The Agile Future of Digital Finance in Europe

The Digital Finance Outreach 2020 is an initiative launched by the European Union to better understand, foster and stimulate the FinTech ecosystem across the bloc. An essential part of the programme is a series of events – organised in collaboration with all Member States – aimed at engaging the community and preparing the new EU Digital Finance Strategy. Originally planned as traditional in-person events that would take place between February and June 2020, they were moved to a digital setting due to the current lockdown. 

On May 14th it was Ireland’s turn to host its national event in the outreach series. The topic of Fintech innovation is one of particular interest in the Emerald Isle. In fact, as mentioned during the welcome remarks by Paschal Donohoe TD, Ireland’s Minister for Finance, financial services have always been a critical pillar of the modern Irish economy.  

A recent FinTech 50 Report by government agency Enterprise Ireland highlights how more than 250 of the world’s largest financial services players operate in Ireland, including half of the world’s top 50 banks and more than 230 insurance companies. For a country with a population of less than five million, having 44,000 people directly employed in the FS sector is very significant. 

The virtual event featured an inspiring panel discussion moderated by Dr Paul Ryan of Ireland’s Department of Finance, where I had the pleasure of taking part alongside Ruth McCarthy (CEO of FEXCO) and Ken DeGiglio (CIO of EquiLend). 

One of key topics that emerged during the discussion was the importance of developing one digital identity scheme for the whole European single market to accelerate cross-border growth in financial services. Although individual member states have tried – and sometimes succeeded, like in the case of Sweden – to introduce such schemes for their citizens, there hasn’t been any real attempt to introduce a multi-national programme. If properly implemented, such a scheme – especially if available not only for individuals but also for legal entities – would nurture secure provision of non-face-to-face financial services at an unprecedented scale, fostering much higher levels of competition and innovation.  

Similarly, a more cohesive approach to financial regulation across the bloc is needed. Taking anti-money laundering requirements as an example, past implementations of directives on a national level have been sufficiently different to fragment the European financial services market and skew competition. As an example, the transposition of AMLD4 and AMLD5 into German law resulted in a series of remote identity verification requirements – including live video conferencing – that differ greatly from the ones required in other countries in the Union. Consequently, if an Irish or French company wants to sell financial products in Germany, it needs to include additional verification methods within its onboarding process. The status quo basically precludes FinTech firms in these markets from penetrating the German ecosystem. 

The topic of regulators’ engagement with up and coming as well as established players was another interesting take-away from the panel discussion. In fact, all stakeholders have a lot to gain if regulators engage more substantially with FinTechs to investigate their needs and modus operandi. By becoming better acquainted with digital-first processes and AI-powered authentication methods, regulators in Europe can update existing requirements to reflect different types of company set-ups, driving innovation and efficiency among traditional players while limiting the use of paper-based and manual-processes that put businesses at risk. 

Interestingly, by encouraging RegTech adoption among their regulated entities, regulators can introduce even more stringent requirements which can only be met through an intelligent use of automation. The result would be a win-win-win situation: the bloc’s financial system would be better protected from criminal activity, innovative players in the FinTech space would grow at a faster rate, and traditional financial institutions would reduce costs and inefficiencies through digital transformation. 

Another issue discussed during the panel – which is surely keeping many European entrepreneurs up at night – is the problem of access to capital across the continent. Only the soon-to-be-leaving UK are a truly global-scale player in the Venture Capital market. While the importance of government agencies such as Enterprise Ireland – which is now the largest early stage investor in Europe – is undeniable, similar policies on a European level would boost the Union’s FinTech sector exponentially. 

At last, the session landed on the often overlooked importance of agility in financial services. The current COVID-19 pandemic has shown that agile and resilient players which can adapt quickly to the unexpected have a much better chance of surviving and even growing in times of uncertainty. Once the storm has passed, it is likely that agility will be the driving force behind long-term stability in financial services, in Europe and across the world.

Every member state is hosting Digital Finance Outreach events over the next few weeks as part of an EU-wide consultation on the future of FinTech. Click here for the full list of upcoming events.