The impact of institutions on innovation in the Dutch FinTech sector:
A qualitative exploration
Author: Floris Zuidema (10409432)
Email address: floriszuidema@hotmail.com Date: 13 - 07 - 2016
Program: Master’s thesis in Sociology, general track Thesis supervisor: dr. J.P. Bruggeman
Summary
The financial world is changing because of technological changes and the appearance of new players, collectively these changes are called ‘FinTech’ or ‘Financial Technology’. The main question analyzed in this study was whether Dutch institutions are capable of facilitating those changes. This was done primarily by interviewing various experts in and around the Dutch financial sector.
The Dutch sector was found to be quite innovative but not quite a leader in the field of FinTech. Some institutions and market conditions of the Netherlands stimulate financial innovation, while others provide the Dutch sector with significant barriers. Positive trends were observed however, as the Dutch government and Dutch regulators appeared to be becoming more open to innovation. In addition, incumbents and new players alone and together seem to be moving the sector towards a more innovative position. This suggests that the Dutch institutional arrangement is capable of supporting FinTech developments.
The Varieties of Capitalism approach provided a useful lens through which these developments could be analyzed. However, the findings also had implications for VoC: 1) They showed how VoC can be used to analyze a specific sector instead of a nation, 2) They showed that neither the national level nor the international level are sufficient levels of focus, the interplay between the two is what is important, 3) The tendency of VoC to focus on institutions and relations as they are at a given time, tends to ignore the reality of change, 4) Linking radical innovation to certain types of countries or certain types of sectors might be problematic, 5) It might be useful to include demand as an important aspect of the capacity for innovation for a sector or country.
Table of contents 0. Glossary
1. Introduction 5
2. Dutch Variety of Financial Innovation 8
a. Varieties of Capitalism b. Financial Innovation
c. Dutch Variety of Financial Innovation
3. Methods 16
4. Institutions and Market Conditions of the Dutch Financial Sector 18 a. State of Affairs of the Dutch Financial Sector
b. Dutch Institutions contributing to and limiting Financial Innovation 5. Relations of Organizations in the Dutch Financial Sector 32
a. Internal Relations of Dutch Financial Organizations b. External Relations of Dutch Financial Organizations
6. Conclusion and Discussion 46
Glossary
ACM Dutch Authority for Consumers and Markets
AFM Dutch Authority for the Financial Markets
AP Dutch Data Protection Authority
BVN Dutch Payments Association
CME Coordinated Market Economy
DNB Dutch Central Bank
LME Liberal Market Economy
MOB The Dutch National Forum on the Payment System
NVB Dutch Banking Association
SME Small and medium-sized enterprises
VvV Dutch Association of Insurers
5 1. Introduction
Many feel the financial sector is undergoing significant changes. Technological changes concerning cloud computing, the internet of things, mobile devices, big data, machine learning and real-time decision making are said to be affecting financial services in a fundamental way (EY 2015). Together these changes are part of what is called Financial Technology or FinTech. More specifically, it is said that these changes cause the financial sector to become disrupted by various journalists, marketing departments and overenthusiastic venture capitalists, where disruption means that the changes lead to a significantly different market. Though the exact meaning of disruption differs from one person to the next. Regardless of whether disruption is indeed coming, enough seems to be going on to ask the question what exactly is changing and how much, both in terms of technology and in terms of the sector itself. Some of the technological changes are readily visible by consumers. Payments through websites, as well as contactless paying via mobile devices and cards is becoming more and more normal. Crowdfunding platforms are often in the news, as is bitcoin and related technologies. However, FinTech potentially encompasses all products and services provided in the financial sector and as such expands beyond these examples.
In the present study the Dutch context for these changes will serve as a case to analyze what the changes are exactly, where they come from and where they might be going. The Dutch government is employing a strategy of ‘playing to one’s strengths’ when it comes to innovation policy. This means investing in those sectors of the economy which have been an important part of economic growth for decades (and in some cases centuries), as seen for example in the Dutch ‘topsector’ policy. And of course there is reason to expect that those sectors which are apparently well-supported by the existing Dutch institutions will continue to be well-supported in the future. This fits the ideas of Hall of Soskice who categorize the Netherlands as a Coordinated Market Economy and as such as a nation that tends to focus on incremental innovation, instead of radical innovation (Hall & Soskice 2001). In that way the strengths already present are further strengthened. However, as noted the world economy is changing, at least in part due to technological innovation. The question then becomes how well the Dutch institutions are suited to deal with this changing world and to what extent the same sectors that were important to the Netherlands before will remain important. More specifically, are the Dutch institutions capable of facilitating FinTech innovation? This is the main question under scrutiny here.
Institutions here mean rules governing the behavior of actors in and around the Dutch FinTech sector, specifically the behavior of firms. These institutions encapsulate the actions of the firms, including their innovation strategies, and as such analyzing them might provide us with insight in what has happened in the Dutch FinTech sector up until now and what might happen to it in the future. Specifically it gives
6 us a tool to compare the Dutch FinTech sector to that of other nations, as well as potentially to other sectors within the Netherlands. The Varieties of Capitalism framework (as suggested by Hall and Soskice 2001), initially developed as a tool to understand differences between capitalist societies, will be used as a starting point here.
FinTech
Neither innovation in the financial sector nor the term FinTech are new. Using new technology for financial processes has been done ever since there were financial processes (Arner 2015). The use of the term FinTech to refer to Financial Technology can be traced to the early 1990s (Jonker 2015). This raises the question of what, if anything, exactly is new or different about present day financial innovations, aside from the term now becoming more popular. The term ‘FinTech’ is often used to refer to three different, but related, things:
1. Financial innovations i.e. innovation which allows for new financial products and services or which improves on existing financial products and services, specifically those innovations that have strong IT components to them and which have arisen since roughly 2008.
2. The group of organizations that provide the innovations mentioned in definition 1. The following organizations are part of that group: a) traditional financial organizations (such as banks and insurers), b) large tech companies, also called ‘BigTech’ (such as Google, Apple and Amazon) and c) companies started around or after 2008 and built from the ground up as a tech company that provides financial products or services.
