European FinTech: the next generation trend setter

The influence of the US on European culture 

There is no doubt that the US has been a bit of a trend setter over the years when it comes to the way Europe operates. Whether that be within imports and exports, retail and fashion, or real estate, what happens in the US is mirrored across Europe and the world. The US influencing trend has spread across all industries. 

Arguably however, it is the American technology companies that demonstrate most clearly the influencing trend from the US. The likes of Google, Apple, Facebook and Amazon – also known as GAFA, IBM, and Microsoft are amongst the most prominent tech companies that began in the US and went on to disrupt the world. Additionally, Silicon Valley has become widely known as the centre for innovative technology companies, with the San Francisco Bay area making up 40.2% of venture capital investment across the US.

European FinTech: reversing the trend

Despite the influence of the US, we are finding something quite different when exploring the way the FinTech market is evolving. European technological innovation is having a profound effect on the approach US companies are taking, reversing the well-known ‘cultural influencing trend.’ 

The financial landscape in the US is currently lagging behind in digital transformation when compared to the European technology market, with companies in the States looking to Europe for inspiration.  

But what is the reason behind the digital lag? In the US there is still a big focus on cash, cheques, and contactless payments currently only account for a fraction of card transactions. Furthermore, the Federal Reserve Bank of San Francisco highlighted that 30% of all consumer transactions in America are still paid in cash, with the average American writing 38 checks a year.  This is in stark contrast to the UK where we are seeing a trend towards a ‘cashless society,’ with 51% of the millennial population stating that they never use cash. In fact, a quarter (26.35%) of Brits find it irritating when card payments are not presented as an option when purchasing an item.

Research demonstrates that there is some way to go in order for the US to catch up with the European ‘cashless society’ model, but also the opportunity for FinTechs to capitalise on the new market potential to help US banks and financial institutions switch to digital. 

Neobanks to become the norm

The European financial services industry has matured over the last decade, with neobanks and challenger offerings becoming the norm.  We will begin to see the switch to digital more commonplace in the US, as the country moves away from traditional forms of banking towards a fully digitised online experience.  

We’ve already seen many examples of UK FinTechs and challenger banks influencing and capitalising on the US market opportunity of digital transformation within banking. For example, Revolut, a UK challenger bank with no physical branches, is beginning to build on their success in the UK by expanding its offering to target US customers with the launch of its first US banking cards in partnership with Mastercard. Quickly followed by Monzo, since its launch in 2015, the company has grown to become one of the most popular online banks in the UK, boasting more than 2 million users. Now, like a string of British success stories from the Beatles to James Corden, Monzo wants to try its luck in the US. 

The company announced it will roll out its service in the US, using live events in a handful of cities, with the hopes of driving interest and buzz. Monzo is partnering with Ohio-based Sutton Bank at first, but intends to apply for a US bank charter this year. If successful, it would be among the few banks chartered in the US since the 2008 financial crisis. 

Another trend reversal has been led by UK challenger bank OakNorth, closing a $440 million funding round with the SoftBank Vision Fund and the Clermont Group, as it sets sights on building out its international franchise. The key of OakNorth’s success has been the focus on the provision of loans for small businesses, positioning itself as a bank for entrepreneurs. The bank, which accepts deposits online, has leveraged its cloud-based technology‎ platform, machine learning techniques and artificial intelligence tools to build a £3.7 billion loan portfolio within four years of its launch. 

It’s clear that European FinTech innovation is having a huge impact on the way that US banks and financial institutions are operating within the current marketplace, and will continue to do so in the years to come. The current digital lag within the banking and finance industry, due to the popularity of traditional payment methods, presents a golden opportunity for European FinTech players to get ahead of the curve and build partnerships in anticipation for a fully digitised banking experience becoming the new norm.