Panayiotis Rougalas
Cyprus has built a foothold in payments. Whether it can use that strength to establish itself as a European fintech hub will depend on how it tackles some of the barriers that still make it hard to do business across the EU, Lucia Pecchini, secretary-general of the European FinTech Association (EFA), told Kathimerini.
Speaking on the sidelines of the 22nd Economist summit in Nicosia, where Kathimerini Cyprus was a media sponsor, Pecchini said the EFA strongly supports rigorous oversight. The association wants national rules to stay closely aligned with the EU’s common framework, without extra requirements that go beyond it, a practice known as “gold-plating.”
Whether Cyprus establishes itself as a European fintech hub or remains an outlier in payments depends on how it tackles some of the biggest barriers in the EU’s single market.
In the interview, Pecchini discusses the EU’s proposed payments rules, the rollout of its crypto regulation, where banks and fintechs should work together, and what a growing stack of rules means for firms using artificial intelligence.
Ms. Pecchini, preliminary research presented in Nicosia suggests Cyprus has nearly 200 fintech companies, about 55% of them working in payments. Yet founders keep raising concerns about regulation, finding staff and building trust. From Brussels, does Cyprus look like a genuine EU fintech hub, or is it still an outlier in payments?
From Brussels, the fact that more than half of Cyprus’ roughly 200 fintech companies focus on payments shows how deeply real-time payments are now woven into the digital economy. Whether Cyprus becomes an established European hub or remains an outlier in payments depends on how it deals with some of the biggest barriers in the single market.
First, expanding across borders under the EU’s “passporting” system is still harder than it should be. The system allows firms licensed in one EU country to operate in others, but they still face different national rules and extra compliance work in each market. That can mean registering local intermediaries, designating anti-money laundering contacts or filing separate reports.
Second, we need to close the trust gap between banks and licensed nonbank payment providers. For every euro a customer holds with a payment or electronic money institution, the provider must safeguard a euro. Consumers are much more familiar with bank deposit guarantees than with these safeguards. An EU-wide label showing how customer funds are protected could help people understand the protection they have and give providers a fairer chance to compete.
Nonbank providers also need practical access to accounts at central banks where they can safeguard customer funds. And Cyprus-based providers need protection against IBAN discrimination. This happens when a utility company or public authority in one EU country rejects an account number from another. Enforcing the rules of the Single Euro Payments Area, or SEPA, and removing extra national requirements would help Cyprus grow into a genuine EU fintech hub.
The EFA has been vocal about PSD3, the EU’s proposed third Payment Services Directive. The European Parliament is discussing who should reimburse customers when payment fraud occurs. What is at stake for consumers and Cyprus’ large electronic money sector if the rules are watered down?
Cyprus has one of the largest electronic money sectors in the EU relative to its population. If the proposed directive and its companion Payment Services Regulation, known as PSD3 and PSR, tilt too far in favor of established banks, Cyprus faces three main risks.
The first is who pays for fraud. If payment providers have to reimburse customers under strict rules, while digital platforms and telecom operators where scams originate bear no share of the responsibility, electronic money firms could end up footing the entire bill for fraud that starts elsewhere. That would put real pressure on the margins of Cyprus-based payment companies.
The second is access to bank data. Rules that favor banks could let them keep using fraud controls that are applied at their discretion, inconsistent technical interfaces or unnecessary onboarding checks, such as asking firms to verify customers and documents twice. That would make it harder for fintech companies to offer services that let customers view account information or make payments directly from their bank accounts.
The third is access to infrastructure. Without direct and fair access to central bank safeguarding accounts, nonbank providers would still have to rely on a handful of institutions. That keeps costs high and leaves firms exposed if one of those relationships breaks down. Taken together, those risks could erode Cyprus’ competitive edge and make it harder for its electronic money firms to expand across the EU.
