Author: Max Schertel, Co-founder at finmid
As 2026 unfolds, much of the fintech discussion continues to focus on artificial intelligence. But the reality is: while AI will remain a central theme across financial services this year, in embedded lending and SME finance, the defining developments are rooted in more fundamental dynamics.
The trajectory of 2026 is being shaped by three key factors: the central role of credit in economic growth, the widening SME credit gap across Europe, and the strategic importance of operational ownership. These forces will define the year far more than advances in artificial intelligence, because they are directly tied to the real constraints businesses face.
Europe’s SME credit gap will widen, pushing more growth to non-bank financing channels
Europe already has around 32 million SMEs and an estimated €400 billion financing gap that traditional banks have not been able to close. In 2026, this gap is likely to widen further as banks maintain stricter lending standards and more conservative underwriting. At the same time, many SMEs continue to face elevated costs and uneven demand, increasing their reliance on external capital.
As the credit gap expands, a growing share of SME growth will, therefore, flow through non-bank channels. This structural shortfall defines the embedded lending opportunity.
In embedded finance, momentum is currently strongest among large, digitally native platforms in sectors such as food delivery, mobility, and e-commerce. These platforms already have transaction data, established merchant relationships, and built-in trust. Financing, therefore, becomes a natural extension of their core service.
Geographically, the Nordics lead in digital maturity, making adoption of embedded financial products more seamless. Germany and France offer the largest absolute opportunity due to market size, while Southern and Central Europe remain earlier stage but face particularly acute SME financing needs.
Credit, not AI, will be key to Europe’s real economic growth in 2026
Thinking about AI only makes sense once the fundamentals are in place, and that is not yet the case across much of Europe. For many SMEs, the priority is not deploying advanced AI tools, but implementing basic digital infrastructure such as cloud software, integrated accounting systems, or structured data processes.
According to the European Commission, only 6 percent of SMEs had a very high level of digital intensity in 2025. That means the overwhelming majority of European small and medium sized businesses are still operating without deeply integrated digital systems. Without these foundations, the practical impact of AI remains limited. Advanced analytics cannot compensate for fragmented systems or low levels of digital maturity.
However, building those foundations requires capital. Upgrading software, training staff, digitising operations, and integrating systems all demand upfront investment. Yet access to financing remains constrained for many European SMEs, as highlighted by the persistent credit gap.
In this context, the sequencing matters. Businesses need funding to strengthen their operational base before they can meaningfully benefit from more advanced technologies. Money enables hiring, system upgrades, and technology adoption. Credit supports resilience and growth. AI can enhance performance, but capital is what makes transformation possible in the first place.
Owning your back office will become a key competitive advantage
Scaling in 2026 rewards companies that treat internal systems as strategic infrastructure. Patchwork outsourcing and stacked third-party tools tend to break under cross-border expansion and rising compliance demands.
At finmid, we have scaled embedded lending across the EU27 plus the UK, Switzerland, and Iceland. Doing so has taught us that while Europe’s opportunity is significant, execution is complex. Regulatory requirements, reporting standards, and governance expectations vary by jurisdiction and continue to intensify as the market matures.
Sustainable growth depends on cohesive, well-integrated internal frameworks. Ownership of core back-office capabilities, including underwriting, compliance, servicing, and capital reporting, provides resilience and long-term scalability. Companies that invest early in operational infrastructure will define the next phase of SME finance in Europe.
All in all, in 2026, embedded lending in Europe will be defined by structural realities rather than technological ambition. Expanding access to credit, closing the SME financing gap, and building resilient operational infrastructure will determine which platforms scale sustainably. AI will evolve, but capital and execution remain the decisive factors shaping growth across the continent.
