Could Europe Become a Fintech Hub?
Adoption so far is low, but opportunities for startups abound.
A number of technologies and new regulations are poised to disrupt the incumbent financial system. So much so that the emerging field of financial technologies has earned itself the "fintech'" portmanteau. The term "financial institution" no longer evokes visions of a centuries-old, technophobic business, but of an increasingly wide range of startups and partnerships that aim to turbocharge banking and investments on a rapidly evolving playing field.
EY's Fintech Adoption Index 2017 provides some incredibly valuable insights into the state of fintech. One trend of particular interest, given the subject of this article, is the adoption rate of fintech around the globe -- unsurprisingly, China and India rank highest, with 69 percent and 52 percent respectively (figures that no doubt reflect the huge amounts of mobile payments in these nations). The U.K., Germany and Spain exceed the average adoption rate of 33 percent, but the rest of the European countries fall below.
This shouldn't be perceived as a lack of interest, however. I'd argue that the fintech scene in Europe is, in fact, booming. The recent move by the EU to foster growth by removing administrative friction in cross-border collaboration is an incredibly bullish indicator. To add to this, there are a number of already-existing fintech hubs on the continent (Malta, Estonia, or the Swiss "Crypto Valley," for instance).
An often-overlooked but nonetheless very important piece of legislation is the European Union's PSD2 (or Payment Service Directive 2), which compels banks to open up their APIs so that third-party services can be built on top of their back end. This is a huge development: Financial institutions have traditionally remained very cautious on the technology side of things, but the new directive means that other businesses can experiment without sacrificing the security afforded by longstanding banks. Another point to note is that now, newcomers do not need to compete, but can rather pick up where incumbent institutions have left off.
The U.K., in particular, is an ideal candidate to head up the fintech movement in Europe -- at 42 percent, it is positioned directly after China and India for adoption rate and estimates place its fintech industry at tens of billions in annual revenue. At the core of this movement is a combination of regulatory, economic and social factors -- the population is highly tech-literate and there are excellent market opportunities for newcomers in both London and Edinburgh.
Few barriers seem to manifest themselves on the surface. An older report mentions, however, that innovators in the space would appreciate additional support from the government insofar as fostering an environment of acceptance, adoption, information-sharing and increasing the access to talent. Currently, it seems, political sentiment has not been sufficient in the eyes of industry leaders.
All in all, Europe has unbridled potential to become one of the leaders in fintech. Given the recent enforcement of GDPR (or General Data Protection Regulation), financial and tech companies will need to begin to explore different and more innovative ways of securing their customers' data -- and emerging technologies are precisely the way to go about this.
GDPR is the EU directive intended to return a feeling of autonomy to users in regards to personal data. In the aftermath of multiple catastrophic data breaches, GDPR provides clear standards for storage of consumer information and acceptable use cases. In order to best adapt the industry to these increasingly complex regulations, fintech leaders will need to harness the potential of emerging monetary and data storage applications in blockchain and elsewhere.