3. Specifically organizations mentioned in definition 2c.
Regardless, the main delineation used here is roughly between before and after the financial crisis of 2008, i.e. between what Arner et al. (2015) call FinTech 2.0 and FinTech 3.01. FinTech 2.0 refers to the period between roughly 1987 and 2008 where financial services became increasingly digital and online, while FinTech 3.0 started around 2008 and is most of all different in terms of who develops and provides the services, namely a shift from 2a only to 2a, 2b and 2c all doing it. As they say: “the current concerns of policy makers and industry arise not from the technology itself but from who is applying the technology to finance. Since 2008 there has been rapid expansion in the types of businesses that create and deliver technology to provide financial services and products. […] New start-ups and
1 Arner et al. confuse the matter of the term ‘FinTech’ even further by both calling the current period ‘FinTech
3.0’ and calling the companies mentioned under definition 2c (or perhaps 2b and 2c) ‘FinTech 3.0’. In the present research I only use FinTech 3.0 to refer to the period, not to a type of company.
7 established technology companies have begun to deliver financial products and services directly to businesses and the general public.” (Arner et al. 2015, p. 6).
FinTech in principle encompasses the entirety of processes, products and services in the financial sector. From investments to payments to currencies to regulation (sometimes called RegTech i.e. Regulatory Technology) to insurance (sometimes called InsurTech) and so on. FinTech might provide opportunities to link investors and businesses, sometimes one investor to one business (called P2P or Peer-to-Peer) and other times many investors to one business (called crowdfunding). FinTech might provide ways to pay in a more secure, fast, direct and anonymous way, for example via cryptocurrencies such as Bitcoin. FinTech might provide customers with ways of doing their usual business when interacting with a bank but do so in a more user friendly way, for example via mobile phone apps. Likewise, FinTech developments might affect business to business interaction or internal operations of financial organizations (Arner et al. 2015, Brummer & Gorfine 2014, Jonker 2015, DNB 2016).
In the remaining part of this analysis all of these aspects will be seen as part of ‘FinTech’. To understand how institutions affect financial innovation in the Netherlands, we will first turn to ideas about a nation’s innovation with a focus on the Varieties of Capitalism literature. Here we will discuss the type of country the Netherlands is considered to be and how that affects Dutch innovation. Having done that the step towards FinTech in the Netherlands will be made where various sources, mainly expert interviews, will be used to see how institutions have shaped relations in the Dutch financial sector and how those together affect financial innovation.
8 2. The Dutch Variety of Financial Innovation
Asking the question of what is going on with financial innovation in the Netherlands and how those changes can be understood implies questions about what does and does not differentiate the Dutch economy and Dutch innovation from economies and innovation of other countries. To answer that question this chapter will first explain the Varieties of Capitalism framework. Then it will discuss what this framework implies for innovation. And lastly it moves to the question of how the Netherlands can be understood from the point of view of this framework.
Varieties of Capitalism
Hall and Soskice (2001) analyze these matters with their Varieties of Capitalism (VoC) approach by pointing towards the institutional arrangements of nations as the driving force of innovation. According to Hall and Soskice actors in an economy, primarily firms but also consumers, government agencies, research institutes, schools and so on, have to figure out how to interact within a national economic system. These decisions are made within the context of institutions, which are “a set of rules, formal or informal, that actors generally follow, whether for normative, cognitive, or material reasons” (Hall and Soskice 2001 p. 9). Formal institutions refer to such institutions as laws, subsidies, taxes, contracts and so on, while informal institutions refer to worldview, language, habits and the like.
Both formal and informal institutions are historically formed and have to be continuously reaffirmed. Lack of reaffirmation leads to changing institutions, however change is generally slow and path-dependent. In other words, how institutions change depends on their past, as well as the extent to which they are embedded in the network of institutions. Certain institutions tend to co-occur in clusters, this is because the institutions reinforce one another. Hall and Soskice (2001) talk about institutional complementarities in this respect. Institutions that oppose each other cause an unstable situation which over time moves to a situation of reinforcing (or at least non-opposing) institutions (Touwen 2006). Combined these institutions make interaction easier by reducing uncertainty about the actions and motivations of actors one interacts with and by increasing trust one has in those actors.
Institutions do this by affecting the following:
1. They influence when and how information is exchanged. 2. They influence when and how actions are monitored.
9 From this perspective financial innovation in a certain country would be explained by the strategies and interactions of firms in and around the financial sector which act inside the bandwidth allowed for by that country’s institutional arrangement. The exact ways in which institutions affect behavior differs between different configurations i.e. for different countries. Most notably a distinction is often made between the configurations of liberal market economies, or LMEs, (as exemplified by Anglo-Saxon countries) and coordinated market economies, or CMEs (of which west European countries are the primary example2). In the former institutions strongly stimulate interaction via competition, hierarchy and complete contracting, while in the latter other forms of interaction, such as creating collective goods, looking to reach consensus between stakeholders, collective agreeing on industry standards, creating lasting networks of relations and incomplete contracting, are also common. Countries tend towards being either a CME or an LME because having elements of both creates an unstable situation of opposing institutions (Hall and Soskice 2001). Hall and Soskice emphasize that both CMEs and LMEs have their own comparative advantage, in certain ways and for certain purposes CMEs are more efficient, while in other ways and for other purposes LMEs are more efficient.
Institutions manifest themselves in the relations actors form. In the VoC literature these relations are often categorized in five interrelated spheres of the economy within which actors have to solve various coordination problems:
1) Inter-firm relations: The relationship between firms and other actors, such as clients, suppliers, competitors, research institutes, government agencies and so on.
2) Corporate Governance: How firms are governed. What the power of shareholders and other stakeholders is for example. An aspect of this is how firms seek access to finance and how investors seek assurance for returns on investments.
3) Industrial relations: The general relations and agreements that industry and labor have formed.
4) Internal structure: This concerns such things as the hiring and firing of employees, organizational structure, cooperation between different departments and between employees and management.
5) Education and training: The way education and training are organized and what the role of employers and employees is when it comes to education and training.
2 In some literature further distinctions are made amongst CME countries. For example, some make separate
groups for Asian countries (Japan and South Korea), Mediterranean countries, Scandinavian countries and then a last group for whatever is left i.e. Germany, Austria, Switzerland, Belgium, Luxembourg, The Netherlands and possibly France. Exact grouping are one of the most contested issues in related literature.
10 The way in which actors generally can and do act and interact within these spheres affects the choices an individual firm is likely to make (see figure 1). For example, the conditions that apply to securing finance from investments (is it primarily gained from venture capital or from banks for example) can affect whether a firm should primarily be concerned with short-term gains or whether it can aim for gains on a longer time-scale. Likewise, the costs and legal challenges involved in hiring and firing employees might affect whether firms have to and want to employ employees long-term and how much firms choose to invest in them in terms of training.
