The European Fintech Association (EFA) would very much welcome a new European Commission strategy to reduce fragmentation, reinforce the eorts to complete the EUs Single Market and reduce the overall regulatory burden on the market. The EFA has been actively supporting the development of a robust (Digital) Single Market,which would benefit all businesses, including financial services, with consistent consumer protection standards,forward-thinking and future-proof regulation, supporting genuine competition that serves the interests of all
Europeans.

Over the past decade, the fintech sector has transformed financial services, becoming a key driver of the European Union’s economic growth and global competitiveness. Fintechs have made financial services more accessible and aordable, streamlining processes and improving eiciency across sectors like banking,
payments, insurance, and lending. The European fintech sector’s growth can be attributed significantly to supportive regulatory frameworks such as the Payments Services Directive and others. Their rise has also sparked healthy competition, pushing traditional institutions to innovate and adapt. In many ways, fintech
solutions also help to complete the Single Market, as they oer digital services on a pan-European basis.

Completing the EU Single Market will contribute to the acceleration of the expansion of fintechs both within Europe and globally. The continued growth and success of fintechs is essential for the EU to maintain its strategic autonomy in the rapidly evolving global financial landscape. European fintech firms should be able to leverage the Single Market to expand seamlessly across borders, allowing for increased competition and innovation as well as opening a market that can compete with other international markets such as the US and China.
Regulation should follow suit and ensure that:

● Scaling up: European fintechs can scale up and oer cutting-edge financial products and services across the continent, helping them to position themselves as leaders in the global fintech landscape;
● Attract talent: Europe has a thriving fintech ecosystem that can attract investment and talent, bolstering Europe as a hub for innovation and entrepreneurship.
● Reduce fragmentation: Europe can overcome fragmentation and regulatory barriers in turn building an integrated and harmonised EU Single Market for all, including fintechs
● Reduce regulatory burden: We support the initiative to reduce and not introduce more regulatory burden on the market. This should also include national gold plating of EU rules, e.g. in anti-money laundering, consumer protection and tax and as it pertains to reporting requirements, which – in comparison to other markets – has substantially increased over the past years (e.g. Dora, CRR-III,
AMLR/AMLD, CSRD and others) 

Despite Europes efforts to create a unified market, the vision of a seamless Single Market remains largely unrealised. For businesses seeking to compete across the EU, it is still oen necessary to establish local branches and implement tailor-made solutions to meet the specific regulations of each Member State. This fragmentation
hampers economies of scale, which are essential for improving competitiveness. Ideally, the Single Market should enable businesses to oer innovative services across all EU markets without the burden of too much and in addition to local regulatory adjustments and encourage a continued commitment to regulatory harmonisation, which would allow fintech companies to operate cross-border without additional legal and administrative requirements.

The complexity of requirements in dierent Member States in the EUs Single Market presents a significant barrier to growth. When launching new cross-border products, companies must navigate a maze of compliance-related documentation, which would greatly benefit from automation of processes, including anti-money laundering provisions, consumer protection, data protection, and tax regulations. While many EU rules and regulations are essential to ensure the proper functioning of the market, Member States oen add their own layers of unnecessary regulation, known as “goldplating.” This increases the cost and complexity of expanding into new markets, limiting consumer choice and stifling the availability of innovative products. To address this, rules at EU level should be more harmonised to prevent gold-plating, and create a more streamlined, uniform regulatory environment. As it stands at the moment the EU regulation oen has the eect of that of a 28th Member State added to the local rules. In addition, EU rules should be reviewed to make sure they do not overstretch the requirements for European companies.

A harmonised Single Market would not only ease the operational challenges businesses face, but also foster innovation and growth across the European economy. It would enable homegrown European companies to establish a broader user base within the EU, ultimately positioning them for international expansion.
However, the current fragmented landscape creates significant barriers as companies encounter many dificulties when crossing national borders. Some of the barriers that fintech companies face include:

