Fintech in Europe: Promises and Threats

36 Pages Posted: 5 Jan 2021

See all articles by Chikako Baba

Chikako Baba

International Monetary Fund (IMF)

Cristina Batog

affiliation not provided to SSRN

Enrique Flores

International Monetary Fund (IMF)

Borja Gracia

Yale University

Izabela Karpowicz

International Monetary Fund (IMF)

Piotr Kopyrski

affiliation not provided to SSRN

James Roaf

International Monetary Fund (IMF)

Anna Shabunina

International Monetary Fund (IMF)

Rachel van Elkan

International Monetary Fund (IMF)

Xin Cindy Xu

International Monetary Fund (IMF)

Date Written: November 2020

Abstract

Europe's high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries, although cross-border and pan-euro area instruments are not yet widespread, notwithstanding important enabling EU level regulation and the establishment of instant payments by the ECB. Automated lending models are developing but remain limited mainly to unsecured consumer lending. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand. Meanwhile, competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition, thereby causing them to increasingly resemble balanced sheet-based fintech companies. These developments could improve the efficiency and reach of financial intermediation while also adding to profitability pressures for some banks. Although the COVID-19 pandemic could call into question the viability of platform-based lending fintechs funding models given that investors could face much higher delinquencies, it may also offer growth opportunities to those fintechs that are positioned to take advantage of the ongoing structural shift in demand toward virtual finance.

JEL Classification: G20, G21, G23, G28, E42, O30, H83

Suggested Citation

Baba, Chikako and Batog, Cristina and Flores, Enrique and Gracia, Borja and Karpowicz, Izabela and Kopyrski, Piotr and Roaf, James and Shabunina, Anna and Elkan, Rachel van and Xu, Xin Cindy, Fintech in Europe: Promises and Threats (November 2020). IMF Working Paper No. 20/241, Available at SSRN: https://ssrn.com/abstract=3758074

Chikako Baba

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Cristina Batog

affiliation not provided to SSRN

Enrique Flores

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Borja Gracia

Yale University ( email )

New Haven, CT 06520
United States

Izabela Karpowicz

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Piotr Kopyrski

affiliation not provided to SSRN

James Roaf (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Anna Shabunina

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rachel van Elkan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Xin Cindy Xu

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

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