During changing conditions (for example due to global economic change or rapid technological evolution) the institutional configuration can be a blessing and a curse. Some aspects of the configuration might suit the new conditions, while others might not. And some sectors might be affected more heavily than others. In this respect it is noted that VoC literature tends to focus on national differences in institutional configuration but in doing so focuses less on the differences in configuration that can exist within countries between different sectors and regions (Werle 2011). And then there is the question of whether the national component of institutional configurations is not declining altogether, with formal rules, relations and possibly even culture being more and more international (Allen 2013). For sectors like finance and IT both globalization and rapid change seem apparent and for the Dutch context specifically the EU is of course a growing aspect of the formal (and possibly even informal) institutions that are present.
A further challenge for the VoC literature is linking their macro-theory to the specific actions and interactions of firms, even though firms are seen as the primary agents within this perspective, with Hall and Soskice (2001) going so far as calling the VoC approach a ‘relational view of the firm’. In general the VoC literature notes that the actions and interactions of firms are both made possible and constrained by two things: 1) the general institutional configuration in which they are active and 2) the specific social, financial and economic situation that a given firm is in at a given time (Werle 2011). In theory then, the VoC literature allows one to compare the influence of the institutional context on firm strategies in different sectors or in a single sector but in different nations. Such work is rare but becoming more common (Allen 2013).
FinTech Innovation
When it comes to innovation, VoC tends to state that within the institutional configuration of LMEs radical innovation is stimulated more, while in the institutional configuration of CMEs incremental innovation is more prominent. Innovation meaning “the first attempt to bring an invention (i.e. the first occurrence of an idea for a new product or process) to market. In particular, product innovations
11 refer to the occurrence of new or improved goods and services, process innovations refer to the improvements in the ways of producing these goods and services” (Belloc 2012, p. 857).3 More specifically; the institutions of LMEs stimulate the creation and persistence of relations in the economy which in turn stimulate firms and entrepreneurs to innovate radically relatively often, while the institutions of CMEs stimulate the creation and persistence of a different type of relations in the economy which stimulate firms and entrepreneurs to innovate incrementally relatively often. Radical innovation here means discontinuous innovation where the gap between existing products and processes and the new products and processes are relatively large and are not part of the apparent future based on past innovations, while incremental innovation happens through a more step-by-step dynamic (Werle 2011).
For example, being able to quickly hire and fire employees or relatively easily entering and leaving the market with a company or having managers with a large degree of unilateral decision-making power as the institutions and relations of LMEs allow, brings with it the capacity to quickly change direction as a reaction to new inventions or market changes. Conversely, given that in CMEs employees tend to stay with companies longer, companies less easily leave the market and firms tend to have stronger relations with education, employees tend to develop more industry-specific and even firm-specific skills which helps in refining existing products and processes and in using existing products and processes for new purposes (Casper & Soskice 2004).
Not only is there variation of specialization in a form of innovation between different types of configurations according to VoC, but relatedly there should be variation of specialization in different products and processes because it is argued that a form of innovation suits some products and processes more than others. Specifically it is argued that radical innovation fits services (such as finance) and competitive and fast-moving sectors with high early-move advantage (such as software development), while incremental innovation is more important for machines, equipment, transportation and other aspects of the traditional industry (Hall and Soskice 2001). This would then lead to a situation where different nations specialize differently (i.e. LMEs specialize in fast-moving sectors and services, while CMEs specialize in slower moving sectors and industry).
From this perspective FinTech, being both new and fast-moving and being aimed at providing services, would tend to prosper in LMEs, while its potential would be limited in CMEs. This approach assumes
3 This definition raises questions of course about when something is different enough from what came before
to be considered new. It also raises the question about what to call new products and processes which are not or not primarily aimed at commercialization. Finally it raises questions about what a market is i.e. does the product have to be new on the global market or can it also just be new in a national market? Nevertheless, the definition serves its purpose here.
12 that sectors are characterized by either radical or incremental innovation, while within a sector both happen (Allen 2013). In other words, perhaps the radical steps in FinTech are taken by LMEs but a lot of incremental FinTech development can still happen in CMEs. Besides, by talking about CMEs and LMEs and about radical and incremental innovation as dichotomous variables a lot of nuance might get lost. Perhaps it is best to see such a description as ideal typical.
A further problem, as Edquist & Zabala (2012) point out, is that not all innovation is done domestically. Often innovation is done in one country and then appropriated by other countries. Furthermore, they argue that innovation is not only a matter of bringing a new product to the market, as stated earlier, but also a matter of the product spreading through the market (or not). In other words, there are both international and demand-side components to innovation that are often down-played in VoC literature.
Brummer and Gorfine (2014) argue that modern innovation is also of a different nature than a lot of previous innovation as computer power increases exponentially, data/computer scientists are becoming in higher and higher demand in all different sectors of society, humanity is becoming more and more connected through smartphones and the internet which in turn means firms more and more have a potentially global customer base. Vice versa customers more and more have a potentially global range of products and firms to choose from, improvements to services can be developed and distributed to customers quickly and feedback from customers can reach firms quickly. All of these developments, Brummer and Gorfine argue, affect all sectors and not just IT, since all sectors are becoming more and more digital, internet-based and mobile-based, including finance. If this is really the case then VoC would predict that the comparative advantage of countries that are incapable of stimulating a fast moving and service-oriented economy (i.e. the ideal typical CME) will decline or those countries have to change.
As discussed earlier, in theory VoC is a framework that acknowledges the importance of history. The current institutional configuration of a country has come together over the course of centuries. However, in practice stability is emphasized. Because a country (once it settles into being a CME or an LME) has a comparative advantage and various institutional complementarities, there is resistance against change. This a reaction to the idea that globalization would drive all countries to adoption of the American model (Touwen 2006). Yet at the same time, the importance of innovation (and thus of change) also plays an important role in VoC literature. How institutional stability and technological
13 (and other4) change interrelate is unclear (Werle 2011) and as discussed current technological change seems substantial.
Dutch Variety of Financial Innovation
Having explained how VoC tends to look at innovation in different institutional configurations, we now turn to the Netherlands to see what its characteristics are and thus what we might expect from financial innovation there. The Netherlands can be characterized by a focus on consensus, deliberation between social partners (i.e. employees and employers and sometimes other stakeholders) and cooperation between competitors. This suggests the Netherlands can be classified as a CME.5 However, it might be said that because the Netherlands is a small and open trade nation in a globalizing world where free trade is increasingly endorsed the Netherlands has become somewhat more LME over time (Touwen 2006).
In terms of industrial relations the Netherlands is characterized by the aforementioned deliberation between unions and employers’ associations (and, to a somewhat lesser extent, government). Through this collaboration collective agreements, for example about wages, are made for the different sectors (Touwen 2006). Part of this system is the relatively high percentage of employees and employers that is part of unions and employer associations. Arnoldus et al. (2004) add that an important thing to note here is that much of the deliberation between employees and employers is officially recognized by the government and outcomes are often made to be legally binding. Another thing to note in this regard is the fact that associations do not just apply to parties directly involved in negotiations, thus giving parties more incentive to opt-in.
