Fintech in Europe

The traditional banking sector’s response to Chinese innovation

Fintech is quickly being seen as a disruption to world financial markets. With China excelling in fintech development and investment, it behooves European institutions to play ‘catch-up’ to these established industries. Peter Ling-Vannerus, chief representative of SEB, Beijing, and Beijing chair of the European Union Chamber of Commerce in China’s Banking and Securities Working Group, and Max Merkle, communications and business manager at the European Union Chamber of Commerce in China, discuss the state of play regarding fintech in Europe and traditional banks’ responses to it.

Disruption from fintech has long been a looming threat hanging over the European banking sector; a sector which has still not fully embraced this new type of technology. While there are, of course, a number of other threats that banks currently face, such as any eventual fallout from Brexit, or a continuation of the European sovereign debt crisis, the disruptive impact of fintech will still be strongly felt within virtually all product and customer segments of the European financial sector. Thus, European banks–all of whom are established players–are looking for solutions at every opportunity.

The Financial Stability Board, an international body that provides recommendations on how to improve the global financial system, defines fintech as “technologically enabled financial innovation that could result in new business models, application, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”. [1]

European banks are keen to invest in more of these ‘disruptive technologies’. All European banks place a high priority on fintech and have subsequently modified their organisational set-up to ensure that technical issues are given attention at the highest level of management. European banks have also worked hard to ensure that communication channels remain open between banks and the fintech industry, so they can stay up-to-date on the latest trends. Investment in innovation remains high due to constant pressure put on banks from customers and competitor institutions. European banks are spending considerable sums scouting for the newest technologies and are not only cooperating with start-ups, but with academia and the hacker community as well. The latter is done both by hosting ‘hackathons’—company-sponsored competitions for young coding and design talent to come up with novel products in a short space of time; sometimes in one day—and through strategic cooperation with fintech start-ups, which are often incubated within the banks’ ‘fintech labs’. By utilising these tools, almost 60 per cent of all European banks have invested in both in-house solutions and cooperative endeavours with outside firms.[2] Many European banks have also acquired fintech start-ups over the last couple of years in order to integrate these disruptive technologies into their own processes – particularly, if they find it too hard to develop them in-house.

In any discussion pertaining to the ongoing disruption of the financial sector from fintech, it helps to distinguish between corporate customer and private consumer segments, as corporate players and private persons naturally have different requirements when considering a particular banking service.

Corporate banking
Previous disruptions to banks’ business models have yet to be felt in the corporate banking arena (such as sales and trading or transaction banking) as much as it has been in the private consumer banking segment.The corporate banking sector is, by its very nature, a market with rather high barriers to entry, as it is hard to set up a new bank to cater to corporate clients and undertake sales and trading, or transaction banking services for them. Furthermore, European banks came early to invest in automated services in the corporate banking sector. New players are also investing in this sector, but the innovative pressure is lower due to the aforementioned high barriers to entry. New European Union (EU) legislation has been introduced to remove some of these barriers. For example, the Second Payment Services Directive,[3] which will come into force across the EU starting on 13th January 2018, is meant to enable non-traditional market actors to access accounts and payment platforms.[4] It remains to be seen, however, how accessible these services will be in the end.

Private consumers
Fintech innovation is not being as rapidly adopted in Europe as it is in China, which has fintech platforms like Alipay and WeChat, however European consumers are quickly catching on. More than 50 per cent of European financial service customers are using so-called ‘non-traditional fintech suppliers’ for a portion of their financial service needs.[5] Of course, this is still far below China, where fintech adoption by customers is around 75 per cent.[6]

Some of the strengths that new fintech providers have are their products’ intuitive design solutions and user interfaces—in particular for mobile payments—which are perceived as important to consumers. In this area, traditional European banks are at somewhat of a disadvantage, as they are stuck in the cobwebs of legacy systems, with some even dating back to the 1960s, and are faced with certain regulatory restrictions that hamper their innovative capacity.

European banks are increasingly focusing their innovative efforts on providing mobile solutions with a higher degree of user-friendliness. This is particularly appealing to younger generations–like Millennials and Generation Z–both of which are said to be ‘digitally native’. The industry understands that these younger demographics will be increasingly important to winning and maintaining a strong competitive market position in the future.

Where are the European fintech hubs?
We can broadly identify three main clusters of fintech companies in Europe. Not surprisingly, London—Europe’s most important financial centre for the time being—is among the top with a lot of financial startups clustered around the City of London and Canary Wharf. Other industry clusters, measured by levels of investment going into fintech companies, are in Amsterdam and Stockholm. An important factor contributing to the growth of these clusters is the availability of funds in these localities.

What can European banks offer Chinese customers?
The above question will require a lot of thought from European banking executives. China already has one of the most innovative and developed fintech markets in the world, with customer usage of fintech higher than anywhere else.[7] Nevertheless, technological innovation and disruption within corporate banking has been considerably slower than in retail banking, where most of the action in the Chinese fintech industry happens, and, crucially, all important players are private enterprises. Thus, as the Chinese banking sector continues to be dominated by state-owned banks, perhaps the most likely area where there could be opportunities for European financial institutions to provide innovative solutions, is in retail banking.

[1] Monitoring of FinTech, The Financial Stability Board, 2017, viewed 4th September 2017, <
[2] Ibid.
[3] Payment services (PSD 2) – Directive (EU) 2015/2366, European Commission, 12th January 2016, viewed 5th September 2017, <>
[4] Second Payment Services Directive (PSD2), Payments UK, July 2016, viewed 5th September 2017, < >
[5] World Fintech Report 2017, Capgemini, 2017, viewed 5th September 2017, <>
[6] Ibid.
[7] World Fintech Report 2017, Capgemini, 2017, viewed 5th September 2017, <>

Peter Ling-Vannerus is the chief representative, SEB, Beijing, and holds responsibility for developing and managing the bank’s business in Northern China, as well as monitoring the political and economic development of China for SEB.

Max Merkle is a communications and business manager with the European Chamber, based in Shanghai, and manages the European Chamber’s Banking and Securities Working Group.