Together, innovative, inclusive, knowledge, transformation … these phrases inspire you to join the ecosystem, the fintech community, spread the word, and help build the open finance economy. As such, for the last years, The Paypers has put together a global infographic and industry mapping of key players in the Open Banking/open finance ecosystem.
But who are these playful, yet innovative gangs/guys/communities, highly professional yet many times dressed in jeans? How does their ‘playfield’ look like? Who are these communities they are active in? Was their success story born at the heart of London, or somewhere in Hamburg, Bucuresti, their hometown? Where do they come from, how does their local fintech map look like?
To answer some of these questions The Paypers launches the ‘From helping European local communities to building supper apps – The Paypers’ Fintech Series’, a collection of articles and interviews that focus on fintech developments, trends, innovations, challenges in Europe.
The Paypers has sat with Maria Staszkiewicz, President at European Digital Finance Association, to learn more about the European fintech scene and ways that fintechs could support post COVID-19 economic recovery
Financial regulation has until recently been influenced exclusively by traditional financial institutions, even though smaller fintech companies have been with us for many years already. They either did not have the capacity, did not know how to do so, or sometimes even refused to engage with policymakers. Sometimes, as in the case of the PSD2 consultations, they were almost left out of the official dialogues, to some extent because they were not organised into larger bodies. The result is, as we all experience currently, an Open Banking that leaves much to wish for. For this to never happen again, especially given the upcoming review of the Payment Services Directive and the EU plan for a broader open finance framework by mid-2022, thirteen national fintech associations established in 2020 an office in Brussels to better represent the interest of digital finance companies called the European Digital Finance Association.
EDFA, wants both to shape regulation and the business environment in Europe. EDFA does not operate on the artificial dividing line of fintech vs incumbents but works towards secure, affordable, and competitive digital services.
Financial service providers in Europe are often way ahead of their competitors, even despite the ever-tougher regulation. It is partly thanks to specific customer behaviours, such as weaker attachment to cash or rare use of checks. Or it is because some customer groups were not served by traditional institutions, e.g. small and medium size companies or self-employed, who were too risky or too tiny for banks to cater for.
An important driver is also the EU regulator, though it is a double-edged sword. On the one hand, DG FISMA responsible for financial services is pushing for a more competitive, modern regulatory framework, be it opening of banking infrastructure to third party providers or recently by proposing a regime for crypto-assets. On the other hand, other European bodies want an ex-ante horizontal regulation of technologies (cf. the recent AI regulation) and technology companies in an endeavour to secure the technological sovereignty of the EU and (over)protect the customer. This leads to schizophrenic policy moments with companies being the first casualty.
Capital markets are one of few areas where Europe lags in financial services, both due to regulatory hurdles and customer habits. In many countries, consumers pile cash on current or savings accounts, while banks are cautious to lend money to companies because of apparent risk. The recent pandemic hit some companies more than others and, rejected by banks, they started to look for alternative sources of financing offered by fintech companies. Consumers, on their part, were given the opportunity to try out investing enabled by various mobile applications. Completing the Capital Markets Union, where money is better distributed across the EU economies, is where I see the biggest role of financial technology in the post-COVID-19 recovery. And it may finally be the project for blockchain implementation.
On a more general note, financial technology companies often serve as laboratories for testing new services, later on adopted widely on the market. What I can see recently however is that successful startups sell out too early instead of moving to the next scale-up phase. European fintech founders should instead aim higher and plan to become big financial players. One of the reasons for quick sell-outs may be regulatory and bureaucratic barriers that can hardly be dealt with by small companies. And this is where I can see the EU play an important role. Therefore, instead of tough regulation, the EU should focus on removing barriers to doing business and push its members to establish special innovation regimes and experimentation clauses, all in a harmonised EU framework.
The unfortunate situation of not having an Open Banking single standard is something that EDFA wants to prevent happening in the future. National implementation of PSD2 brought an array of standards creating a business opportunity for a few integrator companies and obstacles for most third parties, banks included. Initiatives such as the SEPA API access Scheme are meant to amend the circumstances, yet it is just fixing a problem that should not have been allowed to arise.
With the European Commission planning a review of PSD2 in the second half of this year and a proposal for a dedicated open finance regulation by 2022, EDFA plans to actively participate in policy discussions. The creation of the EU financial data space as envisaged by the EU will not take place without proper representation of digital finance companies.
Monopolies of any kind are not conducive to market development, while comfortable at the beginning such a global player would in no time gain too much power to the detriment of consumers. International standards that allow for seamless interoperability are a much better solution to the harmonisation of markets and user-friendly services. Hopefully, all stakeholders in Europe will aim for this during the review of PSD2 and EDFA will aim at establishing an alliance to achieve a truly open finance environment.
Apart from the unicorns that make headlines in the international news, there are areas in financial technology that receive less attention but work to innovate areas such as cybersecurity in finance or insurance and benefits for the self-employed. Here I am looking at companies such as Resistant AI, that uses AI to protect against AI attacks, or Collective Benefits that wants to ease the lives of independent workers. It will be interesting to see if Curve or Bunq will live up to the promises of unifying basic financial services in one place. I'm also curious about whether Minna technologies will change the way we manage subscriptions, something many of us had to deal with at the beginning of the pandemic. Europe is definitely the place to look for a breakthrough in fintech, and the European policymakers have to act upon it.
About Maria Staszkiewicz
Maria Staszkiewicz is the President of the European Digital Finance Association and the CEO of the Czech Fintech Association. A graduate in political sciences and European studies she worked in Brussels for the Council of the EU, and later on at the Aspen Institute Central Europe. In 2020, with thirteen national fintech associations, she established a European Digital Finance Associations in Brussels to pursue the interests of financial technologies companies in the EU.
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