Like vocational education of countries like Germany and Austria, Dutch vocational education has a relatively strong focus on combining schooling with internships (Touwen 2006), though it tends to be somewhat more school-oriented (Anderson & Hassel 2008). In addition, Touwen (2006) points out that employers have given employees relatively much space to train themselves further while employed. The collective agreements discussed before often have clauses on training, making this an area where deliberation is also important. In addition, compared to educational institutions of LMEs, education in
4 One can think of major economic crises, wars, natural disasters, depletion of various resources, globalization,
changing geopolitical power balance and other big impact events or shifts.
5 Peet (2005), following Esping-Andersen’s typology, more specifically seems to suggest that the Netherlands is
a bit of a hybrid form between the corporatism of central European countries and the social democracy of Scandinavian countries.
14 the Netherlands is also more tightly controlled by the government, for example when it comes to quality demands and curricula.
In terms of corporate governance a note is made of the presence of people who are in the supervisory board of several different businesses and in so doing a network between those businesses is created. In addition, special mention is made of the influence of stakeholders, not just shareholders, which means short-term fluctuations of shares tend to have less influence than is the case in LMEs. Most Dutch businesses tend to focus more on reinvesting profits in the firm rather than paying them out. Hostile takeovers are relatively rare. Since the 80s the power of shareholders (and thus the importance of shares) and the number of hostile takeovers have increased however.
In terms of inter-firm relations the Netherlands has had a strong presence of employer associations, alliances and voluntary mergers. On the other hand the EU has increasingly focused on rooting out cartels and on promoting competition. The Dutch economy is characterized by relatively many large companies with shared supervisors i.e. there is a high degree of market concentration and a strong network. This means the Netherlands is known for relatively mild levels of competition. The role of the government in the economy is strong but functions not quite as top-down as it does in some other European countries (i.e. the government provides a framework within which employees and employers coordinate with each other). The role of the government has become even less coercive over time. In terms of internal relations of firms, an important aspect of the Dutch economy is the mandatory presence of works councils (where employees have real influence) in firms with 50 or more employees (Touwen 2006).
When looking at patents one sees that when it comes to innovation the Netherlands tends to be focused most on areas such as biotech, pharmaceuticals, chemicals, food and electronics. And Dutch policy tends to focus on these areas to strengthen even further (Dolfsma & Leydesdorff 2011). Though at the same time authors note that the Dutch economy is and has been more service-oriented and less industry-oriented than many other central European countries (Leydesdorff et al. 2006, Anderson & Hassel 2008). This is no doubt related to the Dutch history of being a trade-oriented country which in turn has to do with its general geographic position, rivers, the sea, the general lack of natural resources and the like.
Conclusion
As has been discussed literature describes the Netherlands as a Coordinated Market Economy. An economy where actors coordinate their behavior through more than just competition and hierarchy.
15 There is relatively much focus on cooperation between employees, employers and government, as well as amongst employers. This is the case because of the institutional arrangement of formal and informal rules that stimulate consensus and deliberation. At the same time, pressures of being an open economy in a globalizing world and in a time of European cooperation might slowly move the Netherlands towards become more of a Liberal Market Economy, though how large and how structural such a change is remains to be seen.
Financial innovation in the Netherlands has to be understood with this in mind. Within the context of the Dutch institutions and the relations in the five spheres of the economy that follow from them, firms make decisions on how to innovate and other actors make decisions on how to affect those processes of innovations and react to those innovations. The literature suggests that rapidly changing and service-oriented areas of the economy tend to do better in LMEs than in CMEs thus causing us to expect FinTech to thrive better in Anglo-Saxon countries than in the Netherlands. Given what is known about Dutch society in general a focus on consensus and deliberation can be expected in the financial sector.
Although this point of view provides a good starting point, issues were also identified. This perspective tends to focus on the society as a whole, without focusing on what actually happens on the scale of sectors and firms. Secondly, the focus tends to be on nations without leaving a lot of room for how international relations shape (or are shaped by) the national context. Third, there is a tendency to disregard change (such as change due to globalization and technological advancement) to the national context, in favor of giving a static description of that context. Fourth, dividing sectors into either being characterized by radical innovation or by incremental innovation and even dividing innovation into either being radical or incremental might be problematic. Fifth, present day innovation, especially in the field of IT, might be quite unlike innovation in previous times. Sixth, VoC literature tends to focus mainly on how institutions affect the supply side and not the demand side. The current research will try to add to the body of knowledge that addresses such points of contention concerning the VoC literature.
16 3. Methodology
In this paper mostly qualitative research methods are used to analyze how institutions and relations of the Dutch financial sector affect innovation, specifically expert interviews and the analysis of sources. Experts are individuals who intimately experience a certain aspect of social life that is relevant for one’s research and who have gained insight in that aspect of social life. Expert interviews are especially advantageous when there has not been a lot of research into that aspect of social life and/or when that aspect of social life is relatively new (Ferguson et al. 2013). This is clearly the case in the area of FinTech, especially in the Netherlands.
The experts interviewed all work in a professional capacity in various parts of the financial sector. This has of course shaped their experience and expertise. However, it bears noting that the statements made by the experts were their personal points of view. They are not representatives of the organization they work for.
Another thing to note is that, as with other interviews, these experts are to some extent biased, as all people are. Most of them were white, male and middle-aged for example. All of them have vested interests, whether it is for small startups or for large financial organizations or for the government. All of them drew on their own experiences and their own point of view. However, by pulling from these different types of experts and comparing the different statements made, one can nonetheless get a picture of what is going on. And the experts at least seemed to try to be as objective as possible. That said, additional more quantitative research might still be needed to make the findings more verifiable. This is after all meant as an initial exploration.
Care had to be taken to find those experts who were qualified to talk about the subject under scrutiny here. The initial idea was to interview mostly new entrants of the financial sector. The idea was that they would have the most intimate knowledge of the ways in which institutions in the Dutch sector would form positively and negatively affect entrance to and operations in the sector. Convenience sampling was utilized to contact startups that were considered to be innovative based on various rankings. However, this failed to lead to many interviews.
