Fintech: a European game played by the rest of the world

Illustration by Tech in Asia’s Andre Gunawan

Fintech is booming, it’s the next big thing, it’s going to revolutionize the world. While some of the hype is justified, with fintech, it is easy to fall into meaningless hyperboles. Fintech is indeed having a moment, but its impact will not be the same everywhere.

The industry’s success is not simply dependent on the funding or incubation startups receive – fintech’s influence will differ around the globe. I believe that Europe will create the best ecosystem for the industry, combining tremendous funding and governmental support for startups, but it is in emerging markets that the industry will have the most impact, banking the unbanked and helping to solve urgent social issues.

It’s like a European sport – Europe gets the limelight, but others get the joy. Soccer – Brazil (one 7-1 loss notwithstanding), Rugby – South Africa, Table Tennis – China, Cricket – India. The Manchester Uniteds and Bayern Munichs of the fintech world will be the most supported, but the smaller teams in emerging markets will produce results that touch everyone.

Photo credits: Dennis Jarvis

Inside Europe

Europe is a fragmented continent: Markets are divided along the North-South and East-West axes. Fintech reflects these differences. While the North and West of Europe are developed markets (UK, France, Germany, Scandinavia), with stringent banking regulations, Southern Europe suffered worse than its Northern counterpart after the last recession in 2008. Spain, Greece and Italy in particular, all felt the impact of job losses and the credit crunch more than others. In the East, the banking sector is heavily regulated and recovering after the recession too.

Furthermore, the entire continent is divided between countries in the European Union and Eurozone, and those out of it. This makes speaking of a single ‘European’ fintech difficult, if not impossible, but there are some trends emerging about the kinds of fintech serving each region.

In the North and West, fintechs unbundle. McKinsey forecasts that fintechs are set to take 60% of bank’s retail service profits by unbundling. While fintechs will make retail services easier to manage, the social impacts of the industry are hard to foresee – as in this region, fintechs can mainly impact UX.

In the South, the developed markets of Spain, Greece and Italy contracted during the recession. With fewer incubators operating, and relatively little demand for fintech, typically only payment-oriented fintechs have proliferated in the South. I believe that the market for other fintechs such as alternative financing and credit will expand once people are more aware and trusting of different options.

While populations are well-banked and smart-phone savvy in the East, the growth of the fintech sector in Eastern European countries is more focused on cyber-security and big data: providing informational changes to the way money is handled by institutions, rather than the everyday changes consumers can make through payments and banking.

Fintech in Emerging Markets

With the World Bank estimating 2 billion people being unbanked, the scope of fintech’s potential is truly revealed. In developed markets, fintech disrupts financial models by exploiting service gaps between provider and consumer. In emerging markets, however, fintech is on its way to becoming the financial industry.

Final thoughts