• Challenges such as IBAN discrimination and the need to integrate with local payment schemes highlight the complexities of operating in this fragmented market. Despite the SEPA Regulation prohibiting IBAN discrimination since 2014, this issue persists across the EU. The ‘Accept my IBAN’ initiative has received over 4500 consumer reports of discrimination by both public sector authorities and private companies. This not only disadvantages consumers but also stifles the development and scaling of pan-European payment solutions. To navigate these challenges, fintech companies are oen forced to establish local branches and secure local licences, a process that can cost up to several million euros per year to maintain and undermines the freedom of provision of services principle, one of the founding pillars of the European common market. These resources, instead of being directed towards international expansion or product development, are tied up in unnecessary regulatory compliance. Such costs are a significant obstacle to creating stronger European fintech champions capable of competing globally. While efforts have been made to enforce rules against IBAN discrimination, the issue remains unresolved, and many Member States continue to downplay its significance. Many Member States still believe this issue is not a priority, leaving the problem largely unaddressed. The EU should also look into creating a single EU IBAN number or introduce the ability to issue local IBANs across the EU without the need to establish local branches. 
• To resolve market fragmentation, the focus should shift towards ensuring greater interoperability between existing national payment schemes, rather than exclusively pushing for new pan-European projects like EPI or the digital euro. Some Member States still impose requirements that limit competition, such as forcing Payment Service Providers (PSPs) to connect to national infrastructures to become direct participants in local payment schemes. These practices not only restrict competition but also hinder the development of a truly Digital Single Market. The EU should also actively promote its digital payment innovations globally. By modeling strategies on UPI’s expansion from India, Europe could push homegrown payment systems, thus fueling growth and facilitating cross-border trade. This global reach can position these systems alongside major industry players, enriching Europes fintech reputation.
• Fragmented regulatory landscape prohibits the oering of innovative services across all EU markets as local regulatory adjustments are needed for such products as loans and mortgages.Creating an opportunity for FinTechs to launch a product across all European markets would decrease time to market for innovative products benefiting consumers and businesses. The resources spent on localisation and compliance with local rules could be directed to product improvements.
• The fragmentation of European tax regimes presents a significant barrier to the growth of the fintech sector, which must navigate 27 dierent tax systems. The VAT compliance process, in particular, is time-consuming, and the lack of consistent guidelines for VAT reporting creates unnecessary complexity for businesses operating across borders.
• Additionally, the current system of taxing capital income through double taxation treaties results in complex, multiple-layered relationships. For instance, platforms with customers in 27 Member States, oering products from providers in the same number of countries, are required to apply dierent double taxation treaties for each customer-product provider relationship. To simplify this, a more consistent approach to tax residence certificates and withholding tax should be
  established.
• Fiscal and labour laws further complicate the fintech sectors ability to attract talent, both from within and outside the EU. Stock option schemes, which are a key tool for attracting skilled professionals, are oen heavily taxed and vary significantly among countries. The lack of a unified EU framework on stock options puts European companies at a disadvantage compared to those in the United States. This is especially problematic when hiring talent from other EU countries. To address this, the EU should harmonise employment laws, particularly around employee equity compensation, and encourage initiatives like start-up visas and skills partnerships to better align with global competition. There needs to be a reform on taxation of stock options across the EU, by postponing taxes until the options are sold, rather than when exercised. This approach eases the financial burden on employees, making stock options a more attractive form of compensation. Such reforms will help companies attract top talent and boost innovation.
• The EU should focus on creating more unified, cross-border policies that incentivize investment in innovative companies, especially during their scale-up phase. Current tax incentives for venture capital are limited and vary significantly across Member States, creating obstacles for firms to access consistent support throughout their development. The EU Single Market could play a critical
  role in addressing this issue by streamlining fiscal regimes and creating stronger, harmonized incentives for venture capital investments across borders. Completing the Single Market would facilitate greater cross-border funding, helping European startups access capital without the need to rely on U.S. investors as they scale. By promoting policies that encourage institutional investors to allocate more capital to European innovation, the EU can ensure that firms remain globally competitive and can build the technological champions necessary for future economic strength.
• Achieving a Capital Markets Union (CMU) is a critical step towards increasing Europes competitiveness and growth (according to the reports by Draghi and Letta). CMU would create a vehicle for the financing of European companies, including startups and scaleups, providing access to European funding to fuel their growth. Funding rounds being dominated by foreign investors puts European companies at a disadvantage. European citizens, as it is the case in many Member States, still have a much lower propensity to invest in the capital markets. This is largely due to
  ineicient pay-as-you-go pension systems. There should be large tax incentive schemes for European citizens to save and invest privately for their pensions. Currently all such schemes are national and many are ineicient. These private investment schemes can help finance the European large-scale eorts to change for a sustainable and digital economy. Finally, the CMU and the Banking Union should also include a harmonized deposit guarantee scheme for all European banks. Absence of the third banking pillar, results in pan-European digital banks struggling to gain confidence from EU depositors not based in the home state, which reduces competition in their markets.
• Lastly, to truly compete at international level, the EU should work towards the establishment of stock markets at Union level that are of a suicient size to compete with more well-known trading venues, such as New York, to support European companies that wish to issue their IPO in the continent. The initiatives undertaken so far to improve transparency, data quality, and investor protection have not yet led to a real qualitative leap for European platforms, which still remain excessively tied to local markets while they should instead be more integrated and expanded.