Banking and fintech: not a zero sum game

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

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By working together, and with policymakers, banks and fintech businesses can speed up the EU’s economic recovery, writes Ellen Moeller

Ellen Moeller is the Head of Partnerships Europe, Middle East and Africa at Stripe

Coming out of the pandemic, the European Union faces an immediate challenge – economic and social recovery. But in order for the European economy to really prosper in the years ahead, we need to continue to remove barriers for businesses so they can contribute to that recovery.

The reality today is that for many European small businesses, it is still far too hard to access capital, set up a bank account and sell across the EU and globally. Nine in ten SMEs are calling for lenders to offer more digital services. Nearly half of businesses say it’s harder now to trade internationally than 5 years ago. And only 7.5% of European SMEs sell abroad – including in other EU countries.

What would happen if policy makers, banks and fintechs came together to help fix that? Imagine a world where it would take less than a minute for a small business to open a bank account, accept payments, get a loan and file taxes. Think about the millions of hours it would save. Time that business owners could spend on growing their businesses and contributing to Europe’s economic recovery.

The European Union is well positioned to make this a reality. The EU has some of the most developed banking systems in the world, a perfect example of how regulation can be used to grow new markets. Financial passporting has helped to make Europe a global leader in financial technology. Fintechs with banking, e-money or payment licenses can now passport to serve customers in 30 European countries. The EU can also take credit for a lot of forward-thinking lawmaking in financial services, including open banking under PSD2.

There is room to build on this and remove more of the barriers holding businesses back. Let me give an example. As the economy is becoming more digital, merchants expect their funds to be in their accounts the moment they sell something. Today’s reality is that this often takes much longer for cross-border payments, and even for some types of domestic payments. It’s encouraging that the European Commission is looking at how it can make these payments more instant, working in partnerships with banks.

Instant Payments, open banking and the European Payments Initiative hold out the promise of more efficient European payments. And longer term, it’s positive European institutions consider the need for a so-called ‘Digital Euro’. A digital currency created by central banks but delivered in partnership with the private sector can help increase choice for consumers and businesses.

At the same time, there are tensions that still need resolving, including at a policy level. Open banking is designed to make it possible to share banking data more easily and more securely. This presents a huge opportunity for Europe if we get the fundamentals right: common standards, clear ‘rules of the road’ and incentives for all players in the chain to invest in new technology, including banks. Software development underpins the online economy, and if banks and fintechs work together, their partnerships will make selling online easier for businesses of all sizes.

Partnership really is the key word here. It’s often claimed that Europe’s highly successful fintech industry is here to eat the banks’ lunch. But this notion of a deep conflict in a zero-sum game is wrong. Recent research found four out of five bankers say they are willing or eager to engage with fintech companies. This is more and more becoming the norm; BNL and Tink, Caixa Geral de Depósitos and Backbase and Barclays and Flux. Collaboration, not competition, is the watchword of the sector. Five years from now, it’s likely that banks and fintechs will have moved closer to each other, taking the best from both worlds, with banks looking a bit more like fintechs, and fintechs a bit more like banks.

We’ve seen recently how closer partnerships can help European businesses. Take what happened with Strong Customer Authentication, when new rules were rolled out across Europe aiming to reduce fraud by making online payments more secure. While this regulation was well intended, it had the potential to make buying goods online much harder. Estimates suggested European businesses stood to lose €57bn in economic activity in the first 12 months, because the rules caused a lot of stress and confusion for businesses.

But when it came to the crunch, banks, payments companies, merchants and local regulators collaborated extremely closely. They have, so far, managed to make buying online more secure while minimizing negative impacts on consumers and small businesses.

This spirit of collaboration is exactly what is needed in the months and years ahead, as the EU shifts its focus from fighting the pandemic to economic recovery. From improving access to capital to making it easier to sell across borders, the success of the economy depends on the ability for financial services to meet the needs of businesses, which are increasingly global and operate mainly online.

The financial ecosystem was not designed with today’s economy in mind, and there is work to be done to make it easier for businesses to get started, access funding and sell internationally. But policymakers, banks and fintechs have shown how adaptable the sector can be in reacting to the needs of the businesses they jointly serve. We now need even closer cooperation and new partnerships to build the economic infrastructure that accelerates Europe’s economic recovery.

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