As fintech continues to expand in use across the globe, it is natural that collations and bodies will be formed. These various bodies help to create uniformity in practices and to lobby for the interest of the industry through partnerships. One of the latest of these is the European Fintech Association (EFA).
Fintech in Europe Bands Together via EFA
A report from June 25, 2020, states that the newly formed association is working to united entities within fintech. The body itself is a combination of the EFAlliance and the FinTechs4Europe. Their goal is to provide a unified and organized approach to European Union policies.
There are a number of factors that necessitated the creation of the EFA. One of these is the European Commission declaring that they wish to initiate a new digital finance strategy. Besides this, the current business climate as a result of COVID-19 also brings about the need for fintech support.
The association is made up of prominent fintech firms not only in the European Union but some that operate in the UK as well. Board members have already been announced, and the inaugural President is Marc Roberts, General Counsel at Germany-based firm Raisin. The association’s stance on the policy has already been made known with the Position Paper on EU wide harmonization of Anti-Money Laundering (AML) and Know Your Customer (KYC) rules.
In the paper, it is noted that financial services within Europe are fragmented across borders. As such, certain issues that pose a challenge for cross-border transactions were identified, and possible solutions were recommended. With the European Union currently discussing financial strategy, such an organization uniting fintech across Europe is needed.
The Need for Fintech Unity in Europe
One of the most significant developments in the area of fintech is that of Central Bank Digital Currencies (CBDC). While many countries are developing their own tokens at different rates, it is important to note the place of interoperability. This is especially true of retail CBDCs.
The purpose of this currency is to not only encourage innovation but to address some of the pitfalls of fiat currencies. A digital version of an existing fiat currency, while remarkable in itself, should be easily spent in foreign regions. This will have benefits not just for citizens themselves but institutions as well.
First, CBDCs used across borders will help in the sharing of data between the various blockchains that manage the tokens. This includes locations of activity, patterns of spending, and so on. Besides this, older and archaic remittance systems can be removed.
This includes remittance systems like Western Union and the SWIFT protocol, which has been in use for years. However, to achieve this level of interoperability, uniform practices are necessary. The infrastructure behind the tokens would need to be similar, as well as the code languages and practices.
Another option would be a third-party intermediary between CBDC to ensure compliance. While most CBDCs are still in their early stages of development, the role of fintech in the future of European finance is evident. Now more than ever, organizations like the EFA are necessary.
Europe’s Developing FinTech Sector
Europe is fast becoming a prominent hub for fintech development. For instance, they have the largest security token ecosystem in the world. This is according to a study by The Frankfurt School Blockchain Center and BlockState.
Earlier this year, it was announced that the European Central Bank (ECB) has put together a CBDC task force to explore the possibilities around a CBDC. Both the feasibility and the possible side effects were to be explored. According to President Christine Lagarde, the ECB intends to play a significant role in the development of better payment transaction systems.
There is still work to be done in the sector, however. In June 2020, it was estimated that only one in five European fintech executives are women. This falls below the global average of female representation.
Do you think this new association can make a difference? Will the upcoming CBDCs be interoperable? Let us know your thoughts below.