compliance, and legal is very cumbersome. 

This makes banks almost unable to compete with fintechs from a tech perspective. That doesn’t mean that fintechs are doing scary or risky things. They just have faster, easier access to new forms of data.

Defacto and other companies are in this space with pricing that better fits the risk profile, and a better understanding of the risks. If you’re smart enough, with good products and willing to onboard these clients, you’re really in a promising spot.

“Hot data” as a differentiator

Lenders need to limit fraud risks and check credit histories. And most traditional banks do this with months’ and years’ worth of financial statements. If they want anything forward looking, they need to wait. 

Banks have a huge amount of historical client data—far more than any young, new business could hope to have. But the way you use this kind of data doesn’t work as well to serve new clients.

Fintechs can use hot data to quickly get a real picture of the business, rather than waiting for a half or full year of financial data. They can connect to a company’s business tools and immediately assess their credit position and potential risks.

For compliance, they have tools which are less cumbersome, while banks have more of a “one size fits all” setup. This often misses small companies, or any business that doesn’t match what they’re used to. 

The fintech approach to scoring—often using PSD2—can rely more on “hot data” than on the company’s balance sheet. From a legal and regulatory point of view, that’s much more agile. 

And PSD3 is likely to facilitate these changes even further. 

Betting on artificial intelligence

Gen AI didn’t exist for most people in 2021, and then took off in 2022-23. Now we have a new wave of ideas and products, augmented by or fully built on AI. 

Some people are apprehensive, but I’m bullish on what it means for fintech. 

Most fintech companies will incorporate AI without becoming AI companies themselves. The question is the extent to which they’ll use this new tool as a way to be more efficient, to be faster, and to make clever risk assessments. 

Defacto is doing this already for lending, and proving how much value it can bring. 

At the beginning, I was cautious about having fintechs go into a risky business like lending. But you can see the value of a scoring and pricing system that more acutely assesses risk. 

The big challenge we need to address is the acceptability of AI. Gen AI can now address complex things that were reserved for experts. Experts are proud of their expertise and as of today don’t want to be replaced or augmented. We need to convince people that using Gen AI can remove the low-to-medium value adding parts of their work. It’s not to replace their real expertise and understanding. 

To impose these tools at scale would be shocking. People will of course be reluctant. Or maybe you go step by step, with copilot tools. These are starting to automate some of the tasks they had to do in the past. It’s more like “homeopathic” Gen AI. 

It has to be used and incorporated into the business. It’s not Gen AI and fintech. It’s fintech built on Gen AI. 

AI in the EU

The EU’s response to the rise in AI tooling will be interesting. People are nervous about AI in part because of data privacy and usage. Which of course leads to regulation and limits on its use.

Like GDPR was ahead on data protection, AI regulation will ensure that the really risky uses of AI in our personal private lives are prevented or limited. This is very important, of course, and should help to calm some of the fears about this new technology.

The evolving EU regulations on AI are relatively balanced and make space for US and European champions to exist. But as we see more regulation put in place EU-wide, this creates another natural barrier to entry from the outside.

If European companies use it properly in the way the EU wants them to use it, it’s a competitive advantage. US companies will have to adapt their uses if they want to come to Europe. And most aren’t ready to do that across 27 “small” markets. 

Why I’m confident in the EU market

European tech was a real bull market from 2018-2021. There were a lot of good ideas, partially because the market in Europe was less mature than in the US. So a lot of companies launched and were quickly successful in go-to-market and product/market fit. 

Money was flowing into the industry, and there was big competition between funds to lead rounds. That has slowed, but we have proof of the potential we’re sitting on. 

At the same time, the fact that Europe has 27 different markets makes it potentially harder for global players to join this market. Many will start with the UK, but then there’s a lot of things to adapt when you want to come to France, Germany, Italy, or Spain. 

Domestic fintechs are better placed to test their product/market fit locally and then quickly scale to neighboring markets. We have this natural advantage that major companies elsewhere see as a hurdle. 

Varsity is a European investment fund, and we really want to be pan-European—not just French. I’m incredibly confident in the skills and technology we have in the EU, and that the market is worth investing in. The more tech and fintech success we see—and we’re off to a great start—the more we can unlock our own potential. 

Fintech—more than just money

Banks can’t innovate like they did in the past. But there’s an innovation wave and enthusiasm in the fintech space that is truly remarkable. As a fund manager and business angel, I’m excited to support this movement. It goes beyond just cool tech and money changing hands; it’s about fostering solutions that genuinely enhance the financial landscape.

Look at Qonto: their vision isn’t just about being a bank; it’s about simplifying the lives of CEOs and founders. Alma operates more as a retail tech solution than traditional fintech, ultimately helping e-commerce companies boost checkouts and conversions. They function as a payment facility at the end of the funnel, but their mission extends much further.

Similarly, Defacto is committed to serving small businesses that traditional banks often overlook.  They go beyond merely providing financing, and tailor their working capital solutions to meet the specific needs for the SMB customer. 

Fintech is so much more than just deposits, lending, and margins. It’s about changing the way we work and where we focus innovation. 
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About Didier

Didier Valet spent 25 years in banking, including 18 years at Societé Generale. He was Group Chief Financial Officer and eventually Deputy CEO at Societé Generale until leaving in 2018. 

He then served as a senior advisor to CVC Capital Partners and Bain & Company, and made more than 70 angel investments. He is now General Partner of Varsity, a Seed-stage investment fund he co-founded in 2023 with Kamel Zeroual and Florent Thomas.