New survey finds digital transformation divide in Europe’s banking industry

According to the survey, fund managers have rediscovered their optimism, and gloomy predictions of recession seem to have been narrowly avoided.

Against this backdrop, European fintech is finding its footing once more. Thanks to an exemplary combination of resilient financial hubs and the brightest minds of tech in the region, the continent has fostered an ecosystem that is truly world leading. Fintech is empowering better financial choices and modernising day-to-day banking for Europeans.

As the birthplace of the neobank, Europeans have taken fintech in their stride. Neobanks are now even outpacing legacy banks in app adoption in the region.

But while these indicators all appear positive, there are European nations that are yet to fully grasp the digital banking opportunity.

Europe’s digital growth story has regional differences. From Britain to the Balkans, there is a growing digital divide in a continent that is brimming with opportunity, but there is no onesize-fits-all when it comes to the European market.

Challenger banks are using innovative technology to provide countryspecific banking tools to suit the specifications of their consumers. And it’s not only neobanks that are ahead of the curve, incumbents are also seizing the opportunity to bridge the financial exclusion gap.

Each nation has distinct nuances to take into account, specific regulatory environments, infrastructure, talent pools, and not forgetting socioeconomic and cultural factors.

Europe’s digital divide is a product of typical characteristics: internet connectivity, digital literacy, the availability of smartphones and digital devices. Disparities in broadband access in urban and rural communities remain stubbornly persistent.

According to Eurostat, around 21 percent of rural households in the European Union do not have access to broadband internet, compared to only 2 percent of urban households.

In Romania, which ranked lowest on the EU’s Digital Economy and Society Index in 2022, the market is dominated by incumbent banks. Only 69.1 percent of adults hold a bank account, pointing to low levels of financial literacy and inclusion – underpinned by a preference for a cash economy.

In contrast, the UK has a rate of over 60 percent fintech adoption growth according to data from Tipalti, and Lithuania has established itself as an impressive fintech ecosystem backed by the nation’s central bank.

However, it is too simplistic to reduce the digital divide to regional disparities, as the starker differences lie between countries themselves. Navigating the regulatory architecture in each market is critical, regulators have shown they are not afraid to put pressure on those that seek to evade their parameters.

Supranational regulatory frameworks, such as the European Union’s Payment Services Directive (PSD2), aim to promote competition and innovation in the fintech sector while ensuring consumers’ data is protected. In the UK, the advent of the Kalifa Review in 2021 helped sharpen the focus on creating the regulatory conditions to enable growth in the sector.

There are a handful of national regulators in Europe that do not look too kindly on neobanks.