The Roadblocks to European Fintech Expansion

The Next Web | Radek Zaleski | May 21, 2019

european fintech expansion - The Roadblocks to European Fintech ExpansionAre Europeans really coming?

“The US market is vast. There are a lot of consumers in the US that use outdated technologies, and from that perspective we see huge potential here [in the US],” announced Nicolas Kopp, US CEO of N26, during a panel at Netguru’s Disruption Forum.

Over the past few years, the fintech industry has started to prove that it can be a driving force to disrupt the financial services sector. Banks now have serious competition from tech-forward lending companies, transfer startups, personal finance and investment apps, and non-traditional banks. The majority of this activity has come from fintech companies in Europe. Why?

See:  Canada’s financial upstarts are lining up behind open banking, but bigger players may need convincing

Europe has led the charge in bridging the gap between older banking practices and rapidly advancing consumer technology. Some even estimate that these new challenger companies have taken up to one third (33%) of new revenue across the industry in Europe alone. When compared to the US, the difference is vast – the same report estimates that US fintechs have only captured just over 3% of the new revenue entering the marketplace since 2005. The world of fintechs in the US, it appears, is still in a stage of infancy.

The Power of Progressive Government

So why is the European fintech market seeing a massive wave of success, while US fintechs struggle in comparison? And why are European-based fintechs slow to expand to the US, despite the massive opportunity seen by foreign fintechs for expansion? The answer may lie in that many European fintechs are stifled by the immense regulatory differences. Dealing with regulations across the financial services industry is much more difficult in the US, and makes the prospect of expansion an intriguing, but difficult endeavor.

European fintechs have benefited immensely from two very significant changes to European Union Regulations. The first is the General Data Protection Regulation (GDPR), which in short gives EU residents more control over their personal information through an opt-in format. Released alongside GDPR is the new Payment Services Directive (PSD2), which gives consumers and businesses the ability to use Third Party Providers (TPP) to manage their finances. Under PSD2, banks are now required to provide Third Party Providers access to their customers’ accounts – enabling third-parties (i.e. new fintechs) to build new financial services using readily available data from banks as a foundation.

These two changes have created a massive growth opportunity for fintechs in Europe, as banks are no longer only competing with each other, but now have to take on a massive wave of digital disruptors and entrepreneurs looking to disrupt the old ways of lending, transfering, and handling finances.

See:  Open banking data tapped to speed up laundering checks

The UK has a similar regulation with its Open Banking Initiative, which provides third parties access to data from big banks. Since opening the industry to healthy competition, 63% of newcomers have taken 14% of total banking and payment revenues in the UK – an indicator that the fintech industry has its finger on the pulse of what consumers want from their financial institutions of choice.

Charters are a band-aid, but what does the future hold?

US banks also have a lot of catching up to do in comparison to their European counterparts when working with new fintech companies and startups. It’s well known that US banks are protective of their data and often times reluctant to share it with Third Party Providers. Additionally, there is no mandatory open banking model currently regulated by the US government, so it’s really up to the banks themselves to decide whether they want to be involved with up-and-coming fintechs.

Although the outdated regulatory model in the US has made it difficult for European fintechs to expand across the Atlantic, it’s still possible through a charter, or in other terms, a partnership with a domestic bank. German bank startup (and unicorn) N26 is the latest to announce plans of a US expansion through a charter with a domestic bank, planned for early-to-mid 2019.

See:  FinTech Charter Hits Speed Bump

Even with the current outdated regulatory systems and a seemingly lack of openness to fintechs in the US in general, there are still signs of a bright future. There are many examples of US financial institutions implementing blockchain and advanced AI into their business model, showing that they are not shying away from technology. Furthermore, the concept of open banking is gaining steam across the world (APAC, Africa, etc.). It’s only a matter of time before the US follows suit to keep up with the speed of the global financial services industry.

As the US financial services industry becomes open to progressive banking regulations, expect to see more of a rise in competition from european fintech counterparts as they try to establish themselves in the States.