The alternative method that was actually used was to focus on a wide range of experts in and around the sector. An aspect of this change was a shift from the original focus the research would have had on the micro-level of startups in the financial sector to a focus on the meso-level of the sector as a whole. This alternative again started with convenience sampling based on which experts initially seemed useful to talk to and with which experts it was possible to set up a meeting. During those interviews the experts were asked what other parties would be interesting to contact and in some cases direct referral was used. In other words, a snowball method was utilized. Also using this
17 alternative method there was non-response and negative response however this didn’t come from a specific group of experts so in the end the effects of this will have been limited.
The following experts were interviewed: Iwan Biemond (AFM), Paul van Kempen (VNO-NCW), Willem Vermeend (special envoy Fintech), Ton de Bruin (VvV), Bas Beekman (Startup Amsterdam), Diederik Heinink (ING), Willem Schudel (DNB), Floris Mreijen (NVB), Jorik Blaas & Pieter Stolk (Synerscope), Douwe Lycklama & Art Stevens (Innopay), Joris van Horzen (Kennedy van der Laan), Marien van Riessen & Rob Dorscheidt (Advicegames), Gijs Boudewijn (Betaalvereniging Nederland) and Niels Turfboer (Spotcap). They were interviewed in 15 interviews. These experts were thus employees of regulators, trade associations, startups, a bank, a government organization, a law firm and the like and as such were capable of shining light on the issue from different perspectives.
The interview itself was semi-structured with open-ended questions. The exact questions depended on the specific experts and were also somewhat adapted to the ebb and flow of the interview itself. Most interviews were around 60 minutes long and held face-to-face at the expert’s organization. Three interviews were done via phone. Most were done one on one but two interviews were done with two people at the same time. Beforehand the experts were informed of the topic of the research via email but not of the specific questions that would be asked. The interviews were recorded, some by hand and others through digital recording. The experts agreed to being mentioned by name in this publication, with the above mentioned caveat that their statements would not be framed as the viewpoint of their organization. The experts were all interviewed in Dutch. Whenever quotes of experts are used the original statements are translated as literally as was possible, while remaining legible.
Their insights are distributed below amongst different categories which were drawn from the literature (specifically institutions, internal relations and external relations as seen below), plus some additional categories which fell slightly outside of the categories from the literature (specifically market conditions and dividing institutions, internal relations and external relations into the subcategories shown below). Institutions are specifically discussed as the culture and habits of people on the one hand and the rules and regulations that exist on the other. Internal relations concern the organization and culture of financial firms. And external relations concern the relations financial firms have with each other, as well as with other parties that play an important role in the financial sector. In addition, some categories that were brought forward by the literature were not prominently mentioned by the experts (education & training, corporate governance and industrial relations). These latter categories, when they are mentioned, are thus not mentioned under their own headers but under the other categories. One thing to keep in mind is that most reactions of the experts focused on banks and payments specifically, though often done in a way that make them more generally applicable.
18 4. Institutions and market conditions of the Dutch financial sector
In this chapter the focus will be on institutions and market conditions that have been said to be important by experts. In the first part the state of affairs of the financial sector worldwide and the Dutch sector specifically will be discussed. This will give insight in general institutional and market conditions that have played a role in the global development of FinTech and allows us to see how far the developments are in the Netherlands specifically and what market conditions are in play there. The second part will focus on how institutions affect financial innovation of the Netherlands specifically. By doing so, institutions that affect the demand for financial innovation, institutions that affect the supply of financial innovation and institutions that are European in origin will be discussed.
State of Affairs of the Financial Sector
2008 is of course an important year for the financial world because of that year’s financial crisis. The crisis might not be the cause of what is currently happening in the financial sector but Arner et al. (2015) suggest that it was at least a catalyst. They describe changes to both formal and informal institutions shaped by the crisis that have affected the landscape of the sector (though it remains to be seen how long-term and fundamental those changes are). Wales (2015) adds scandals such as the rigging of the LIBOR interest and tax evasion to the list of accelerators of changes.
Concerning informal institutions, Arner et al. (2015) argue that the crisis has damaged the perception of traditional financial organization by consumers, politicians and regulators alike. Wales (2015) even goes so far as to state the events have caused people to become “unbanked” i.e. to choose not to have a bank account at all. Mackenzie (2015) adds that the crisis caused innovation in the financial sector to become viewed as being “synonymous with risky investment and risky behavior” (p. 51).
These changes in informal institutions in turn had an effect on formal institutions, namely stricter rules and regulations for the traditional financial organizations. Although on the one hand the crisis might have made the distance between governments and financial organizations larger in this way, on the other hand the crisis also caused governments to nationalize financial organizations or to bail them out. The stricter rules and the critical eyes made it more difficult for traditional organizations to innovate due to the increase in compliance costs. It became relatively more lucrative for businesses that offer financial products and services for smaller firms in the financial sector since they might be held to less regulatory scrutiny.
Banks themselves have also seen a change in informal institutions, they have become more risk-averse when it comes to lending money. This together with the increased compliance costs, meant banks
19 became less likely to lend money to SMEs (Arner et al. 2015, Mills & McCarthy 2014). Thus specifically in the area of lending, there was a gap in the market that could be filled by modern technology. This is not just an opportunity for new players in the financial sector however, because they themselves face the same lack of SME lending but we’ll come to that later.
One consequence of the crisis was higher unemployment. The higher rates of unemployment were something that hit young people just out of school (the so-called millennials who are on average more tech-savvy and higher educated than others in society) particularly hard. In addition, unemployment gave governments a reason to boost the ability to start one’s own business (Arner et al. 2015).
However, there wasn’t just higher general unemployment but financial professionals specifically saw a large decrease in job opportunities or at least in job earnings within traditional financial organizations. These professionals then had to find new opportunities which suited their financial background (Arner et al. 2015). This partially explains why regions which were strong in the FinTech 2.0 era remained strong in the FinTech 3.0 era, they already had a large concentration of financial professionals.
This is all not to say that technological advancement had no role to play in the shift from FinTech 2.0 to FinTech 3.0. Important technological changes include but are not limited to: the breakthrough of smartphones (iPhone in 2007, Android-based phones in 2008), the breakthrough of tablets (Android-based tablets in 2009, iPad in 2010), the open source software release of bitcoin in 2009, the introduction of cards and phones using NFC6 in 2010. And this is besides the general increase in computer use, computer power, internet penetration and so on. Willem Vermeend for example argued that FinTech is merely a small part of the general transition in the society and the economy towards the use of Internet of Things, Big Data and so on (what he called ‘smart industry’). Ton de Bruin similarly argued that FinTech is part of a general change towards the sharing economy, robotics, transparency and the like as he compared FinTech developments to Airbnb and Uber. All of these technological developments are important and without them the shift from FinTech 2.0 to FinTech 3.0 would not have been possible. However, as some experts put it, technologically a lot more is possible than what is allowed by governments and by regulators and than what is accepted by consumers. Thus what products are available on the market is determined by formal and informal institutions, as well as in market conditions, not just by technological developments.
