• Sendi Young, Managing Director Europe at Ripple


• 23.12.2021 10:30 am
#fintech #investment

The UK and European fintech space has seen a boom in recent years. In fact, it’s been an ongoing conversation since I started out in the industry over 15 years ago. But over the last five years in particular, Europe has seen huge growth. In the first half of 2021 alone, fintech investment in the region reached $39.1bn.

The boom in Europe’s fintech scene is apparent in our work at Ripple too. In fact, a quarter of our customer base is from the region. Over the years, Europe has developed strong foundations for the fintech industry to flourish, and it looks set to continue this upward trajectory with no signs of slowing down soon.

On the other hand, fintech growth in the U.S. is looking increasingly reticent and sluggish, particularly when it comes to retail banking, which is still largely dominated by legacy players. Meanwhile, regions like Europe and Asia-Pacific continue to hit record fintech growth numbers. While the U.S. still captured the highest fintech investment in the first six months of this year at $51.4bn, it risks losing the top spot to its European counterparts who are innovating at speed. It’s important the U.S. doesn’t lose momentum despite homegrown success stories like Stripe, Plaid, Square, Robinhood and Coinbase.

What’s more, the U.S. faces challenges to fast fintech innovation. As we’ve seen in recent months, financial regulation in the U.S. has not kept pace with other countries. Take for example, Open Banking, where the UK and Nordic countries are ahead in their implementations thanks to progressive regulations in this space.

There is no doubt that the U.S. is bound by outdated regulation which has hindered innovation and funding to kickstart new market players, but there are three key lessons the U.S. market can learn from those across the pond to see successful growth in the fintech space.

Encourage competition in the market

The introduction of Open Banking regulation in the UK in 2018, and Payment Services Directive (PSD2) in the EU in 2019 sparked a new wave of innovation. These new regulations require banks to provide wider access of their customer datasets (with the customer’s consent, of course) to licensed third party providers. By sharing customer data in this way, new opportunities are opened up to fintech players to provide new and more tailored services to its users with better customer experiences. This, in turn, enables financial institutions to access information-rich data in a way that was previously not possible, driving new ways for fintechs to compete on the world stage. These regulations have been fundamental for fintechs to provide more modern financial services that are better suited to today’s digital age. This is particularly prevalent in the UK, where we’ve seen the likes of Monzo, Azimo, Starling Bank and Revolut expand their footprints beyond Europe to grow their customer bases and provide a wider range of services to become more competitive players. 

This culture is further endorsed by the Bank of England, which believes that providing competition to traditional banks will be beneficial, not only to the fintech industry, but also other businesses and the banking industry as a whole. The Bank of England encourages a culture of competition with policies that ensure they are fair to both big banks, but also to the upstart banks. This results in a booming fintech scene, underpinned by a framework that enables advantages from this competition, in the form of lower prices for consumers, better quality services and greater innovation from financial institutions.

Build a favourable ecosystem for fintechs

The technology industry has long seen regulation as a burden to innovation, but in reality, thoughtful regulation developed in collaboration and consultation with industry and a supportive government, are conducive to advancing financial services. To build a favourable ecosystem for fintechs to thrive, governments and regulators need to strike the balance between promoting innovation and effective competition, while also protecting investors and consumers.

The UK is a good example of a market where regulation is not considered the enemy. For example, the UK’s Financial Conduct Authority was the first to launch a regulatory sandbox for companies to test their products before launch. This model has set a good precedence for coupling regulation and innovation, and has been duplicated in other markets.

Furthermore, the European Commission recently proposed Markets in Crypto Assets (MiCA), a regulation that is part of the EU’s Digital Finance Strategy, which will fundamentally impact the EU crypto market. This has been in development since 2018 and will help regulate the industry to ensure those innovating in the space are doing so responsibly to protect consumers. Once passed by legislation, this regulation will in fact work in the favour of high-growth fintechs, particularly those in the crypto and blockchain space. MiCa will provide reassurance and protection for businesses looking to make investments in blockchain and digital assets. It’s time fintechs stop seeing regulations as restrictions.

Nurture talent in finance

In Europe, there are a number of industry bodies that have helped give a voice to the fintech industry and create a favourable environment for fintechs to grow, identify and nurture top talent. From Innovate Finance to Rise, these organisations have been instrumental in helping and supporting the growth of many startups over the years with the right talent. In addition, Higher Education has a significant role to play in the development of talent to ensure relevance of the curriculum with the industry skills needed.

Our University Blockchain Research Initiative (UBRI) at Ripple, is a university partnerships programme that funds financial technology curriculum development, research, technical projects, entrepreneurship and student activities. Europe’s need to nurture fintech talent and address the tech skills gap—specifically in blockchain and crypto—is critical and evident in our partnerships with the likes of University College London, Reykjavik University and ETH Zurich.

It’s clear that there are many lessons that the U.S. can learn from Europe’s fintech scene, but the key one is the need for   regulatory clarity, support and a framework for the fintech industry. For the States not to be left behind, it needs the same level of openness, competition and insight that makes the European market thrive. Only then will the U.S. be considered serious competition to the European fintech scene.