With a financial advantage, European fintech is still unable to catch up with Asian and African players.
You might think that there is nothing wrong with European fintech as it seems to be evolving slowly but surely. According to the research, from 2013 till 2019, European businesses have created €128B value, which is twice as much as any other tech sector. However, if you start comparing their end-products with Asian super apps, you’ll find the former ones falling behind time.
A decade ago, in China, you could use the WeChat app not only to talk to your friends and send them money. It was also possible to pay for your groceries, order a taxi, or book a flight ticket. The app was so popular that street beggars shared their QR-code to accept donations. The reason is that the most people didn’t have any cash on them. Until now, Europe hasn’t designed anything quite like that.
With all the money and potential, what hinders the development progress in ‘the old continent’?
Most likely, a strong banking presence alongside financial inclusion and a well-established regulation system are some of the biggest roadblocks. Nevertheless, it is a good idea to look into history first.
EU Fintech in Facts and Numbers
European fintech was born in the 70s mainly as financial software for banking and wealth management. In the early 2000s, the first e-payments and financial marketplaces made their appearance.
Once the basic fintech needs of the population were met, digital challengers like Revolut and Wise emerged. In 2015, IoT, AI, and blockchain technologies opened countless possibilities for financial startups to capitalize on.
Currently, the fintech sector is dominated by banking and payment services with over €149B value created. Moreover, the European fintech industry receives the biggest portion of venture capital investment. It is significantly higher than in Asia or the US.
The UK is considered to be the capital of European fintech with a focus on lending. The reason behind that is pretty apparent. When the financial crisis hit London, one of the world’s most important economic hubs, discharged bankers found a new way to monetize their skills and experience.
As a result, numerous fintech startups took their launch. They were backed by powerful ex-colleagues still working in finance and relatively friendly state regulations. Later, the UK startups continued their expansion to the EU market.
Despite investments and progress, the industry is not getting closer to the extent of their Asian and African colleagues.
Issues and Hopes of EU Fintech
One of the reasons why mobile payments and other innovative financial services are thriving in Asia and Africa is simple. Many of the developing countries in the regions lack decent banking systems. People used to get by with cash for years. Therefore, mobile payments couldn’t have come at a better time since there was no better alternative.
Developed European countries do not have similar problems, as most consumers have access to all kinds of banking products. EU consumers enjoy the benefits of card payments, so the need to change the system is simply not there.
Moreover, the regulatory framework for the specific sector is not yet fully developed. Embedded financial services require a well-thought-out regulatory environment to make headway. So that anyone can legally create a super app that will allow its users to order breakfast and send some cash to a friend simultaneously.
Sooner or later, the competition will get intense, pushing the industry’s progress even further. As a result, consumers will get the privilege to choose from various platforms. Therefore, the companies will try harder to impress the end-user, producing high-quality products.
The regulatory framework is the key to kickstarting the industry. As of now, digital Single Market Strategy and Open Banking directive make up a good start for the startups to seamlessly integrate into the market. The next positive step would be to unify KYC/AML and cryptocurrency-related regulations among all the union members.
Considering the strong influence of traditional financial institutions in Europe. It is only reasonable that the change could come in alliance with them.
Banks can choose to cooperate with fintech companies and together come up with efficient third-party solutions. Also, they can take the lead and develop their own super app-like solutions that go far beyond traditional services.
The Bottom Line
European institution-based financial scene with a strict regulatory system already having access to essential banking services is a challenging environment for fintech startups to push through. However, the future seems bright already. Significant venture capital investments and the first steps in long called for regulations are the signs of positive change.