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How fintech is changing EU financial services – EBA report

The role of fintech companies in driving innovation in the EU financial services sector is increasingly important. A report by the European Banking Authority (EBA) looks at how fintech firms operate, where they innovate and how they're regulated and funded. The discussion paper sets out the results of the first EU-wide fintech mapping exercise and its proposals for future work on fintech.

The EBA's first EU-wide fintech mapping exercise received responses from 24 European countries, with data on 282 fintech firms. It estimates there are more than 1,500 fintech companies established in the EU. Responses from authorities suggest that government investment in fintech is likely to grow in the coming years, with many authorities supporting fintech 'sandbox' initiatives and innovation hubs. Regulatory change at EU level is one of the driving factors that will support and facilitate fintech development, according to the report. It mentions PSD2 as an example of EU regulatory reform that will encourage and support fintech innovation.

The report also found variations in the regulation of fintech companies. It found that 31 per cent of companies were not subject to any regulatory regime. Eighteen per cent are payment institutions regulated under PSD2, while 11 per cent are investment firms regulated under MiFID and 9 per cent are subject to a national registration regime. The EBA stated: “The fact that some fintech firms are subject to national authorisation or registration regimes implies that there may be potential for divergences in the treatment of fintech firms across the EU, which might suggest a need for further investigation. In addition, the high percentage of fintech firms not subject to any regulatory regime could suggest a need for further analysis of the activities of such firms.”

The research also found that:

  • fintech firms appear to provide a wide range of financial services and are particularly dominant in the provision of payments, clearing and settlement services, as well as other financial-related activities;
  • they apply a wide range of financial innovations: 31 per cent use online-only distribution channels, while 13 per cent have mobile-only distribution channels;
  • both regulated and non-regulated fintechs are behind innovations;
  • fintech firms appear to target a range of end-users, mostly consumers and financial institutions regulated pursuant to EU law; and
  • 63 per cent of fintech firms subject to an EU regulatory regime enter into possession of customer funds.

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