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 contemplate probably the most vital 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 companies suppliers there. These points are additionally vital to markets within the superior markets of Europe. Nonetheless, there are extra themes that distinguish the issues 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 unfavorable rates of interest. Simply because the US financial 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 unfavorable 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 affect on EU banks has been vital. Whilst rates of interest have normalized since NIRP led to 2022, internet curiosity earnings for EU banks has remained squeezed, impeding profitability. Moreover, European banks endure from structural challenges to larger profitability that stretch past the legacy of NIRP. Amongst them is one basic problem: there are numerous banks in Europe, arguably too many, all chasing too few clients. Thought-about on a per capita foundation, international locations akin to Germany, Austria, Switzerland, and Italy have a really massive 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 usually 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 setting through which attaining profitability as an EU financial institution stays a problem. Banks struggling to earn cash usually hesitate to make the required investments in expertise that may assist them attain new clients, entry new markets, and provide new services.

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

Each the EU and UK face challenges in relation to digital transformation. However the variations between the 2 areas are vital and in some methods associated to the problems of market fragmentation that plague EU financial institution profitability. With regards to digital transformation and investing in expertise, fragmentation and variety between member states make the duty harder and dearer. Bigger EU banks usually have country- and product-specific legacy cores—generally even totally different cores inbuilt a number of many years. These legacy cores not solely fail to speak properly with one another, but additionally usually exist in more and more outdated mainframe environments. However, smaller banks and monetary establishments within the EU usually merely can’t afford main core replacements.

Uneven improvement and country-specific challenges usually 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 various extensively by nation. Whereas open banking adoption charges in components 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, it is going to be fascinating to see how the totally different international locations embrace Wero, the brand new pan-European instantaneous funds and pockets scheme at the moment being launched all through the EU. Right here, international locations like France, Germany, and Belgium are experiencing robust implementation and person adoption tendencies, whereas others, together with Spain, Italy, and Switzerland are lagging.

How are a number of the different enabling improvements—akin to AI and DeFi—shaping banking and monetary companies in Western Europe? The European Banking Authority characterizes adoption of AI in its trade as “widespread however cautious.” Unsurprisingly, use instances in customer support are the commonest, as is the usage of AI to assist in AML/CFT screening. Along with customer support, streamlining inside workflows is one other widespread use case for AI amongst EU banks. Typically talking, the bigger markets of the EU—Germany, France, the Nordics—are experiencing probably the most sturdy use of AI in banking and monetary companies.

The story is analogous with DeFi and blockchain expertise adoption in banking: the bigger international locations are likely to have extra banks engaged in actions akin to digital asset custody companies, tokenization, and commerce finance. One particularly fascinating 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 12 months.

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

There’s quite a lot of regulatory occasions coming this 12 months. A few of them are the newest chapters in insurance policies that had been enacted final 12 months, whereas others will make their compliance debut right here in 2026. With regard to the previous, laws 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 12 months to 2027. Talking of postponements, one other vital regulation, the Enhanced Operational Threat Reporting Deadline, has been moved ahead to June of this 12 months.

Different key regulatory developments to anticipate for EU banks and monetary companies suppliers embrace the rollout of recent fee laws together with PSD3, which focuses on licensing and institutional necessities, and PSR (Fee Companies Regulation), which offers with day-to-day operational points. PSD3, particularly, will likely be an vital mandate insofar because it seeks to appropriate a variety of issues with the earlier open banking directive, PSD2. PSD3 options vital tips and necessities with regard to fraud prevention and legal responsibility, and likewise paves the way in which for open finance.

What in regards to the enabling applied sciences highlighted within the earlier part? With regard to DeFi and crypto, the Markets in Crypto-Property Regulation (MiCA) comes totally into impact in 2026. Among the many necessities are that cryptocurrency corporations will need to have MiCA licenses to function by the center of the 12 months. Whereas this can deal with centralized service suppliers (CASPs) within the DeFi market, it doesn’t particularly outline the parameters of DeFi, together with what companies needs to be topic to MiCA. This dialog will likely be key for EU policy-makers in 2026.

As for AI, 2026 will likely be an enormous 12 months, as properly. Enacted in 2024, the EU AI Act would require AI techniques designated as “excessive threat” to stick to new tips on the subject of creditworthiness, mortgage origination, threat analysis, and automatic decisioning. Moreover, the Act would require these techniques to make use of robust governance, threat administration documentation, transparency, human oversight, and high quality management. Word that the Act categorizes AI techniques 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 12 months, 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 all over the world.

Asia-Pacific

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

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

Vietnam introduced that crypto corporations that need 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

Fee software program agency Akurateco solid 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 fee options supplier Montran opened a brand new workplace in Dubai.

Saudi Arabia’s EdfaPay, a fee 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 spread of recent legal guidelines to manage digital property and to permit banks to broaden into fintech, AI, and digital funds infrastructure.