From the MoneyConf stage at the Web Summit in Lisbon, Yusuf Ozdalga, partner and investor at QED, analyzes the challenges of European fintech: deeper capital markets are needed, along with greater investment in startups and a regulatory framework that can foster innovation.
Is European regulation slowing down the development of fintech? And above all, are the rules designed to protect consumers at risk of turning into a tool to safeguard traditional banks, limiting competition from startups?
These are some of the questions addressed during a panel on stage by Ozdalga, a partner at QED, a venture capital firm specializing in investments in the fintech sector.
His position is clear: regulation is not killing European fintech, but it is helping to create a competitive disadvantage compared to other global markets. The solution, however, is not simply to eliminate rules or make them less stringent.
Europe above all needs more effective regulation and a financial ecosystem capable of supporting innovative companies throughout their entire growth journey.
The problem of European fintech is not having too many rules
According to Ozdalga, the debate on European competitiveness often tends to focus excessively on the quantity of regulation, overlooking a broader issue: the system’s ability to finance startups.
For an investor like QED, which has built a $4.5 billion global fund dedicated to fintech, regulation certainly represents an additional layer of complexity. Financial companies, in fact, operate in a sector where regulatory compliance is indispensable.
Starting a fintech can be more costly and complicated than launching a traditional tech startup.
Yet, regulation can also become a competitive advantage.
Companies that manage to build their business model while complying with the rules can create barriers to entry that are difficult for competitors to overcome.
This is precisely why, according to Ozdalga, rules should not be seen exclusively as an obstacle: if managed correctly, they can help build stronger companies with more defensible market positions.
The challenge is to find the right balance between consumer protection and the ability to innovate.
Pensions and venture capital: Europe must make more capital flow
One of the most relevant points of the talk concerns the functioning of European capital markets .
For Ozdalga, the main reform Europe needs concerns precisely how investments and access to equity markets are regulated.
A startup ecosystem only works when there is a constant flow of capital at all stages of a company’s development: from the first seed rounds to growth rounds and subsequent transactions on public markets.
In Europe, however, this continuity is often difficult to guarantee.
The QED partner particularly emphasizes the need to make it easier for pension funds, institutional investors and individuals to allocate a larger share of their resources to equity markets and venture capital funds.
In this view, the European system tends to focus heavily on protecting consumers from the risk of losing money, whereas it should also do more to encourage an investment culture.
Equity investments naturally involve risks and can result in losses, but in the long term, especially through diversified instruments, they can contribute to wealth growth.
For Ozdalga, a cultural and regulatory shift is needed that would allow European citizens to participate more in the growth of innovative companies.
Stablecoins: Europe must compete with the United States
Another key topic of the panel was stablecoins and Europe’s ability to compete with the United States in this segment.
Ozdalga mentioned the American GENIUS Act, highlighting how the new U.S. regulatory framework has helped create favorable conditions for the development of the stablecoin market and for the growth of companies like Circle.
In his view, Europe should also make it easier not only to issue digital currencies, but above all to develop euro-denominated stablecoins capable of reaching an international scale.
The goal should not be merely to create digital financial instruments for the domestic market, but to build competitive products that can be used and exported to the rest of the world.
This is a strategic opportunity for Europe, which otherwise risks leaving the United States in the dominant role in the evolution of digital financial infrastructure.
Can traditional banks hinder fintechs?
During the discussion, another sensitive issue emerged: can rules designed to protect consumers end up mostly protecting large banks, making it harder for new players to enter the market?
Ozdalga’s answer is that the phenomenon exists, but varies significantly from country to country.
In some markets, traditional banking institutions have greater influence over regulators and can lobby to limit the growth of challenger banks, investment platforms and new financial operators.
Not all European regulation, however, has had negative effects on innovation.
Ozdalga recalled how initiatives such as PSD2 and open banking helped create the conditions for a new generation of fintech companies. Rules that, by opening access to banking data and services, allowed for the emergence of new business models and players able to compete with traditional institutions.
The point, therefore, is not to eliminate regulation, but to ensure that it genuinely promotes competition.
Startups must embrace regulation, but at the right time
Another interesting aspect concerns the relationship between startups and compliance.
According to Ozdalga, fintech companies can indeed turn regulatory compliance into an advantage, but they must do so with regard to the stage of development they are in.
For a pre-seed startup, with limited financial resources and a business model still to be validated, the priority must be to learn quickly, test the product and understand the market.
This does not mean ignoring the rules. It means avoiding investing time and resources too early in a compliance structure that is disproportionate to the size of the company.
The perspective changes as the company grows.
Ozdalga mentioned the case of startups that, in their Series B or Series C stages, ask themselves whether it is time to become a bank.
QED’s answer is generally positive over the long term, but with one caveat: this process must not be artificially accelerated.
Obtaining a banking license entails considerable costs and responsibilities. According to Ozdalga, the regulatory overhead alone can reach millions of dollars. A company must therefore reach sufficient economic scale and capital strength to sustain these costs before undertaking such a transformation.
Europe versus the United States: the real difference is capital
In comparing Europe with the United States, Ozdalga urges people to move beyond one of the most widespread beliefs: that American companies succeed simply because they operate in a less regulated environment.
The reality is more complex.
In the United States, launching certain financial activities, such as an insurance company, may require authorizations and compliance at the level of individual states as well as at the federal level. It is therefore not necessarily a simpler system from a regulatory standpoint.
The real difference, according to the QED partner, lies in the depth of capital markets and in entrepreneurial culture.
In the United States, there is greater availability of capital to finance companies in the various stages of development. Moreover, the failure of a startup is generally seen as part of the entrepreneurial journey, not as a stigma that can compromise a founder’s future opportunities.
In Europe, by contrast, there is still a lack of a sufficiently integrated and deep capital market to support the most promising companies all the way to an IPO.
Ozdalga nonetheless acknowledges the advantages of the European single market and passporting mechanisms, which allow authorized companies to operate in multiple countries without having to rebuild their regulatory pathway from scratch in each one.
Fragmentation remains a challenge, but it should not become a reason to give up on growth.
More growth capital to build the European fintech champions
When asked which single measure would give the greatest boost to European fintech, Ozdalga did not point to reducing rules or simply harmonizing regulation.
His answer was: more growth capital.
Europe needs deeper and more integrated capital markets that can support companies from the expansion phase through to stock market listing. More crossover investors are needed, able to fund private companies and also accompany them in their transition to public markets.
Furthermore, European equity markets must be ready to welcome fintech companies that do not necessarily resemble traditional banks, but which represent the future of financial services.
Ozdalga mentioned companies such as Revolut and Wise, highlighting how these companies can become interesting investments even for pension funds and institutional investors, thanks to their long-term vision of how the financial sector will evolve.
The concluding message addressed to European entrepreneurs is equally clear: they must not be afraid of regulation. They need to know it, understand its advantages and learn how to use it, without letting it become a brake on experimentation.
Europe’s real challenge is not simply to have fewer rules, but to build an ecosystem in which innovation, investment and capital markets can finally grow together.
