{
  "title": "Fintech in Europe: Promises and Threats",
  "publication": "IMF Working Papers, November 13, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/11/13/fintech-in-europe-promises-and-threats-49859",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Europe’s high pre-existing level of financial development helps explain the relatively smaller reach of fintech payment and lending activities compared to some other regions.\n- Fintech activity in Europe is growing rapidly, with important developments in digital payments, automated lending models, and the strategic evolution of fintech firms and traditional banks."
    },
    {
      "heading": "Payments",
      "content": "- Digital payment schemes are expanding within countries.\n- Cross-border and pan-euro area payment instruments are not yet widespread despite:\n  - Enabling EU level regulation.\n  - The establishment of instant payments by the ECB."
    },
    {
      "heading": "Lending and business models",
      "content": "- Automated lending models are developing but remain limited mainly to unsecured consumer lending.\n- Two principal fintech business model trajectories are identified:\n  - Platform-based approaches operating under minimal regulation and relying on investor funding.\n  - Balance-sheet-based fintechs that acquire balance sheets and banking licenses as they expand."
    },
    {
      "heading": "Banking response and market structure",
      "content": "- Competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition.\n- As banks adopt these instruments, they increasingly resemble balance-sheet-based fintech companies.\n- Potential effects:\n  - Improved efficiency and reach of financial intermediation.\n  - Increased profitability pressures for some banks."
    },
    {
      "heading": "COVID-19 implications",
      "content": "- The COVID-19 pandemic could:\n  - Call into question the viability of platform-based lending fintechs’ funding models, given that investors could face much higher delinquencies.\n  - Offer growth opportunities to fintechs positioned to take advantage of the ongoing structural shift in demand toward virtual finance."
    },
    {
      "heading": "Key themes and risks",
      "content": "- Expansion of domestic digital payments vs. limited cross-border integration in the euro area.\n- Growth of automated unsecured consumer lending, but constrained scope.\n- Regulatory and structural shift as fintechs move toward balance-sheet activities and banking licenses.\n- Dual impact of fintech adoption on traditional banks: competitive pressure and possible efficiency gains.\n- Pandemic-driven stress tests for funding and credit models, especially for platform-based lenders.\n\nSource: Fintech in Europe: Promises and Threats — https://www.imf.org/en/publications/wp/issues/2020/11/13/fintech-in-europe-promises-and-threats-49859\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/11/13/fintech-in-europe-promises-and-threats-49859"
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    "Authors: Chikako Baba, Cristina Batog, Enrique Flores, Borja Gracia, Izabela Karpowicz, Piotr Kopyrski, James Roaf, Anna Shabunina",
    "Published: November 13, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513561165.001",
    "Europe’s high pre-existing level of financial development helps explain the relatively smaller reach of fintech payment and lending activities compared to some other regions.",
    "Fintech activity in Europe is growing rapidly, with important developments in digital payments, automated lending models, and the strategic evolution of fintech firms and traditional banks.",
    "Digital payment schemes are expanding within countries.",
    "Cross-border and pan-euro area payment instruments are not yet widespread despite:",
    "Automated lending models are developing but remain limited mainly to unsecured consumer lending.",
    "Two principal fintech business model trajectories are identified:",
    "Competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition.",
    "As banks adopt these instruments, they increasingly resemble balance-sheet-based fintech companies.",
    "Potential effects:",
    "The COVID-19 pandemic could:",
    "Expansion of domestic digital payments vs. limited cross-border integration in the euro area.",
    "Growth of automated unsecured consumer lending, but constrained scope.",
    "Regulatory and structural shift as fintechs move toward balance-sheet activities and banking licenses.",
    "Dual impact of fintech adoption on traditional banks: competitive pressure and possible efficiency gains.",
    "Pandemic-driven stress tests for funding and credit models, especially for platform-based lenders.",
    "**Working Paper**"
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