Banks saddled with bad loans risk being left behind by nimbler upstarts and Big Tech in the rapidly evolving fintech race, the European Union’s banking watchdog said on Tuesday.

The European Banking Authority (EBA) looked at the risks and opportunities from fintech and its impact on the business models of long established lenders. Fintech refers to using smartphone technology like apps for financial transactions and payments.

Risks to banking profitability depend on how well banks adapt to what customers want, and whether they are weighed down by books of souring loans or hindered by old technology, the EBA said in a report on its findings.

“This is particularly challenging for some large complex incumbents that have a very formal and slow governance structure, further restricted by legacy ICT systems or legacy non-performing assets,” it said.

It divided unnamed banks into three baskets: proactive front-runners with aggressive strategies; reactive “followers” who take a “wait and see” approach; and passive “reluctant to change” lenders left behind, many focusing on whittling down stockpiles of bad loans.

London has long been the main fintech center in Europe but Britain’s departure from the EU next March has spurred Berlin, Paris, Luxembourg and other centers to offer sweeteners to British fintech firms to relocate.

– By Huw Jones, Reuters, 3 July 2018.

Link to Reuters.

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