6 NFC means Near Field Communication and it allows short-range interaction between two devices or between
20 How well is the Netherlands doing and how much has the Dutch sector changed already?
The crisis, other events in the financial sector and technological developments have impacted the Netherlands as they have other countries. It is clear that things are happening, at least in the mind of politicians and journalists. There have been debates about FinTech in parliament, the government has appointed a FinTech envoy to see what limitations there are for FinTech in the Netherlands, Dutch regulators have released reports on FinTech and so on. Within the context of these changes one might wonder which countries manage to take or keep a leading role in financial innovation and how the Netherlands compares. In general interviewees tended to say that the Netherlands is doing quite well. Perhaps it is not one of the leading countries, but it is not far behind. Diederik Heinink stated for example that given the size of the Netherlands, the Netherlands is doing really well. Iwan Biemond was a bit more reserved in his assessment when he said: “I don’t see why we should be doing worse than Belgium or France or Germany.” Willem Vermeend was even less positive in his assessment of the Netherlands compared to other countries as he stated that there are hardly any FinTech scaleups meaning that scaleups are mostly either actually tech companies or financial but seldom both (and thus seldom FinTech).
The UK and the US were often mentioned as actual leaders. In fact, many experts were of the opinion that the Netherlands would not be able to surpass the UK in the area of financial innovation. This was even stated by Dutch minister of Finance (Tweede Kamer 2016). Joris van Horzen added that although part of the apparent lead of the sector in the UK and regulation in the UK is probably based on actual performance, a part of it is also a consequence of an image the UK has cultivated. He also mentioned that companies looking to enter the European market often put the Netherlands on their shortlist of locations, even if the Netherlands is not the top pick in the end. Biemond noted however that not being ahead is not always a bad thing: “In the UK they are a bit further with FinTech, meaning both the sector and the regulator. A lot of things they came up with, we [the AFM] can do as well of course. And that's the big advantage of running a little behind.” What this suggests is that there are costs and uncertainties tied to being an innovation leader that those who can quickly imitate those leaders might be able to avoid, while still reaping enough benefits. However, being able to quickly imitate also requires an investment, even if that investment is lower than actually leading. For example, it requires the right infrastructure and expertise to incorporate innovations.
It might not be surprising that the Dutch sector is doing well. Multiple interviewees noted that the Netherlands has a long history of being ahead when it comes to financial innovation. Gijs Boudewijn for example claimed that the Netherlands has long been at the forefront of digitalization and online banking within Europe. Amsterdam specifically has a long history as a center of finance. And as noted
21 before, places which were a center of finance during FinTech 2.0 stand a good chance of maintaining their position during FinTech 3.0. This corresponds to how interviewees pointed out that Amsterdam is becoming a hub for FinTech, at least within the Netherlands. Bas Beekman and Art Stevens for example noted that there are a lot of IT firms and IT departments located in Amsterdam which makes it an attractive location for new IT firms. Iwan Biemond added that it helps that FinTech companies can create a network, not just with each other by concentrating in a single location and being able to organize events where they can meet each other, but also by being close to the larger and older financial organizations, many of which are located in Amsterdam.
Floris Mreijen stated that the Netherlands and Amsterdam has a good position in being a hub between the main land of Europe and the rest of the world with Schiphol, the Amsterdam internet exchange and the like. He also noted that in general Amsterdam has been positively valued by various reports that analyze the climate for startups of cities in the world. Niels Turfboer noted that London might seem like an attractive location but that attraction also comes at a cost, namely the cost of space, something that is quite a bit lower in Amsterdam. Although Turfboer was not optimistic about whether or not that would be a decisive argument for firms to choose Amsterdam over London. Whether the Brexit will positively impact the position of Amsterdam vis-à-vis London only time will tell, with analysts arguing both sides.
Despite the good position the Netherlands and Amsterdam might have, the developments seem not to have had that big of an impact just yet. Diederik Heinink did say that there is a general trend towards products and services that are faster, easier, saver and possibly cheaper, with the biggest difference between what is entering the market now compared to what was there before is the focus on mobile. Iwan Biemond agreed that new products might be better, smarter, more efficient and cheaper but on the other hand he wasn’t seeing a fundamental change yet, unlike what one might expect based on reports from the media. Similarly, Gijs Boudewijn mentioned that mobile payments for example have entered the market but that such an introduction is not very exciting since that doesn’t change all that much. Biemond said: “It only becomes disruptive or it only becomes fundamental when you get a large consumer adoption. And that appears to be quite difficult.” Likewise, many interviewees agreed that the extent to which there were new players with real impact, with real growth on the Dutch market was quite limited, with the main exception of Adyen, which was mentioned by pretty much all interviewees.
Another thing that many experts noted was that BigTech companies (companies like Apple, Google, Facebook, Amazon, Alibaba and Vodafone) were not yet very active in the Dutch financial sector. Although internationally the matters are somewhat different as seen in services like Alipay, Apple Pay,
22 Google Wallet and M-Pesa. There was some disagreement on what the likelihood is of BigTech firms expanding to the Dutch financial market (by offering some financial services) but there was consensus over the fact that it was unlikely that BigTech companies would be seeking to become full banks or another type of highly regulated financial organization since that would involve too high compliance costs and too much regulation.
Iwan Biemond had noticed an increase in funding for FinTech. Similarly, Niels Turfboer mentioned that an upwards spiral was slowly starting to grow in the Netherlands, with increased attention from media and politics, partially as hype but partially as a consequence of real change, for example when it comes to the number of new players on the Dutch market. Gijs Boudewijn did caution against judging the advances in financial innovation purely on how much seems to change for consumers. He mentioned that a lot can change ‘under the hood’, with which he means in terms of infrastructure, without it being very noticeable for users. Ton de Bruin nuanced the increase in FinTech activities by noting that while things may be happening in areas such as payments and banking, the changes in insurance are a lot less significant thus it is important to differentiate between different areas.
Market conditions
A part of the reason why the Dutch sector has not changed as much as one would expect yet, might lie in the market conditions of the Netherlands. Market conditions are not quite the same as institutions (which will be discussed later) but of course they are likely to affect and be affected by institutions. One important aspect of the Netherlands which many interviewees have mentioned is the fact that the Dutch market is a small market. The size of a market is of course relevant for all sectors however as Iwan Biemond noted, it might be especially problematic for FinTech companies since “[t]he business model of FinTech is based on your ability to scale”. While the marginal cost of many FinTech solutions might be low, so is the marginal revenue.
