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Fintech and EU national debt 

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How does the EU’s national debt impact the Fintech ecosystem?

The fate of Europe’s financial future is at a crossroads. 

Roughly a decade after its first debt crisis, Europe is facing a new debt problem, fueled by Covid-19, relatively inefficient policy and the war in Ukraine. Whether newcomers in FinTech can bear this remains to be seen.

The European Financial Decline and National Debt

Ever since the Great Recession, the European financial sector has been at a relatively competitive disadvantage. The pandemic, in addition to the zone’s famous low interest rate environment and high regulatory burden, has increased risk and lowered profitability as concluded by the European Banking Authority (EBA) [1]. Similarly, whilst other regions are seeing a more robust comeback, the IMF notes that the European financial sector faces comparatively lower returns on equity [2]. It also seems that the higher the national debt level, the worse the country’s financial performance. According to the IMF, countries with higher national debt have higher banking sector instability, most likely due to investors and depositors concerned of the risk of default [3]. Likewise, the European Central Bank (ECB) has noted that high levels of government debt have made it more difficult for governments to support the sector itself [4].


While the national debt is not the sole reason for the European financial sector’s poorer performance, it does create an uncomfortable drag for each regional financial firm. After all, unsustainable debt does not appeal to investors. But how does it impact Fintech?   

National debt and Fintech

The region’s strongest Fintech performers, as seen below, equally have some of the lowest deficits. McKinsey predicts that if others followed similar performances, the number of jobs in the region could grow by a factor of 2.7 to over 364,000; the volume of funding could double to around €150 billion from today’s €63 billion; and valuations could approximately double to almost €1 trillion, which is almost twice the combined market capitalisations of Europe’s top ten banking players as of June 2022 [5]

Best Fintech performers [5] and their budget deficits [6]

Despite unprecedented debt, the European Fintech ecosystem can flourish, provided it continues to offer innovative and efficient financial services, which are in ever-greater demand. According to the European Banking Authority, the share of Europeans using at least one Fintech product has nearly doubled from 2018 to 2021 [7]. Today, European Fintech firms are worth twice as much as their counterparts elsewhere [8], supporting that Europe’s financial sector will likely face an economic resurgence before a waning decline.

The Union’s political power need not be underestimated either. The Payment Services Directive (PSD2) [9] and the European Electronic Communications Code (EECC) [10] all aim to spur a new wave of financial innovation, competition and investment.

The European Fintech market is near €2.1 trillion, with most future predictions resembling figures over double today’s worth. A report by KPMG [11] still demonstrates the industry’s continuous quarterly growth levels. Despite high national debt levels, another report by PWC [12] indicates that the Fintech ecosystem is still showing its true resilience and persistent demand.

What to bear in mind for the long-term

But this may not be the case in the long-term. Europe is ahead of others today, but its future is equally dependent on the region’s overall economic performance. Even if the national debt improves and investors rekindle their optimism towards European markets, one should still remember the competition from Silicon Valley, Beijing, Mumbai, and Singapore [13].

And so, this is where Europe is at a crossroads: to be the leading Fintech industry or not.

The American journalist, H.L. Mencken once declared that there are two Europeans: “The smart ones, and those who stayed behind.” If investors and regulators in Europe choose a vision of realistic optimism before a return to critical pessimism, then perhaps the former can be said about Europe’s already-transforming financial sector and Fintech ecosystem. 

Written by Iñigo Sancho, Chief Research Officer at KJC



[1] European Banking Authority

[2] International Monetary Fund

[3] International Monetary Fund

[4] European Central Bank

[5] McKinsey & Company

[6] Euronews

[7] European Banking Authority

[8] Mordor Intelligence

[9] European Central Bank

[10] European Commission

[11] KPMG

[12] PWC

[13] Kapronasia

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