Fintech industry developments, differences between Europe and the US

Fintech industry developments, differences between Europe and the US

“Put your money in the bank and you can watch it grow.” If there is a statement that shows us how much the financial world has changed it’s this one. With the introduction of negative interest, companies and consumers with a large amount of liquid assets are looking for a different way to handle those assets.

This is where the innovative fintech industry comes into play.

What is fintech?

The hardware and software used in the financial world is generally referred to as fintech. But the expression is also used to describe the startups in the financial world. In this article it will be used to describe the technology as many of the settled financial institutions feel they need to adapt to the same new technology that the startups offer their customers. Because of this we can find these new features in banking and other financial applications both in the apps of accomplished firms along with those of the new financials.

Differences in the leading markets

When you think about fintech there is a big difference in what everyone might envision, and this may rely for a big part on which part of the world you are in. Before 2017 the US was leading the way and they were making large investments in the development of new technologies related to online banking, mobile apps, and other new technologies in this field.

From then on investments in the US in this industry started to dwindle, simply because the existing companies turned out to need too much more investments before they could possibly become profitable. Also, there were too many horses to bet on, and the more horses, the harder it is to pick the winning one. The playing field in Europe was easier to oversee and many new branches were carried by older and more trustworthy trees. In other words, fintech firms in Europe have long been undervalued by the market while offering substantial added value and more interesting growth perspectives than their American counterparts. Product advancements and a focus on regulation have made European fintech companies more attractive for investors.

Regulation is an important factor

The use of consumer fintech in the United States seems to be well behind that in most of Europe, where regulation that looks ahead has sparked a surge of innovation in digital banking services along with the backend infrastructure onto which products are built and operated.

That might seem counterintuitive, as regulation is often blamed for slowing innovation down. Instead, European regulators have focused on reducing barriers to fintech growth rather than clinging to the way things are. For example, the U.K.’s Open Banking regulation requires the country’s nine big high-street banks to share customer data with authorized fintech providers.

Importance of fintech

The financial industry is considered to be vital infrastructure and for good reason. When we lose trust in our financial institutions, it turns our society upside down.

Web skimmers are a potential hurdle when it comes down to trust issues. Generally speaking, web skimmers insert code into legitimate websites to eavesdrop on the payment details and attempt to find enough information to steal from the buyer. These information sets are sold on the black market to the highest bidder and could turn out to be very costly for the victim, or his bank if they reimburse their customers. But even if you get reimbursed, the occurrence of someone plundering your bank account, could scare away potential buyers from online shopping.

Fintech as an industry is one of the possible caretakers when it comes to constructing tamper proof websites and prevent the interception of re-usable payment details.

PCI DSS compliance

One of the instruments that is already in place, but could be implemented better is PCI DSS compliance. Providers staying on top of achieving effective and sustainable compliance will make a notable contribution to the level of trust that consumers will have in online transactions and other fintech innovations.

The differences

The future of fintech is promising but how fast we can reap the fruits depends on where we live and how our governments handle regulation of the sector. As we have said before European laws are focused on enabling developments in the fintech industry. All the while keeping an eye on privacy issues under the flag of GDPR regulations. In the US the industry has been under heavy scrutiny since the 2008 banking crisis. For the fintech startups this has resulted in a complicated regulatory framework but also the inexistence of a concrete legislation for fintech firms that takes into consideration the different nature of their activities. And if these companies want to be players on an international level, they still have to adhere to GDPR regulations as well.

A common request from the US fintech industry has been to implement legislation that supports startups and is tailormade for the specific industry. The feeling is that this will create a favorable environment for growth and give the industry a chance to catch up with their European counterparts.

Given that the biggest part of the European fintech startups’ activity is based in the UK some analysts are still holding their breath while the implications of Brexit are starting to pen out. During the implementation period, EU law will continue to apply, firms and funds will continue to benefit. But this hasn’t brought a lot of certainty for the financial services sector in the long-term. The more traditional banks are already preparing to move hundreds of billions of dollars from London to the continent after Brexit. The magnitude of the move will likely depend on the result of the negotiations for new trade deals between the UK and the EU. But, a report from thinktank New Financial suggests that 332 financial services firms have already moved jobs out of London because of Brexit, up from 60 last time they looked in March 2019. And this was before the COVID pandemic threw a wrench in the progress of the negotiations between the UK and the EU. Companies are considering to move as a consequence of the delay and uncertainty around Brexit.

Consumer security

Whichever route the legislators decide to take, it should be clear that consumer security is a priority. Without consumer trust all the fintech endeavors will be futile anyway. Obviously mistakes will be made but they should be dealt with in a fair way and lessons should be learned from them.

One of the reasons why some of the fintech startups are so successful lies in their ability to offer alternatives to conventional financial solutions through cryptocurrencies, online loans, and P2P. Along comes a variety of challenges and one of them will be cybersecurity. The huge growth in the number and size of online platforms makes this industry very vulnerable to security breaches and creates potential targets for DDoS attacks.


Pieter Arntz

Malware Intelligence Researcher

Was a Microsoft MVP in consumer security for 12 years running. Can speak four languages. Smells of rich mahogany and leather-bound books.