Dr Marc Roberts
General Counsel and Co-President of the EFA

“Dr. Marc Roberts has been General Counsel since 2017 of one of the biggest German FinTechs Raisin that aims to revolutionise the savings and investment market. He is Co-President and board member of the European FinTech Association (EFA) that gives innovative businesses in finance a voice in the European space. Prior to joining the deposits specialist Raisin he was Senior Associate at the German law firm Hengeler Mueller where he specialised in compliance and corporate law as well as Cravath Swaine & Moore (New York).”

The State of EU FinTech

The European FinTech sector has emerged as one of the most dynamic and rapidly growing industries, fuelled by innovation, demand for digital finance solutions, and a push from regulatory bodies to modernise the financial system. However, as the sector matures, it faces an increasingly complex web of political, economic, and regulatory factors that shape its development and prospects. Interest rates, regulatory challenges, and economic stability are now prominent topics influencing the sector’s trajectory, prompting FinTechs to adapt, innovate, and –in some cases– even pivot their business models.

Political and Regulatory Environment

The European Union has long recognized the potential of FinTech to revolutionize financial services, and over the past decade, EU policymakers have sought to create a regulatory framework that fosters innovation while ensuring consumer protection and financial stability. Key legislation, such as the Payment Services Directive 2 (PSD2), the General Data Protection Regulation (GDPR), and the upcoming Digital Operational Resilience Act (DORA), exemplify the EU’s approach to creating a cohesive FinTech ecosystem.

While PSD2 opened doors for data access, GDPR set strict guidelines on how this data can be used and stored. FinTechs are particularly affected, as they often rely on sensitive consumer data for their business models. Compliance costs are high, and non-compliance can lead to significant fines. Nevertheless, GDPR has contributed to building trust in digital finance, especially when compared to less-regulated markets outside Europe.

The Digital Operational Resilience Act, which aims to harmonise IT risk requirements across EU financial entities, is expected to come into force by 2025. For FinTechs, the mandate underscores the importance of robust cybersecurity measures. While compliance with DORA will require additional investment, it could benefit FinTechs in the long run by making them more resilient against cyber threats, which is increasingly crucial as more transactions move online.

A Shifting Landscape

Furthermore, interest rate fluctuations, influenced by the European Central Bank (ECB), have become a key factor shaping the future of FinTech in the EU. For several years, zero to low interest rates helped many FinTechs flourish. However, with inflation surging over past years, the ECB has initiated a series of rate hikes, marking the end of this era. This shift towards higher interest rates have brought renewed attention to savings and investment platforms. With higher returns on savings, consumers are more likely to explore investment opportunities, especially those offered by digital platforms. This trend could benefit FinTechs that focus on robo-advisory, investment tracking, or digital brokerage.

Inflation also affects transaction volumes and user spending patterns. FinTechs focused on payment solutions might see mixed impacts as rising consumer prices reduce spending impacting transaction volume. However, inflationary pressures might push more consumers to seek innovative, low-cost financial services, providing an opportunity for FinTechs to fill gaps where traditional banks charge high fees or are slow to adapt.

A challenging environment for FinTechs

Despite challenges, the EU FinTech sector shows resilience. FinTechs are responding to the changing landscape by diversifying their services, strengthening partnerships with traditional banks, and innovating in fields like cryptocurrency, blockchain, and decentralised finance (DeFi). However, geopolitical uncertainties and economic instability add complexity.

The EU FinTech sector has not been immune to the broader geopolitical challenges affecting Europe. These contribute to investor caution, and as a result, funding for FinTechs has slowed in recent quarters. Venture capitalists, once flush with enthusiasm for all things digital finance, are now more selective, focusing on sustainable growth over rapid scaling. FinTechs need to demonstrate resilience, a clear path to profitability, and strong regulatory compliance to attract funding in this environment.

Many FinTechs are increasingly exploring partnerships with established banks to navigate regulatory and funding challenges. Collaborations between banks and FinTechs allow the latter to leverage the infrastructure, customer trust, and compliance expertise of traditional institutions while offering the agility and innovation that banks often lack. This trend of “Fintegration” has accelerated with regulatory pressures and economic uncertainties.

The FinTech industry, represented in the European FinTech Association (EFA), is pushing for a number of initiatives to foster a framework for the benefit of consumers, companies and the entire European financial market. European consumers and businesses should be able to access and manage digital financial services effortlessly, empowering them to truly participate in the digital economy. To help them access affordable and simple to use products, the EU needs to provide a framework to ensure European FinTechs are able to scale up and offer cutting-edge financial products and services to position themselves as global leaders. With this, the EU could gain a leading global role in financial services.

Helping FinTechs to revolutionise financial services would lead to finally enforcing the Single Market, as also agreed upon in the entire union and asked for in both the Draghi and the Letta report. To make this happen, having proportionate regulation that supports fair competition and a level playing field are key and would lead to an increase of trust through transparency.

The Future of EU FinTech

The outlook for EU FinTech is filled with potential but also uncertainty. Economic recovery, inflation, interest rates, and a constantly evolving regulatory landscape will continue to influence how FinTechs operate, scale, and innovate. Policymakers play a pivotal role in shaping this environment, balancing support for innovation with the need to safeguard consumers and financial stability.

In the near term, FinTechs that can adapt to higher interest rates, demonstrate robust compliance with new regulations, and differentiate themselves in a competitive funding

market will likely emerge stronger. On a longer horizon, the EU FinTech sector will benefit from ongoing digital transformation, the rise of artificial intelligence in finance, and greater integration with the traditional financial system.

Ultimately, the European FinTech sector stands at a critical juncture. Those companies that navigate the current landscape with agility and strategic foresight are poised not only to survive but also to set new standards in digital finance innovation, driving financial inclusion, convenience, and transparency for millions across the continent.