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.