By Roberts Lasovskis, investment platform lead at peer-to-peer lender TWINO
From Brexit to the rise of nationalist governments across the continent, Europe has demonstrated an increased appetite for political protectionism. However, despite this trend of countries moving away from globalisation towards a more inward-looking focus, if Europe’s fintechs want to successfully compete with US and Chinese counterparts, they must continue to look internationally both within and outside of Europe.
A new generation of European fintechs are already heading in this direction. UK challenger bank Monzo has achieved significant success over the last year, with plans to expand to North America as well. Similarly, many fintech businesses are creating multi-market strategies right from the outset. In addition to plans to branch out their portfolios and product offerings, the most successful fintechs are developing a global outlook as geographical diversification becomes more important.
Growing across different markets brings with it a huge number of additional operational challenges and considerations. Where investor capital is concerned, data security is always the top priority – the international investment community has become far more aware of the risks of data breaches and the importance of cyber-security, but each country has its own specific requirements and regulations for protecting customer data and capital.
The widely varying requirements make it more challenging for some fintechs to expand operations internationally. Take the peer-to-peer lending market – as it stands, there is currently no unified reporting metric for the lending market. The peer-to-peer lending market has grown significantly over the past few years – the number of consumer peer-to-peer loans alone is now predicted to reach 36.6 million by 2023. However, it is still difficult for investors and lenders to evaluate and compare opportunities in different markets.
Regulation is not static and will continue to develop with the maturation of the industry. However, it is important for regulators to align across markets where they can, to ensure fintechs have the best possible chance to thrive internationally and promote diversification for their customers. Despite the vast growth in the lending market, problems have arisen through country-specific laws. Regulation varies quite significantly from country to country, with many developing their own bespoke approach to lending. In Austria, for example, the law requires lenders to use subordinated loans. In Germany, non-bank lenders require a partner bank to lend to consumers and in Spain, regulations are practically non-existent by comparison.
In order to streamline laws across the EU and beyond, regulations need to become more standardised. We’ve already seen good progress here – PSD2 has helped financial services institutions share customer data safely and easily across European markets, and banks have the ability to passport and provide financial services to customers in another EU member state, thanks to financial passporting rights. However, these licenses don’t yet exist for peer-to-peer lenders, and should be implemented in the future to allow trustworthy and innovative lenders to scale up their business.
Two of the most influential countries in the P2P market, Germany and France, are leading the charge towards regulatory alignment. French president Emmanuel Macron’s stance on deregulation and the reformation of labour laws have been a key component of his presidency, while Germany has championed the single digital market consistently, as its financial services industry grows at an unprecedented rate. And unification within the fintech market doesn’t mean regulations should become any less strict – the fintech community must embrace new regulations over and above all, but the more consistency there is across government and financial bodies the easier it will be for fintechs to scale internationally.
Looking beyond Europe
The European single market gives lenders and fintech businesses the best possible opportunity to operate across markets on the continent. There are plenty of opportunities beyond the European Union as well: Russia and Kazakhstan, for example, present exciting opportunities for investors and lenders alike.
Moreover, regions like South East Asia offer an exciting chance for lenders to bring financial technology to a vast market of customers that are under-served by traditional financial services. A mere 30% of the Vietnamese population hold a bank account, highlighting the need for more banks and lenders within the region. As a result, an increasing number of European fintechs, including TWINO and VIA SMS Group, are launching operations in Vietnam and South East Asia so their investors can benefit from the high-growth lending opportunities and stronger return rates in these regions.
When it comes to fintech, introspection definitely isn’t the answer. If the operational challenges can be overcome, expanding across different markets presents a real opportunity for the sector. Standardising regulations across Europe will help fintechs to expand successfully within the continent, and truly ambitious businesses should look beyond Europe to emerging markets for new investment opportunities.