Banks hold early lead over fintech as Cyprus urged to accelerate digital finance reforms

Limassol, Cyprus. Established banks have prevailed in the initial contest with fintech providers, speakers at Tuesday’s Forbes Cyprus Next Gen Banking & Fintech Summit said. The gathering heard that Cyprus needs to accelerate regulatory processes, reduce bureaucracy and draw skilled workers to compete in digital finance.

Cyprus banking resilience

During a panel examining how a small island could compete, Central Bank (CBC) governor Christodoulos Patsalides said Cyprus’s banking sector was substantially stronger than in the aftermath of the 2013 financial crisis.

Patsalides cited increased capital adequacy, abundant liquidity, better profitability and a steep decline in non-performing loans. He said these safeguards, combined with sound corporate governance, were crucial for maintaining confidence and helping lenders weather external shocks.

The discussion also examined whether Cyprus’s regulatory authorities, public services and workforce could match the pace of developments in finance.

Competition shifts towards main accounts

Costas Markides, a professor at London Business School, told participants that fintech businesses had reshaped financial services but had not supplanted conventional lenders. Banks had responded through technology investment, collaboration with fintech providers and acquisitions of some competitors, he said.

According to Markides, fintech firms had expanded their presence over two decades in payments, currency exchange and digital investment services, offering faster, less costly and simpler transactions. Banks nevertheless continued to lead in mortgage finance, lending to businesses and wealth management.

He used Revolut to illustrate the difficulty digital providers face in becoming customers’ main bank. Many people, especially younger users, spend through fintech accounts while keeping salary payments with established lenders and approaching those banks for mortgages, he said.

Markides expected the next competitive contest to centre on customers’ primary accounts. While some fintech firms might become their customers’ main banks, he anticipated that most would continue as specialists alongside traditional lenders.

Funding presented a further barrier, he said. Established banks have sizeable deposits and resources that enable them to lend and bear risk, whereas fintech providers pursuing comprehensive banking services need considerably more capital.

Technology and the business model

Markides highlighted Belgium’s KBC as a conventional bank applying digital tools and artificial intelligence to enhance service and accelerate its operations. He argued that competitive strength depended less on acquiring technology alone than on developing a business model that could compete at scale.

Looking further ahead, he warned that Apple, Amazon and similar technology groups might pose a greater threat to banks. Their control over platforms and customer relationships could allow them to distribute financial products via banking partners, reducing lenders’ direct contact with customers.

Markides said stablecoins and artificial intelligence might intensify that pressure, while noting that established banks could also adopt both technologies.