How will the EU support fintech start-ups post global pandemic?
Financial technology is rapidly advancing across the globe and is the hottest start-up sector in Europe in terms of money raised. Indeed, an impressive $23 billion of venture money has flowed into fintechs since 2015. But how is the EU showing support for fintech start-ups?
Well, there’s been a whole lot of debate and discussion from the EU about how to proceed in the fintech world with rules and regulations being at the forefront. Progress has been made, with fintechs looking to benefit. Let’s find out more…
New harmonised crowdfunding laws to boost EU fintech industry
The EU fintech sector has hit the news a lot in recent months with the provisional political agreement between the European Parliament and the European Council regarding crowdfunding making headlines. To keep things simple, the harmonised proposal will support crowdfunding services in the fintech industry which will harness the growth of small fintech start-ups looking to secure investment.
European Crowdfunding Service Providers (ECSPs) will now be able to list offerings of €5 million within a 12-month period across the EU, instead of the previously proposed €1 million cap. This is good news for European entrepreneurs who are often in need of an alternative source of funding, other than bank loans.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People (a division of the European Commission) said, “An EU crowdfunding licence would help crowdfunding platforms scale up in Europe. This will allow investors to match up with companies from all over the EU, bringing more opportunities for firms and entrepreneurs to pitch their ideas to a wider base of investors.”
This regulation will essentially allow crowdfunding service providers to give SMEs, start-ups and innovative companies, particularly within the ever-growing fintech space, new opportunities and better access to finance that will boost the economy.
Facilitating the emergence of innovative business models across the EU
In the Fintech Action Plan from the European Commission, the value of fintech is clearly noted with the document stating: ‘New technologies are changing the financial industry and the way consumers and firms access services, creating opportunities for FinTech-based solutions to provide better access to finance and to improve financial inclusion for digitally connected citizens. It places customers in the driving seat, supports operational efficiency and increases further the competitiveness of the EU economy. FinTech is also important for the Capital Markets Union. It can help to deepen and broaden EU capital markets by integrating digitisation to change business models through data-driven solutions for example in asset management, investment intermediation and product distribution.’
The EU’s main challenge, however, was to support fintech start-ups while upholding regulatory requirements. To ensure businesses could progress in accordance with the law innovation hubs or regulatory sandboxes were established across 13 EU Member States. This allowed firms to access the markets quickly while getting to grips with supervisory expectations. On the other hand, supervisors could also get a better understanding of innovative business models. This showed a clear compromise from the EU to drive businesses forward while making sure fintechs were safe and legal.
Spain has enjoyed a recent fintech boom with the Spanish Association of Fintech and Insurtech playing a key role in pushing for the approval of a regulatory sandbox back in 2018. The purpose? To give fintechs the green light to test their innovations, without the risk of infringing on regulatory requirements.
Other European countries are also embracing the fintech movement, with French President Emmanuel Macron announcing a five-billion-euro investment last year to turn start-ups into tech giants. The specific goal was to have 25 fintech unicorns by the end of 2025.
With award-winning investment companies like 8topuz leading the fintech line-up, the industry looks set to steam ahead over the coming years backed by rigid yet compromising EU support.