Strong oversight for crypto
The transition period for the EU’s Markets in Crypto-Assets Regulation, known as MiCA, ended July 1, 2026, and unlicensed providers must stop serving EU customers. Cyprus is now moving ahead with a bill to give the Central Bank and CySEC supervisory powers. Are you confident in Cyprus’ approach? Are some EU countries applying the rules more strictly than others?
Cyprus’ 2026 Markets in Crypto-Assets bill is a necessary step in giving the Central Bank and CySEC the powers they need. The EFA strongly supports rigorous oversight, provided national measures follow the common EU framework and avoid adding excessive requirements.
When member states layer their own rules on top of EU law, they make it harder for firms to use a license across borders. Extra registration procedures, designated national anti-money laundering contacts and country-specific reporting obligations can all create practical difficulties.
Differences between countries create two risks. Firms may seek out jurisdictions that interpret the rules more loosely, putting competitors elsewhere at a disadvantage. At the same time, companies that comply with the rules face extra paperwork and costs when they try to expand.
To build a competitive crypto sector, Cyprus should focus on aligning its supervisory practices with those of other EU countries, setting predictable licensing timelines and sticking closely to common EU standards. A license that works across all 27 member states is essential to keeping the market from splintering and protecting Europe’s ability to compete.
Where banks and fintechs should work together
You spent years at the European Banking Federation representing banks that handle 300 million payment transactions a day. Now you represent fintech companies. In Cyprus, Bank of Cyprus has called for more policy support for cooperation between the two. Where should cooperation be required, and where should fintech firms compete independently?
Having represented banks and now leading the EFA, I see room for both cooperation and competition. Cooperation should be required where firms depend on shared infrastructure, need to comply with common rules or need fair access to the same systems. Under the EU’s existing and proposed payments rules, banks should give third-party payment providers fair access to payment accounts through standard technical interfaces, known as APIs. They should avoid putting up arbitrary technical barriers or making providers repeat unnecessary checks when they sign up.
Nonbank payment providers also need fair access to the systems that settle payments and to central bank safeguarding accounts. That would reduce their dependence on individual institutions. Banks, fintech companies, telecom operators and digital platforms should also be required to share information about fraud.
Fintech firms should be free to compete on the products they build and how they bring them to customers. Nonbank providers are leading the way in direct account-to-account payments, digital wallets and real-time payment tools, which can give customers lower-cost alternatives to traditional card networks.
When fintechs offer financial products through another company’s app or service, regulators should recognize when that business is simply a distribution partner. Treating it as a company that has taken over a critical function creates barriers for fintechs trying to compete with traditional banking channels. Fair competition lets consumers choose what works for them, whether they care most about price, ease of use or something else. That requires banks and fintechs to compete on equal terms across Europe.
Is Europe piling on too many AI rules?
At the latest Economist summit in Cyprus, fintech companies talked about using AI transparently and keeping people in charge of oversight. With the Digital Operational Resilience Act, or DORA, already in force and the AI Act being rolled out, is the EU piling rules onto fintech companies before they have a chance to grow, especially compared with the U.S. and the U.K.?
AI tools, including systems that can carry out tasks on their own, are changing how firms route payments, comply with rules and manage cash flow. European fintech companies need rules that give them room to put those tools to practical use and grow. DORA and the AI Act set important standards for cybersecurity and trust. The weight of all the requirements taken together, though, can put too much pressure on companies before they have a chance to scale.
Compared with their counterparts in the U.S. and the U.K., growing European firms have to navigate more layers of regulation and a more fragmented market. A fintech company trying to expand has to deal with DORA, the AI Act, anti-money laundering rules and the proposed EU payments rules all at once. Then come the extra requirements in individual countries, such as local approval of fees or additional disclaimers in advertising. Firms end up paying to set up separate compliance processes for each market.
AI oversight should focus on the risk a system poses, regardless of the technology it uses. That would let firms expand routine automation without unnecessary obstacles. Policymakers should also advance proposals such as the European Commission’s “28th regime,” which would give growing businesses a single, simpler legal framework. Removing extra national rules and preserving the ability to operate across the EU on one license would give European fintech companies a better chance of competing globally.
