Why Europe trail North America with fintech deals count: and what does it mean

Significant liquidity pools revolve around North America, while in the EU the soundness of incumbent strategies as well as regulation constraints w.r to data management push banks to reinvent themselves through internal mechanisms.

A snippet published by CB Insights on the fintech deal count around the world stimulated this short analysis of what does this signify: whether this should be a wake-up call for the EU players or whether the numerical data signifies something else: a factual difference between what drives financial services innovation.

  1. US and EU financial services domains are very different: where the former had the laurel leaf with core banking automation, card processing, web banking, they were added as layers on top of existing processes: sometimes to save time, then codified into mythical rituals.
  2. US financial market is stymied by state-by-state legislation, hence most bank strategies are inherently local and they grow more often than not through M&A. EU is a different beast: having invested tons of effort into political cohesion based on common economic market, movement of goods and people, the landscape is more homogenised for national champions to scale from inside.
  3. The liberalised financial markets are still a factor to consider for emergence of super-funds: big institutionals have only recently started tapping into fintech through growth-stage after getting as much as possible from ecommerce and social media.
  4. Market gyrations is a factor: where US and fast-moving geographies promise good returns, EU is more balanced / regulated with banks playing a key role on how the market would move, hence more predictable narrative and aversion in terms of deals.
  5. PSD2 can add to the form and function of the fintech market, adding a healthy spurt for fintech consolidation in EU, when the models for account access and payment initiation are all tested and robust.
  6. GDPR, on the other side, is a detriment to the development of bank-fintech cooperation and hence a barrier for funds to become exhuberant: data processing laws give plenty of excuse for compliance offers to reign in over fintech champions: but would push banks themselves to invest into startups and see how banks can take then inside the demilitarised IT perimeter, hence continued investment in banking corporate VC funds.