Traditional banks have won the first battle with fintech companies, but Cyprus must speed up regulatory procedures, cut bureaucracy and attract skilled workers if it wants to compete in digital finance, the Forbes Cyprus Next Gen Banking & Fintech Summit heard on Tuesday.
London Business School professor Costas Markides told the gathering in Limassol that fintech companies had transformed financial services without displacing established lenders. Instead, banks had adapted to the competition by investing in technology, working with fintech firms and buying some of their rivals.
Over the past two decades, fintech providers have gained ground in payments, foreign exchange and digital investment services by making transactions quicker, cheaper and easier. Traditional banks, however, have retained their advantage in mortgages, business lending and wealth management.
Markides pointed to Revolut as an example of the challenge facing digital providers. Many consumers, particularly younger customers, use fintech accounts for everyday spending but still have their salaries paid into traditional banks and turn to those lenders when they need a mortgage.
The next battle, he argued, will be over the primary bank account. Although a few fintech companies could make that transition, he expected most to remain specialised providers operating alongside conventional banks.
Access to capital was another obstacle. Traditional banks already have substantial deposit bases and the financial resources to support lending and absorb risks, while fintech companies seeking to offer a full range of banking services face much higher funding requirements.
Markides cited Belgium’s KBC as an example of a traditional lender using digital technology and artificial intelligence to improve customer service and speed up operations. The advantage, he argued, would come not simply from having new technology but from finding a business model capable of competing at scale.
He also warned that the greater long-term threat to banks could come from technology groups such as Apple and Amazon. By controlling digital platforms and customer relationships, they could sell financial products through partner banks while leaving those banks with a smaller role in dealing directly with customers. Stablecoins and artificial intelligence could add further pressure, although established lenders can adopt those technologies too.
For Cyprus, the debate turned to whether its regulators, public services and workforce can keep pace with the changes. In a panel on how a small island can compete, Central Bank (CBC) governor Christodoulos Patsalides said the country’s banking system was in a considerably stronger position than it had been after the 2013 financial crisis.
He pointed to higher capital adequacy, ample liquidity, improved profitability and a sharp reduction in non-performing loans. Those buffers, together with good corporate governance, were essential to preserving confidence and allowing banks to withstand external shocks, he said.
Patsalides also emphasised the Central Bank’s Innovation Hub and its preliminary engagement process, through which businesses can discuss supervisory expectations before lodging a formal licence application. His message was that faster decisions matter, but not at the expense of the quality of supervision.
Cyprus Securities and Exchange Commission (CySEC) chairman George Karatzias made a similar point, citing closer scrutiny of higher-risk activities and enforcement action where necessary. The commission had imposed fines, suspended licences and withdrawn authorisations to protect investors and maintain confidence in the market, he said.
Invest Cyprus chairman Evgenios Evgeniou, however, drew a distinction between strict rules and uncertainty. Businesses can plan around demanding regulation, he argued, but need clear requirements and timely answers, particularly if they intend to test products in Cyprus before expanding across the European Union.
Evgeniou said the wider technology sector contributed approximately 14 to 15 per cent of GDP, depending on how it was measured. However, he stressed that the goal was not simply to register more companies on the island. Cyprus needed businesses that established real operations, recruited staff and developed activities locally.
In some cases, he said, companies had completed their establishment in Cyprus within five weeks of deciding to move, although that period did not include the time needed for regulatory approvals.
Deputy Minister of Research, Innovation and Digital Policy Nicodemos Damianou said attracting those businesses also depended on access to engineers, artificial intelligence specialists and other highly qualified staff. International firms examined both the available talent pool and the country’s long-term economic plans before committing to an investment.
Damianou acknowledged that digitising government services was not enough if the procedures behind them remained unnecessarily complicated. He said new digital services covering areas including civil records, social welfare and social insurance had been used more than 250,000 times over the previous 12 to 18 months.
He also referred to the Business Support Centre, which coordinates administrative procedures for companies seeking to establish or expand their operations in Cyprus. Simplifying those procedures, he said, was as important as moving them online.