When U.S. banks look at expanding SME credit in Europe, they tend to bring an assumption that doesn’t survive contact with the market: that Europe is, functionally, one place. It isn’t.
According to Luca Terragni, co-founder of Berlin-based AI-powered credit intelligence startup Prestatech, that single misconception is often the first mistake an American lender makes. And it cascades into nearly every operational and underwriting decision that follows.
“Europe is not one market. It’s 27 regulatory regimes, 27 data environments. SME profiles might be similar, but local dynamics command caution to local specifications,” he told 150sec.
That fragmentation isn’t just a compliance footnote, but a budgeting problem, too. U.S. banks accustomed to a single national regulatory framework and a dominant credit bureau infrastructure often underestimate what it actually costs to operate across the EU’s patchwork of rules.
Terragni’s advice is to budget for time, not just money.
And the caution isn’t hypothetical. The European Central Bank’s Q1 2026 bank lending survey found euro-area banks still tightening overall lending terms for firms even as demand shifted toward working-capital financing, a sign of how differently credit conditions are moving from one segment, and one country, to the next.
“Every country has its own interpretation of open banking, its own data protection nuances, its own central credit registry rules,” he explained. Italy, for instance, runs on the Centrale dei Rischi; Germany relies on SCHUFA; the UK – outside the EU, but still a common early target – has three separate credit bureaus with inconsistent coverage.
“You can’t copy-paste a U.S. compliance stack and translate it. You need local legal, local data partnerships, and patience, which might not be a line accounted for in a budget,” Terragni stressed.
No FICO, no safety net
The deepest blindspot, however, isn’t regulatory. It’s structural. U.S. underwriting culture is built around the FICO score: a single, standardized number that travels across state lines and industries.
Nothing comparable exists in Europe.
“There is no FICO in Europe. That sounds obvious, but the implications are massive,” Terragni said. Bureau coverage varies wildly by country, and thin credit files are the norm for European SMEs rather than the exception.
That unevenness shows up in the lending data itself as well. The OECD’s 2026 Financing SMEs and Entrepreneurs report notes that interest rates on smaller EU loans have moved quite differently from those on larger ones, which explains why SME credit doesn’t behave as a single, predictable market even within the eurozone.
A bank that tries to run a “pull a score, apply a threshold” underwriting model, Terragni warned, will end up “rejecting half the market or approving the wrong half.”
That gap, between what a credit score says and what a business is actually doing, widens further for U.S. entrants because they’re also stepping outside the safety net they didn’t realize they had.
“A U.S. bank at least has FICO plus SBA guarantees as a safety net. In Europe, you often have neither; the bureau data is patchy, the guarantee structures are slower, and SME financials are less standardized,” the co-founder explained.
This is where Prestatech’s core thesis emerges: that cash flow data, pulled directly from transaction history, is a more reliable underwriting signal than backwards-looking credit scores. And the case for it only gets stronger the less standardized the credit infrastructure around it is.
“Every business has a bank account, regardless of what country it’s in,” Terragni noted. “That’s exactly where transaction-level cash flow analysis earns its keep. It’s the only signal that’s consistent across borders.”
Wrong question: which market first?
Asked what European market a U.S. bank should enter first and which to avoid, and Terragni’s answer pushes back on the premise entirely. “Wrong question, honestly.”
Every country, he said, brings its own data sources, bureau landscape, and regulatory quirks – and many still lack the mature open banking infrastructure that outsiders assume is already in place across the bloc.
The premise behind the question is that some markets are simpler on-ramps than others. That doesn’t hold up in practice: the variation in data quality and regulatory nuance is wide enough, country by country, that ranking them by apparent ease means optimizing for a distinction that barely moves the needle.
Sequencing based on which market “looks cleanest” solves the wrong problem.
The more consequential choice, therefore, is architectural rather than geographic: whether the underlying lending stack is built to be configurable and country-agnostic from the start, or gets rebuilt every time a bank enters new territory.
The first approach scales; the second caps growth at however many bespoke builds an operations team can sustain. Under that logic, market selection becomes a function of risk-reward fit with a bank’s own strategy, not a hunt for the jurisdiction with the least friction.
BBVA’s build out across Europe is a live test of that model: one platform, configured locally rather than a separate stack per country. And results suggest the approach holds up in practice as well as in theory.
The Spanish financial services firm, in fact, reported that in May 2026, 58% of new SME lending transactions across the group were arranged through digital channels, rising to 67% among the self-employed and all running on shared infrastructure adapted market by market rather than rebuilt from scratch each time.
The constraint on scale, in other words, was never which market came first. It was whether the infrastructure behind it could travel.
Tourists versus committed players
The pattern of failure, in Terragni’s account, tends to follow the same shape: a non-European entrant treats Europe as a pilot rather than a market.
“They send two people, allocate a small budget, run a six-month ‘test’ with no local infrastructure, and then conclude that European SME lending doesn’t work,” he said. “It works fine – they just never committed to it.”
That framing reallocates the blame for underperformance. It isn’t that the European SME market is harder to crack than it looks, but that most entrants never actually test it. A couple months-long pilot with a two-person team and no local infrastructure isn’t a measurement of market viability; it’s a measurement of what a token commitment produces, which is close to nothing regardless of geography.
The failure reads as a market risk when it’s really under-investment risk.
Terragni’s marker for the difference is concrete: whether a bank hires locally before closing its first deal. That single decision functions as a proxy for everything else, including whether legal and compliance are built for the jurisdiction rather than bolted on, whether data partnerships are negotiated with local knowledge, and if the bank is prepared to operate at the pace and the terms the market actually requires.
“If they’re trying to run European SME lending from New York, they’re tourists,” he explained. The geography of the team, not the size of the balance sheet behind it, is what ultimately signals intent.
That distinction says more about product philosophy than about market entry logistics. The banks that win will be those willing to rethink the borrower experience itself, rather than those which use the technology purely to make the existing process faster.
“An SME owner doesn’t want to upload 40 documents and wait three weeks. They want to connect their bank account and get an answer. The technology to do that exists today, and the question is whether banks are willing to redesign the product around the customer,” Terragni stressed.
That’s a higher bar than most incumbents are used to clearing, as it asks banks to treat the borrower experience as the product rather than an inference layered on top of legacy underwriting. Because of this, the lenders willing to do that “will own segments that incumbents didn’t even know they were losing.” Not because they out-capitalized the competition, but because they solved a problem competitors didn’t realize was still unresolved.
Featured image: Getty Images via Unsplash+
