Finovate Global Europe: Competition, Profitability, and a Reckoning Year for Regulation

Final week, Finovate International checked out how key tendencies are shaping fintech innovation within the UK. This week, our Friday column crosses the channel to think about essentially the most important forces shaping fintech innovation on the Continent, particularly amongst superior industrial economies within the West and Baltic north.

In our examination of the UK, we highlighted navigating regulatory complexity, accelerating technological transformation, and assembly rising buyer expectations as three key points dealing with banks and monetary providers suppliers there. These points are additionally vital to markets within the superior markets of Europe. Nevertheless, there are extra themes that distinguish the considerations of bankers in developed Europe from their colleagues in each the UK and the US.

Profitability and Competitiveness within the Shadow of NIRP

One of many challenges that European banks are nonetheless coping with is the legacy of destructive rates of interest. Simply because the US economic system was rising from its post-International Monetary Disaster (GFC)-initiated ZIRP or zero rate of interest coverage, the EU was plunging into what can be a seven-year experiment in destructive rates of interest (NIRP). A response to the specter of deflation within the wake of the International Monetary Disaster and, extra acutely, the sovereign debt disaster of 2010-2012, the EU’s NIRP coverage lasted longer and was extra excessive, with charges falling to -0.50%.

The impression on EU banks has been important. At the same time as rates of interest have normalized since NIRP resulted in 2022, web curiosity revenue for EU banks has remained squeezed, impeding profitability. Moreover, European banks undergo from structural challenges to higher profitability that stretch past the legacy of NIRP. Amongst them is one basic subject: there are numerous banks in Europe, arguably too many, all chasing too few prospects. Thought of on a per capita foundation, international locations akin to Germany, Austria, Switzerland, and Italy have a really giant variety of banks and comparable monetary establishments relative to their populations. By comparability, the UK is considerably much less “financial institution dense,” and even the US, which is commonly accused of getting “too many banks,” is taken into account solely reasonably financial institution dense.

Together with extra capability, problems with market fragmentation and excessive cost-to-income ratios all contribute to an atmosphere wherein attaining profitability as an EU financial institution stays a problem. Banks struggling to generate income typically hesitate to make the mandatory investments in know-how that may assist them attain new prospects, entry new markets, and supply new services and products.

A Extra Built-in Union? Overcoming Fragmentation to Allow Innovation

Each the EU and UK face challenges in the case of digital transformation. However the variations between the 2 areas are important and in some methods associated to the problems of market fragmentation that plague EU financial institution profitability. Relating to digital transformation and investing in know-how, fragmentation and variety between member states make the duty tougher and dearer. Bigger EU banks typically have country- and product-specific legacy cores—generally even totally different cores in-built a number of a long time. These legacy cores not solely fail to speak nicely with one another, but in addition typically exist in more and more outdated mainframe environments. Alternatively, smaller banks and monetary establishments within the EU typically merely can’t afford main core replacements.

Uneven improvement and country-specific challenges typically maintain again fintech innovation within the EU. Even the place the EU has successfully inspired innovation, akin to PSD2, which mandated open banking, adoption and implementation has diverse extensively by nation. Whereas open banking adoption charges in elements of Europe, such because the Baltics, are distinctive, many different international locations, together with Western European international locations like France, Germany, and Spain, have had extra modest charges of implementation. On this context, will probably be attention-grabbing to see how the totally different international locations embrace Wero, the brand new pan-European prompt funds and pockets scheme at the moment being launched all through the EU. Right here, international locations like France, Germany, and Belgium are experiencing sturdy implementation and person adoption tendencies, whereas others, together with Spain, Italy, and Switzerland are lagging.

How are among the different enabling improvements—akin to AI and DeFi—shaping banking and monetary providers in Western Europe? The European Banking Authority characterizes adoption of AI in its business as “widespread however cautious.” Unsurprisingly, use circumstances in customer support are the commonest, as is using AI to assist in AML/CFT screening. Along with customer support, streamlining inner workflows is one other common use case for AI amongst EU banks. Typically talking, the bigger markets of the EU—Germany, France, the Nordics—are experiencing essentially the most strong use of AI in banking and monetary providers.

The story is comparable with DeFi and blockchain know-how adoption in banking: the bigger international locations are likely to have extra banks engaged in actions akin to digital asset custody providers, tokenization, and commerce finance. One particularly attention-grabbing improvement is the pursuit of a euro stablecoin, an effort led by a consortium of EU banks together with ING, UniCredit, and SEB that’s anticipated to result in a MiCA-compliant euro stablecoin launch later this yr.