As was mentioned the Netherlands has been doing well when it comes to financial innovation for a long time. Related to this, interviewees often said that the present day financial system of the Netherlands is an efficient one, specifically in the realm of payments. A high percentage of people have a bank account, a high percentage of people use online banking services, a relatively low percentage of payments is done via cash, the adoption of internet and mobile phones is high. Table 1 shows how the Netherlands compares in these respects to the rest of northwest Europe. It seems to be the case that Scandinavian countries, Luxembourg and the Netherlands do well in these respects, while the UK is a bit more average. On the one hand this could be beneficial, in the sense that such a well-developed sector might positively affect the ability for FinTech innovations to spread in society. This is especially
23 the case when one looks at it combined with the high levels of average wealth, education and English language skills. These factors might also provide a good well to draw employees and innovators from, as argued by Floris Mreijen. Though Paul van Kempen and Willem Vermeend warned that the Netherlands might not be doing that well when it comes to the number of people with degrees in exact fields, which will become a larger and larger problem in the future.
At the same time, interviewees also warned that having had such a lead until recently might also become negatively affect innovation. Joris van Horzen for example specifically mentioned how the efficiency of the Dutch payment system makes the additional gains that one can achieve there limited compared to some other countries. For example, Gijs Boudewijn mentioned that the currently apparent benefits of blockchain compared to what is already available are not yet high enough that businesses are willing to incorporate it into their operations.
Table 1: Statistics on the penetration of technology in the Netherlands
% Internet Banking % of payments done in cash % with 1+ bank accounts % Internet Penetration % using 3G for internet access Austria 49 52,52 97,1 80,62 64 Belgium 58 54,42 96,3 82,17 69 Denmark 82 37,39 99,7 94,63 78 Estonia 73 44,16 96,8 80 61 Finland 84 36,06 99,7 91,51 74 France 58 44,15 97 81,92 61 Germany 47 60,79 98,1 83,96 63 Ireland 46 69,09 93,9 78,25 69 Luxembourg 63 29,06 94,6 93,78 80 Netherlands 82 36,95 98,7 93,96 76 Sweden 82 38,29 99 94,78 77 UK 54 45,28 97,2 89,84 79
Sources: Takieddine & Sun 2015 (internet banking data from 2013), Eurostat (3G data from 2015), G4S 2016 (payments data from 2012 and bank account and internet penetration data from 2015)
Arner et al. (2015) mention something similar when they argue that part of the reason why initiatives such as Alipay and M-Pesa are so successful, in China and Africa respectively, is because the financial system present there has not yet fully developed to the same extent as it has in most western
24 countries. Combined with this, bank accounts have not penetrated to the same degree as they have in the west meaning there is more room for mobile and non-bank payment initiatives. Thus the small market combined with a low need for much innovation due to everything already functioning well might create a situation of relative low demand. In a similar vein Niels Turfboer noted that the changes in developing countries are much bigger than in the western world, because the people there are going from a situation where they were underbanked, underserved and underdigitized to a situation where they do everything with their smartphone.
However, it is important to note here that the financial sector is not one field. While there might not be a lot of need for innovation in the field of payments, Joris van Horzen stated that a lot less firms are active in the field of aggregation and scraping on the Dutch market. In other words, demand might vary by field based on how developed that field already is.
Institutions contributing to and limiting financial innovation
Having set the stage by giving some historical background for the current developments and by describing the general position of the Netherlands, we turn now to Dutch institutions that might positively and negatively affect financial innovation. First we will focus on institutions that affect customers and businesses in their willingness to adopt new financial products and services and their willingness to change financial service providers (this is called the demand side here). Second, we will look at institutions that affect the providers of financial products and services more directly (called the supply side here). VoC literature has tended to focus on the latter, but since experts often brought up the former and since conceptually nothing in the VoC literature is against it the choice was made to include it. In the last section we turn to Dutch institutions in the context of Europe, which affects both demand and supply as will be discussed.
The Demand Side
As mentioned before, the efficiency of the Dutch sector might dampen the need for new developments. However, the efficiency and history also affect the culture of the Dutch. In this context Arner et al. (2015) discuss the concept of behavioral legacies, which they describe as follows: “in developing markets there may well be a lack of “behavioural legacies” whereby the public expects that only banks can provide financial services. The term “behavioural legacies” echoes the “IT legacy systems” of banks that prevent them to fully digitize their process given the fact that their system are
25 too-old-to-upgrade and too-expensive-to-replace.” (p. 15) In other words, it is not just the needs that are affected but also believes about how the sector should operate.
Something multiple experts also mentioned was that the Dutch do not easily switch banks. Iwan Biemond said: “They switch less quickly than you might expect or might think so that is tough for new banks like BUNQ. They are used to their primary bank.” In fact, when asked if people were not increasingly critical of the sector he said that while that might be the case, he didn’t see that translate into increased ease of switching banks. Several other interviewees also noted the same, people are critical towards the sector, but yet loyal to their primary bank. They pointed towards aspects such as tradition and perceived hurdles for change. One way in which switching banks could be made easier is through the ability to keep one’s bank account number when switching banks7. Though not all experts were convinced that the benefits of implementing such a system outweighed the costs and that such a system would actually reduce the perceived hurdles. Ton de Bruin noted that while people might not switch primary banks easily, things are different for insurers.
However, there might also be aspects of Dutch culture that might be beneficial for demand. In that regard Niels Turfboer called the Dutch in general early adopters (as put forth in Rogers’ theory of Diffusion of Innovations). Maybe they are not the quickest with creating new innovations, but once the innovations are there, there is a very quick and very general adoption, Turfboer explained. The Dutch curiosity to and acceptance of new technology was noted by more experts, with the Dutch being compared to Scandinavians in that regard. With Willem Schudel even stating that companies often like testing new products in the Netherlands for exactly this reason. And once there is large-scale adoption of things like internet banking, paying using non-cash solutions and mobile internet is high (as seen in table 1) then the step towards adopting future products is relatively small. Current adoption of tech thus not just facilitates the ability of new products to spread by providing the infrastructure (i.e. having a smartphone allows for mobile banking) it also stimulates the likelihood people will be accepting of those new products.
Jorik Blaas and Pieter Stolk both noted there was a growing awareness of existence of, the use for and the value of big data, both amongst the general public and amongst potential clients of their products. More and more the discussion about data has taken a central place in public discourse. Though several experts also mentioned that the government could do more in raising awareness (both amongst itself
7 As suggested by the ACM in 2016 for example who argued that implementing something to that effect would
improve (EU-wide) competition in the financial sector and they argue that it would have the added benefit of decreasing administrative costs for banks.
