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Sunday 7 April 2019

The future of finance in Europe

Is it time to regulate companies on what they do, not who they are?

On February 7 2019 Tortoise held a ThinkIn in Brussels with one of our Founding Partners, Santander. There were about 50 people from government, technology, banking, the media and politics. Here’s the readout of what we discussed:

The questions for the future of finance in Europe are about how to provide the best services for customers, raise the competitiveness of European companies and improve the resilience of the financial system. The context for this conversation is that you cannot count on government to stay still: the days when politicians clambered over each other to offer the inducements of light regulation and low taxation are long gone. 

Tax. Regulation. Competition. These were the top three subjects when we came into the room at the Solvay Library. But it’s a measure of how fast things are moving that it’s clear that the changing nature of the marketplace means there are other rising priorities.

Today, a huge amount of the conversation about finance is about “fintech” – tech innovation in the provision of banking services.

Consumers are already seeing major fintech innovation in the opening up of payment services – a consequence of the Revised Payment Services Directive (PSD2). That modernisation met with widespread political and industry support back in 2015.

Since then, though, there has been a realisation that this is a corner where tech companies are moving in, under the nose of the traditional banking providers. That could mean finance outsiders would own the primary relationship with the customer but without any of the systemic responsibilities or costs of the banks.

The GAFA disrupters on payments

Google Pay: What does it do? Saves payment info for services on any Google product, like Chrome or Google Wallet. What is the adoption rate? As of March 2018, it has been downloaded 100m times.

Apple Pay: What does it do? Allows the iPhone to be used like a bank card. What is the adoption rate? Doubled its account activations year-on-year in Q1 2018. It is launching a joint credit card with Goldman Sachs this year.

Facebook Messenger: What does it do? Sends up to $50 via phones or computers with no fees. What is the adoption rate? Unclear, but the service expanded to the UK and France in 2017, and has e-money licences for Ireland and Spain.

Amazon Pay: What does it do? Like PayPal, a service to buy things through Amazon accounts. What is the adoption rate? Second most accepted checkout in the top 1,000 sites in the US and Germany.

The ability to pay for things in new ways has already become a reality. This development has had the effect, however, of merging the conversations about finance and tech – and at a moment when Facebook, for example, is not the toast of the town.

Last year, the European Commission was leading the way on tech taxes. Its exploration of an interim 3 per cent tax on the revenue of global digital giants signalled a new determination to deal with Silicon Valley’s rather limited tax contribution in Europe.

Not quite a year on, attitudes have shifted. The argument is for more tax not less – but for taxation on business activities, not on types of business. That is to say, there should be a tax rate for digital companies that is the same as others.

We have had a flirtation with the break-up of big tech: critics such as Scott Galloway, author of The Four, and Roger McNamee are making ever more forceful arguments for anti-trust interventions on the likes of Facebook.  But that effort is not (yet) making much headway.

From this side of the Atlantic, there’s little sign that Europe will or easily can step in to break up the giants’ businesses. But if Mark Warner, the US senator from Virginia, and his colleagues were to start showing more interest in this theme, things could change in Europe.

There is more argument on fintech to come:

  • e-commerce: the scale of Alibaba, Amazon and eBay’s growing business in Europe appears to be overwhelming the machinery of sales taxes and tariffs.
  • data and identity: the means of empowering the individual, both in moving their business and owning their data, builds on the concept of consent that underpinned GDPR.

The technical, however, quickly gives way to the political. The central issue at stake is the competitiveness of Europe and the prosperity of its citizens. In both tech and banking, European enterprises – and the future opportunities for its people – seem increasingly dwarfed by Chinese and US rivals. They stoke the arguments not just for a review of tax, payments rules and the calls for a level playing field. They renew the arguments for “more Europe”. Specifically, for a single market for services and a single banking union.

These are not small things and pose deep questions to which we will need to return.

A deeper single market might mean that consumers in one European country should be able to use banking services freely from another. A banking union means making EU countries collectively responsible for the safety of one another’s banks.

Everything important in finance is political.

A Tortoise partnership with


Illustrations by Ester Mejibovski


Tortoise business model

We want to be open about the business model of our journalism, too. This is the first piece we’ve published as part of Tortoise’s partnership with Santander, which is a good opportunity to set out how we work.

At Tortoise, we don’t take ads. We don’t want to chase eyeballs or sell data. We don’t want to add to the clutter of life with ever more invasive ads. We think that ads force newsrooms to produce more and more stories, more and more quickly. We want to do less, better.

Our journalism is funded by our members and our partners. We are establishing Founding Partnerships with a small group of businesses willing to back a new form of journalism, enable the public debate, share their expertise and communicate their point of view. Those companies, of course, know that we are a journalistic enterprise. Our independence is non-negotiable. If we ever have to choose between the relationship and the story, we’ll always choose the story.

We value the support that those partners give us to deliver original reporting, patient investigations and considered analysis.

We believe in opening up journalism so we can examine issues and develop ideas for the 21st century. We want to do this with our members and with our partners. We want to give everyone a seat at the table.