A Regulatory 12 months of Reckoning for Funds, Crypto, and AI within the EU

There may be quite a lot of regulatory occasions coming this yr. A few of them are the most recent chapters in insurance policies that have been enacted final yr, whereas others will make their compliance debut right here in 2026. With regard to the previous, rules akin to DORA (Digital Operational Resilience Regulation) which was handed in 2025 and offers with ICT, third-party, and operational threat, will proceed to have an effect as establishments look to make sure compliance with resilience necessities for governance, testing, and incident reporting. Components of the Basel III reforms, initially designed to assist fortify banks within the wake of the International Monetary Disaster, have been postponed from scheduled implementation this yr to 2027. Talking of postponements, one other important regulation, the Enhanced Operational Danger Reporting Deadline, has been moved ahead to June of this yr.

Different key regulatory developments to anticipate for EU banks and monetary providers suppliers embrace the rollout of latest cost rules together with PSD3, which focuses on licensing and institutional necessities, and PSR (Cost Providers Regulation), which offers with day-to-day operational points. PSD3, particularly, will probably be an vital mandate insofar because it seeks to appropriate numerous issues with the earlier open banking directive, PSD2. PSD3 options important pointers and necessities with regard to fraud prevention and legal responsibility, and likewise paves the best way for open finance.

What concerning the enabling applied sciences highlighted within the earlier part? With regard to DeFi and crypto, the Markets in Crypto-Belongings Regulation (MiCA) comes absolutely into impact in 2026. Among the many necessities are that cryptocurrency companies should have MiCA licenses to function by the center of the yr. Whereas this may handle centralized service suppliers (CASPs) within the DeFi market, it doesn’t particularly outline the parameters of DeFi, together with what providers ought to be topic to MiCA. This dialog will probably be key for EU policy-makers in 2026.

As for AI, 2026 will probably be a giant yr, as nicely. Enacted in 2024, the EU AI Act would require AI methods designated as “excessive threat” to stick to new pointers close to creditworthiness, mortgage origination, threat analysis, and automatic decisioning. Moreover, the Act would require these methods to make use of sturdy governance, threat administration documentation, transparency, human oversight, and high quality management. Notice that the Act categorizes AI methods by threat: minimal/no threat, which is nearly unregulated; restricted threat, the place compliance consists largely of transparency obligations; excessive threat, which is strictly regulated; and banned AI, which incorporates capabilities akin to social scoring by governments and real-time distant biometric identification. One other key improvement is the launch of nationwide AI regulatory sandboxes in every EU member state by August of this yr, as mandated by the Act. Right here, each Denmark and Spain have been credited as being forward of the sport when it comes to getting these initiatives underway.

Right here is our take a look at fintech innovation world wide.

Asia-Pacific

Singapore-based Airwallex acquired Paynuri in bid to enter the South Korean market.

Indonesian fintech UangCermat raised $26.4 million in a mix of fairness and credit score services.

Vietnam introduced that crypto companies that wish to take part within the nation’s pilot digital asset market will want a minimal capitalization of VND 10 trillion ($400 million).

Sub-Saharan Africa

Cost software program agency Akurateco cast a strategic partnership with African digital funds service supplier Payaza.

Two South African fintechs—Johannesburg’s RelyComply and Cape City’s Ozow—teamed as much as improve safety for digital funds within the nation.

The Africa Report profiled SycaPay, the primary fintech to be licensed by the Central Financial institution of West African States (BCEAO).

Central and Japanese Europe

German KYB/KYC lifecycle administration platform Sinpex raised €10 million in Sequence A financing.

Greece-based Epirus Financial institution teamed up with NCR Atleos to modernize and broaden its ATM community.

Berlin-based local weather fintech Cloover secured a $1.2 billion debt facility and raised $22 million in Sequence A funding.

Center East and Northern Africa

PayPal acquired Israel-based agentic commerce innovator Cymbio.

Monetary infrastructure and cost options supplier Montran opened a brand new workplace in Dubai.

Saudi Arabia’s EdfaPay, a cost infrastructure options firm, secured approval to launch SmartPOS service within the Kingdom.

Central and Southern Asia

Indian digital funds large PhonePe secured approval from the nation’s monetary regulator to launch an IPO, slated for mid-2026.

Pakistan-based fintech Neem raised an undisclosed sum in Pre-Sequence A funding in a spherical that featured participation from Epic Angels, the biggest all-female funding collective on this planet.

Kazakhstan enacted a variety of latest legal guidelines to control digital property and to permit banks to broaden into fintech, AI, and digital funds infrastructure.