26 and amongst the general public) of the benefits and risks related to data in general and to the intersection of data and finance specifically.
The Supply Side
The supply side refers to several related but different things. It refers to how institutions affect entering the Dutch market by foreign companies, how institutions affect domestic companies entering foreign markets and how institutions affect entering, growing in and exiting the Dutch market by domestic companies. Though the emphasis here is on the latter, the other two aspects are nonetheless important and some experts mentioned them explicitly.
We already mentioned how the history and efficiency of the Dutch system might affect the demand there is for radical innovation and might affect the ideas consumers have, Gijs Boudewijn claimed that having been ahead for so long might also affect ideas businesses and the government have. By believing one is ahead and by saying one is ahead, one also sees less reason to invest in progress he argued.
Jorik Blaas mentioned that Dutch firms tend to be careful. He said firms in the US are a bit more daring with large-scale innovation projects, while firms in the Netherlands look at those American projects and pick-and-choose from them the aspects that seem to work. So again, we see that the Dutch might be adopters, not early innovators. Niels Turfboer gave an explanation for why that might be; he argued that the lack of a social safety net forces US citizens to be more entrepreneurial. Floris Mreijen gave a different explanation. He argued that due to the crisis the Dutch have made regulation strict and expensive. This has caused the Dutch to lose something of their traditional openness towards innovation and commerce. He argued that this has partially been a justified response to real problems in the financial sector but that the government and regulators may have gone a bit too far in terms of compliance costs and trying to limit risks. Likewise Douwe Lyckema for example argued: “You have to realize that everything in the financial world is aimed at maintaining what is there, it is risk-averse, that is what is rewarded in the financial world. So everything that smells like change is by definition risky, innovation is by definition risky. That mindset is quite overrepresented in the financial world.” The consequence of this, Ton de Bruin argued, is that governments force regulators to force businesses to focus more on ‘running the business’ than on ‘changing the business’.
As noted, one thing that differentiates LMEs from CMEs is that in the former there is more of a focus on funding via venture capital and the latter focus more on ‘patient capital’ i.e. bank lending. However with the above described situation caused by the crisis, bank lending for SMEs has become more
27 limited. Lack of funding, specifically for scale-ups, was thus one the most important constraints of the Netherlands for the supply side mentioned by experts. Niels Turfboer for example mentioned that a lot more funding is available in London and Berlin. Paul van Kempen stated that this might not be entirely due to institutions, as larger markets make investment via venture capital more rewarding:
You invest in a hundred parties at once, one of them skyrockets, the rest goes bankrupt, so you need scale.” Bas Beekman put these problems into perspective however by saying that funding problems for scale-ups are present in many countries and that initiatives like crowdfunding will go a long way of elevating them.
When it comes to rules for small FinTech companies the interviewees from Advice Games said starting businesses in the Netherlands is relatively easy and that being an entrepreneur is always about taking risks and hard work. They didn’t really see the need for much change in rules, the main change they were looking for was clear and decisive actions from the government, whatever the actions might be. Pieter Stolk on the other hand talked about how policy is aimed too much at larger firms. For example, he argues that for smaller firms it would beneficial to pay in options and shares but because doing so lead to misuse amongst larger firms, specifically banks, it has now become fiscally unattractive to do so. Another example he gave was when it comes to public contracts, the government tends to favor larger more established players over new players. He also claimed that the WBSO (a fiscal measure to reduce costs of R&D) favored larger players over smaller players. In other words, whether it is about preventing misuse of rules or about stimulating innovation, Stolk argued that there is too much focus on large established players.In a similar vein, Niels Turfboer stated that many innovation policies in the Netherlands are made without cooperating with the actual innovators, i.e. the startups and scaleups. This means that policy is made with great distance to actual innovation and fails to reach its goals, despite being well-intended.
Floris Mreijen and Paul van Kempen seemed to argue the opposite to some extent. They stated that they see a positive approach currently in parliament and the government towards innovation in the FinTech sector. As mentioned the Dutch government has recently taken several steps in trying to address barriers for innovation. However, they also argued that parliament and government mostly seem to focus on how innovation is good when it comes from new parties and on what can be done to help that type of innovation, instead of how innovation in general benefits the sector and what can be done to improve innovation in general in the sector. Willem Vermeend also worried about the policy focus on startups but more because he argued that innovation and job creation come from scaleups, not from startups, and that the difficulties do not lie with creating a startup but with going from startup to scaleup so that is what policy should be focused on.
28 The Netherlands could do more in terms of international image-building Joris van Horzen stated. For example, the government could emphasize the strengths of the Dutch economy more, which are definitely there. And the government could also at least give the impression that foreign companies are welcome. Things like an innovation hub or a sandbox (as proposed by the FCA) do not just affect the actual conditions, but also affect the perception others have of you. Niels Turfboer agreed that the Dutch government could do more to try to get international attention, for example to attract international talent and to attract international capital. The UK does that a lot more he argued. Likewise, Paul van Kempen said that one of the most important things the Dutch government could do is to make a clear statement that they want to stimulate innovation in the sector. In that case the rest would follow.
Europe
Europe and specifically the EU is of course an important part of understanding the Dutch situation. This is even more the case for a digital field like FinTech, as Paul van Kempen noted, because it’s relatively easy to be located in one country and develop activities in a different country which makes the international dimension important. As noted FinTech also requires scale which often means moving from one country to the next. Douwe Lycklama explains that this means that FinTech companies thus have to consider rules and regulations of other countries early in the design of their products. Although Hall and Soskice focused mainly on the nation, there was widespread agreement amongst the experts about the fact that by far most financial rules and regulations come from the EU, not from the national governments and that the differences in financial rules and regulations are thus quite small. Ton de Bruin did caution that, again, the world of insurance might be different than the world of banks in this regard because “rules and consumer protection of insurance markets is patchwork” and because of that insurers will settle in each country where they are active. Moreover the fact that most financial rules and regulations come from the EU means that there are also parts that do not come from the EU. In addition, when it comes to non-financial policy (such as concerning the general conditions of the business environment) nations have a lot more freedom.
However, the most important thing that was mentioned by the experts was the difference between harmonization of rules and regulation in theory and variation in application in practice. One example is the European passport. This is given to financial organizations by a nation’s regulator and allows that firm to more easily go from one EU country to the next. It doesn’t have to go to each country’s regulator to get a license. The challenge lies in the fact that how easy or hard it is to get the passport depends on a national regulator and there can thus be variation. As Iwan Biemond explained: “That means you
