Role and importance of Fintech industry in building up European competitiveness.

The concept of EU strategic autonomy has been a priority for the EU over the last few years. Geopolitical instability, climate and environmental challenges, as well as social changes have increased the focus on this concept. In short, strategic autonomy refers to the idea that the EU builds its own, self-sufficient industries (in various fields), so that it is less reliant on third countries, thus becoming less susceptible to detrimental changes in the markets and industries outside of its reach. A view held by some is that this will help drive political, social, and financial stability across the continent.

The FinTech industry is an asset for the EU to increase its competitiveness. FinTechs diversify the financial services market and create real competition for traditional service providers.

The payment industry, home to many leading global FinTechs offers a prime example of how open and competition-friendly regulation can create a thriving and competitive EU market. FinTechs provide innovative services and solutions that can enable all industries to reduce their reliance on traditional providers, such as international card schemes. By fostering a supporting regulatory environment for FinTech, the industry can continue challenging these established market players.

Non-European companies, now based in the EU, can play a significant role in furthering Europe’s competitiveness. Alongside European home-grown companies, they bring greater diversification and innovation to the payments and broader financial services market, driving growth across the entire EU FinTech sector.

When it comes to the regulatory framework, the EU’s FinTech ecosystem is flourishing thanks to innovation-friendly regulatory frameworks such as the Payment Services Directive (PSD2). The PSD2 created a new form of payment service — Payment Initiation Services (PIS), enabling direct account-to-account payments without relying on traditional card schemes. PIS empowers EU citizens to make payments using solutions that, by cutting out intermediaries, can reduce fees, enhance access to digital payments for all segments of the population and foster a healthier and more competitive payments market.

EU legislation, including the SEPA Regulation, the Cross-Border Payments Regulation 2 and the Payments and E-Money Directives, have paved the way for Eu FinTech champions to rise and compete with the traditionally dominant incumbent banks and non-banks active in the EU market.

The EU FinTech sector is ready to play its part in supporting the EU institutions in achieving the common goal of creating European champions in technology and finance capable of competing globally. Achieving this requires increased funding for research and development, particularly in critical areas such as cybersecurity, artificial intelligence, and cloud computing. Additionally, strong public/private cooperation will be key to developing a future-proof and innovation-friendly legislative framework.

The decisions that will be made on Digital Euro implementation will be crucial in this regard. The Digital Euro is indeed a great opportunity to enhance competition in the European payment market. However, for it to succeed, the involvement of market players, including FinTechs, in its distribution will be essential. This will ensure that this digital currency is tailored to the needs of European customers.

FinTechs operating in the European payments market interact daily with their customer base (consumers, merchants, businesses), understand their needs and adapt their product design accordingly. FinTech companies are the strategic allies of European institutions, helping to build resilience against dependencies on non-EU entities. However, legislators and the European Central Bank consider any potential unintended consequences of the Digital Euro design. Poor design could harm the European FinTech industry and hinder its widespread adoption.

EFA’s members have thrived in an open and competitive market, benefiting from regulatory certainty and legal harmonisation that facilitates the free provision of services across borders. The EFA hopes that the new EU legislature – Members of the European Parliament, Council representatives, and Commission staff – will continue to work closely with the FinTech sector to ensure that the EU remains a leader in technological innovation, job creation, and competitive financial services across the EU.

Further information on EFA positions:
– EFA Position Paper on the Digital Euro
– EFA Position Paper on PSD & PSR