Continue to the full article --> here


NCFA Jan 2018 resize - The Roadblocks to European Fintech Expansion The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - The Roadblocks to European Fintech ExpansionFF Logo 400 v3 - The Roadblocks to European Fintech Expansioncommunity social impact - The Roadblocks to European Fintech Expansion
NCFA Fintech Confidential Issue 2 FINAL COVER - The Roadblocks to European Fintech Expansion

Fortunly | Biljana Nikolovski | Aug 23, 2019 The figure of home-ownership in Canada is one of the highest in the world, even though the number of people who own residential property in the country slightly dipped from 69% in 2011 to 67.8% in 2016. But, the portion of the Great White North’s population with debt repayment woes has been increasing at an alarming rate. In fact, a 2018 report revealed that 19% of seniors still have an unpaid mortgage. As a result, 20% of Canadians continue to work well into their golden years. Certainly, a basket of solutions is necessary to help ensure that mortgages in Canada run their course, allowing homeowners to be free and clear come retirement. Fortunately, fintech solutions are here to the rescue. According to Fortunly, peer-to-peer (P2P) lending and decentralized finance (DeFi) are some of the newest innovative models with great potential to help more Canadians, including seniors, reduce their overall cost of borrowing and to better manage debt repayment. P2P lending enables an individual to borrow money from another individual and it allows both parties to seamlessly interact with one another through a digital platform. This is beginning to invade the mortgage space ...
Read More
demand for Altfi models surges - The Roadblocks to European Fintech Expansion
NCFA Canada | Aug 9, 2019 JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY. Aug 23:  Techfins with Michael R. King, PhD CFA EP36 GUEST:  MICHAEL R. KING, PhD CFA, Lansdowne Chair in Finance, Gustavson School of Business, University of Victoria, (Linkedin) HOST: Manseeb Khan, Fintech Friday's show host BIO:  Professor Michael R. King is the Lansdowne Chair in Finance at University of Victoria’s Gustavson School of Business. Prior to joining UVic, he held the Tangerine Chair in Finance at Western University’s Ivey Business School (2011-2019), where he co-founded Canada’s first FinTech research centre (the Scotiabank Digital Banking Lab). Before joining academia, he worked in investment banking in Zurich, New York and London from 1990-1998 (Credit Suisse, RBC Dominion Securities) and central banking in Ottawa and Basel from 2001-2011 (Bank of Canada, Bank for International Settlements). Michael completed his PhD at the London School of Economics in 2001 and his CFA designation in 1999. He has taught finance to undergraduates, MBAs and executives. His research focuses on FinTech, banking, international financial markets, and corporate finance. About this episode:  On this episode of NCFA's Fintech Friday's Podcast, our host Manseeb Khan sits down with Prof. Michael R. King PhD CFA, Lansdowne Chair ...
Read More
FF EP36 Michael King 1 1 - The Roadblocks to European Fintech Expansion
About NCFA Canada | C. Asano | August 23, 2019 TORONTO, Aug 23, 2019 – The National Crowdfunding & Fintech Association of Canada (NCFA) today announced that Paul Schulte, Founder and Managing Editor of Shulte Research in Singapore, has joined the Association`s international Advisory Board to advise in the areas of Banking and Financial Services (profile). Paul's roles in banking & financial services in the past 30 years include equity & fixed income research (buy & sell sides) in emerging markets. In recent years, technology has evolved rapidly to challenge all facets of financial services his core belief is: Liquidity & credit are everything; get bank liquidity & solvency right and the rest follows. Aside from being the founder & editor of Schulte Research, he has taught for 18 years IN MBA programs: Tufts, HK UST, HKU, LMU Hilton School in LA & SUSS in Singapore. He has also worked for the Number 1 investment bank from Switzerland, US, UK, Japan, PRC & Holland starting in 1990. Paul has been a source for the WSJ, NYT, Bloomberg, Nikkei, FT, Economist, Barron’s & Forbes. His clients include some of the largest sovereign, pension, mutual and hedge funds globally. He served as ...
Read More
Paul Schulte 150x150 - The Roadblocks to European Fintech Expansion
