Digital banking start-ups yet to catch up in Europe

Germany: The digital start-ups in the European banking sector are still finding it difficult to explore the huge business potential of the European Union (EU). However, their limited size of operations is the major hurdle to strengthen the base in the EU. The other major hurdles for digital start-ups include regulatory barriers and risk-averse customers in the EU. Digital start-ups are small in size and not in a position compete with the major brands.

However, their limited size of operations is the major hurdle to strengthen the base in the EU. The other major hurdles for digital start-ups include regulatory barriers and risk-averse customers in the EU.

The global technology giants have barely started exploring the financial pitch. Apple and Google have already been implementing mobile payment tools for their subscribers. Facebook users can also send money to friends through Messenger. Amazon is pitching student loans in partnership with Wells Fargo, but they’re not exactly setting the financial world on fire. In Asian markets, WeChat and Tencent are being used to pay for everything from rent to a taxi, while Alibaba is running mutual funds too.

Generally a much more potent player would be emerged when the small digital start-ups join forces with big brands in the world of telecom and media. The threat sharpens as big tech wades ever further in. Germany is poised to witness such move in upstart finance, where a new mobile banking service from phone carrier Telefonica will offer checking accounts, a free MasterCard and small instant loans.

Germany is poised to witness such move in upstart finance, where a new mobile banking service from phone carrier Telefonica will offer checking accounts, a free MasterCard and small instant loans.

Bloomberg reports that Telefonica’s partnering with digital bank Fidor, effectively using its license as a springboard for financial services. It’s a deal that makes sense on both sides. Telefonica ensures customer loyalty while maybe gaining a bit of revenue. Fidor needs scale its customer base of around 100,000 in Germany is hardly the stuff of nightmares for. Commerzbank and its 16 million individual customers. But Telefonica’s 43 million customers is a different ballgame.

By combining strengths, digital start-ups can skip some hurdles. It would take time and money for Fidor to keep growing its user base alone. The bank’s gimmicks such as offering more lucrative interest rates based on the amount of Facebook ‘likes’ it gets won’t get it very far. And for Telefonica, the deal bypasses the strain of going it alone or partnering with an incumbent that might be less user-friendly or mobile-focused.

Telecoms’ previous forays into finance have been mixed. Vodafone’s early experiments with mobile payments in Africa were a big success. US carrier T-Mobile started offering pre-paid debit cards and money transfers to customers in 2014, and ended the service this month because it faced too many competitors.

Big global banking groups don’t need to start quaking in their boots, yet. The biggest risk comes when technology heavyweights like Google, Apple or Amazon really start to zero in on their business.