Radix Report: The Future of Digital Finance in Europe

Radix | Dec 2020

The future of digital finance in Europe runs through public policy. While there is much excitement about technological advances and the promise they might offer, the primary driver of the future shape of digital finance and whether it will deliver meaningful social benefit or merely reproduce, in digital form, the strengths and weaknesses of the current financial system, depends heavily on the direction of public policy and the regulatory framework. This is the main conclusion of a paper titled “Building Digital Finance in Europe: FinTech for Social Value” published today by the RADIX Centre for Business, Politics & Society based in Amsterdam.

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“The Covid-19 pandemic has brought a degree of realism into how investors and regulators look at the FinTech industry,”

says Ismail Ertürk Senior Fellow at RADIX, Lecturer in Banking at the Alliance Business School, University of Manchester, and first author on the paper.

“The collective name ‘FinTech’ has outlived its usefulness. We need a much more granular way of looking at these developments.”

The paper highlights the potential issue of FinTech failing to upend the financial services market, as it was hoped it would, if FinTech start-ups get squeezed in a pincer movement between the incumbent financial institutions and Big Tech.

“FinTech lies at the intersection between industrial policy, competition policy and financial regulation requiring policy initiatives that bridge those silos,”

according to Joe Zammit-Lucia, RADIX co-founder and second author.

“And all to be considered within the context of social policy if we are to harness FinTech for social benefit.”

Delivering Social Value

The paper is the first to attempt to produce a scheme for how digital finance initiatives can be evaluated on the basis of the amount of social benefit they provide rather than just from an investment or financial regulation perspective. While Europe remains behind the US and China in digital finance, the authors argue that Europe has the potential to become a significant player in this space.

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They suggest:

‘A coalition of the willing and able’ among EU member states and other European countries such as the UK and Switzerland to harness the best of what is available across the continent

A multilateral investment fund focused on investing in European digital finance initiatives that can deliver social value

Proactive competition policy that prevents the same concentration of power in FinTech as has happened in Big Tech

Financial regulation that creates the conditions for market disruption without sacrificing financial stability

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