Schulte Research | Paul Shulte | Aug 21, 2019 China is barreling forward on reforms and rolling out the crypto currency. It will be the first central bank to do so.  This will give added momentum to Libra. Libra could become a new anchor market for global IPOs. Take this seriously. Join if you can.  I’m pretty sure I’m right that it has backing from the very top of the US govt. 1. Cryptocurrency — The China coin is due to be rolled out in November. I hear that the distribution of the coin will be limited to 7 players: The big banks: CCB, ICBC, BOC, ABC. Alibaba and Tencent.   Positive momentum,,, Union Pay.   Interesting — to keep this alive. All others will be secondary.  The PBOC head did on SUnday make an explicit reference to Libra. As I suspected, China rightly sees Libra as a challenge to China’s early commanding lead in e commerce and payments in all of Asia and through the Silk Road. It clearly is.   Interestingly, HSBC and Stan Chart are cut out. No foreign banks in the consortium.    No foreign firms in Libra (except, weirdly,  Mercato Libra from Arge). 2. China ...
Read More
China coin crypto - The Roadblocks to European Fintech Expansion
NCFA Canada | Craig Asano | Aug 20, 2019 TORONTO, ON Aug 20, 2019  The National Crowdfunding & Fintech Association of Canada (NCFA) is pleased to announce that the Exponential Group (Exponential Ventures, Exponential Capital and Exponential Markets) has joined NCFA as an industry partner. NCFA's industry partners are builders, investors and innovators who have provided a significant level of service and/or contribution towards the sustainability and growth of NCFA and related fintech sectors globally.  We encourage the fintech ecosystem to support and collaborate with NCFA's global network of industry partners by engaging directly with their ventures of mutual interest. "Since founding NCFA in the summer of 2012, one of it's core missions has been working with communities of change that are passionate about enabling inclusive opportunities for 'big vision' companies seeking to change the world but need access to capital and resources to innovate competitive products and services that otherwise may not exist.  These companies often focus on new economies of scale that look beyond 'for profit' models alone.  Supporting and leading this change by developing new infrastructure and partnerships while leveraging new technologies can be a beacon of light resulting in massive transformation and change." - Craig Asano, ...
Read More
ExpoG logo final600 - The Roadblocks to European Fintech Expansion
MIT Technology Review | Mike Orcutt | Aug 15, 2019 Complying with regulators could mean the difference between going mainstream and remaining forever on the margins of the global financial system. One of the biggest knocks against cryptocurrency has always been its status as a refuge for tech-savvy criminals. Even as some bigger players—particularly exchanges that handle many billions of dollars in crypto-wealth each day—have gone out of their way to play nice with regulators, the image persists, in part because some crypto firms have evaded regulators by moving to jurisdictions that are less strict.  But the end of the lawless era may be nigh. A new set of global anti-money-laundering rules aimed at cryptocurrency exchanges has been handed down by the Financial Action Task Force, an intergovernmental organization that sets standards for policing money laundering and terrorist financing. The rules, which call on exchanges to share personal information about their users with each other, are controversial. Many cryptocurrency enthusiasts think the privacy that drew them to the technology could evaporate. On the other hand, complying with the rules is likely to make the industry more attractive to mainstream financial institutions and users. In other words, cha-ching. See:  A Global ...
Read More
money laundering rules - The Roadblocks to European Fintech Expansion
Pryor Cashman | Jeffrey Alberts and Dustin N. Nofziger | Aug 13, 2019 The Federal Reserve Board has announced plans to develop a real-time payment service that should appeal to FinTech companies and community banks. The Board announced last Monday that it will develop a new round-the-clock real time payment and settlement service to support faster payments in the United States. This new real-time gross settlement (RTGS) service, which will be known as the "FedNow Service," is anticipated to be available in 2023 or 2024. The Board is currently soliciting comments on all aspects of the proposed service in order to finalize its design and features. The Board's intention to operate a RTGS service is a win for community banks and FinTech companies, although it may threaten those FinTechs with business models centered around providing real time payments. The Board's plans were not developed in a vacuum. The Clearing House (TCH), which is owned by 30 of the world's largest commercial banks, previously rolled out a RTGS system known as the "RTP network" in November 2017 – some six years before the Board anticipates that its FedNow Service may first become available. The RTP network reportedly cost over $1 billion ...
Read More
cash payments - The Roadblocks to European Fintech Expansion
Forbes | Ron Shevlin | July 1, 2019 OBSERVATIONS FROM THE FINTECH SNARK TANK A Seeking Alpha article titled Why Fintech May Not Be Fit For Public Consumption states: The year 2019 seems set to be a record-setting one for venture capitalist exit value capture by means of tech IPOs. But fintech doesn't seem to be a part of this picture. VCs are certainly putting money into fintech startups. There were 170 financings in the US in the first quarter of 2019. But, as Pitchbook says, 'not one of the most valuable fintech companies in the world seems particularly close to an offering.' " The article chalks this up to three primary causes: 1. Poor IPO performance in 2018. According to the article, "One reason nobody is in a hurry to go public is that the results of the last crop of fintech concerns that did go public have been unimpressive. Adyen and IntegraFin are prospering, but neither GreenSky nor EverQuote is "lighting up the heavens" according to Seeking Alpha. See:  OurCrowd Double IPO Success Provides Crowdfunding Validation 2. Mega-round financing. Seeking Alpha postulates that investor interest in mega-rounds--e.g., Qatar Investment Authority's investment of $500 million in SoFi and Tiger Capital leading a round that raised $300 ...
Read More
fintech IPO shortage - The Roadblocks to European Fintech Expansion
CNBC | Kate Rooney | Aug 12, 2019 Money spent in venture capital and other alternative investments is surging as investors look for riskier, but higher-yielding investments. The trend coincides with relatively low returns from more conventional Wall Street investments such as stocks and bonds, and a drop in the number of publicly traded companies. “In a world where big institutional investors find themselves starved for returns, it’s not surprising that they have steadily increased allocations to private markets and you’ve seen capital continuing to flow into the asset class,” says McKinsey Partner Bryce Klempner. Many global investors are turning toward Silicon Valley instead of Wall Street in search of returns. The total invested in private markets hit all-time highs last year and continues to break multi-decade records this year. In the first half of the year, total investments in venture capital hit a 19-year high of $53.3 billion, according to data from Refinitiv published last week. That marked a 21% increase by total dollar amount compared to the first half of 2018. See:  $5 million Equity crowdfunding extended to private companies The steady stream of funding comes alongside a drop in the number of publicly listed companies, rock-bottom global ...
Read More
unicorn - The Roadblocks to European Fintech Expansion
TechRepublic | Mary Shacklett | July 23, 2019 Learn how artificial intelligence and analytics can be used to improve customer service in banking. When I was a CIO for a financial institution, I worked with executives on the operations side to see how we could improve relationships with customers at our branches. Our front-line tellers at these branches were more like order takers—they did what customers asked, but no more. These employees were in low-wage positions, and they often had limited skills. One of the skills we wanted was interpersonal engagement with customers that you would typically find in a salesperson. We decided to hire people with retail and/or people-facing experience, figuring that we could train them to be tellers. We implemented systems that would prompt a teller to ask a customer about new products the customer might be interested in, and we offered financial incentives for enrolling customers in new products. The experiment yielded mixed results and likely would have gone better if we'd had some of the analytics and artificial intelligence (AI) automation tools that are available today. See:  How Jack Ma’s $290b SME credit engine is changing Chinese banking "Most customers tend to keep their accounts with ...
Read More
banking with AI - The Roadblocks to European Fintech Expansion