Answer ... The Financial Stability Board divides fintech activities into five categories based on their economic functions, as follows (see www.fsb.org/wp-content/uploads/R270617.pdf):
- payments, clearing and settlement – examples include the new payment services under the second Payment Services Directive (PSD2) (payment initiation services and account information services) and the use of APIs to achieve a more open banking environment;
- deposits, lending and capital raising – examples include alternative financing and crowdfunding platforms, whether or not based on blockchain technology;
- insurtech – examples include insurance policies programmed as smart contracts and Internet of Things developments and similar big data collecting wearables, sensors or software;
- investment management – examples include robo-advisory investment services, mobile trading applications and algorithm-based trading robots; and
- market support – examples include cloud computing solutions (software as a service, platform as a service, business process as a service, data as a service and infrastructure as a service), regtech and innovative digital and biometric ID (know your customer) services.
Due to its digital ecosystem and high connectivity, thanks to housing two of the largest internet exchange points in the world (AMS-IX and NL-IX), the Netherlands is home to many tech companies, including fintech companies. As the world’s second datacentre hotspot, Amsterdam is known as the digital gateway to Europe (www.digitalgateway.eu).
Recent research conducted by EY shows that the Netherlands has the highest percentage of consumer fintech adoption in Europe (73%, compared to a global average of 64%) (EY, Global Fintech Adoption Index 2019).
The Netherlands is thus the perfect testing market for fintech start-ups. The payments (eg, Adyen, iDeal), business lending (eg, Funding Circle) and market support (eg, Ohpen) sub-sectors are the most embedded in the Netherlands.
Answer ... The main driver for Dutch fintech companies is improving user and customer experience. Although the payment sub-sector is one of the three most embedded sub-sectors in the Netherlands, this is also probably the most difficult sub-sector in which to gain a foothold. Dutch consumers have long enjoyed a safe, quick, robust and well-organised payment infrastructure.
Dutch consumers further may not feel a need for innovative competition in the online payment market thanks to the service offered by iDeal. iDeal was launched in 2005 by Currence as a joint initiative of eight Dutch banks. It has enjoyed phenomenal success: in 2018, approximately 524 million transactions were settled through iDeal, with a transaction value of approximately €43 billion. Approximately 70% of those iDeal payments were made via mobile banking applications (www.ideal.nl/actueel/kerncijfers/).
Notwithstanding this competition, payment institution Adyen (which today holds a banking licence) is one of the Netherlands’ fintech unicorns. Whereas iDeal focuses on the Dutch market, Adyen is aimed at the global payments market.
Credit platforms focusing on business loans for small and medium-sized enterprises (SMEs) are also deeply embedded in the Dutch market. As of September 2019, 44 lending platforms were registered in the public register of the Netherlands Authority for the Financial Markets. Peer-to-peer and consumer credit platforms, as well as crowdinvesting / equity platforms, are less active in the Dutch market.
Answer ... The most common corporate structure in the Netherlands is a private limited liability company (BV). A BV is a capital company with legal personality. With the exception of insurtech companies (if they qualify as insurance companies), the BV is an accepted legal form for all types of fintech companies that are subject to the Dutch Financial Supervision Act.
It is relatively common to set up a corporate structure with a BV as holding company and one or more BVs as operating companies. If the fintech company has patents or other IP rights, setting up a separate IP BV within the corporate structure could also be advisable.
There may be tax reasons to structure the fintech company differently, because each Dutch BV is generally independently liable to pay taxes such as Dutch corporate income tax (unless they form a tax entity, a fiscaleeenheid). However, the participation exemption (deelnemingsvrijstelling) is an interesting Dutch tax feature which is often used to set up a tax-efficient structure. It offers the possibility to exclude income from qualifying interests held by the Dutch BV from its taxable profits.
The current corporate income tax rates are between 19% (first €200,000 of taxable profits) and 25% (taxable profits over €200,000). These rates will be gradually reduced from 2021 to 15% and 20.5% respectively.
Answer ... Depending on the stage which they have reached, fintech companies are primarily financed by regular seed capital providers, such as angel investors and early-stage venture capital funds. Research conducted by KPMG (https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/07/pulse-of-Fintech-h1-2019.pdf) shows that later-stage venture capital funds and private equity funds are also increasingly aware of the potential of the fintech sector. Crowdfunding is another way to fund start-ups, including fintech companies.
The Netherlands is also home to numerous start-up accelerator programmes. The Dutch government aims to make the Netherlands the best start-up ecosystem of Europe – a ‘unicorn nation’. The most important programme is TechLeap (previously called StartupDelta) (www.techleap.nl). The Dutch government has made €65 million available for start-ups and scale-ups, including €35 million in funding for TechLeap. Multiple subsidies are also available for fintech companies in the form of loans provided by the Dutch government on interesting terms. Examples include the innovation credit (https://english.rvo.nl/innovation-credit), government guarantee for SME loans (borgstellingskrediet, https://www.rvo.nl/subsidies-regelingen/borgstelling-mkb-kredieten-bmkb) and the possibility for closed-end venture capital funds to obtain a subordinated interest-free hybrid loan from the Dutch government to finance one or more investments in tech start-ups (https://english.rvo.nl/subsidies-programmes/seed-capital).
Other accelerator, incubator and scale programmes worth mentioning include:
Answer ... Although fintech companies are not disrupting the stability of the Dutch financial system, the fintech industry is expanding and growing exponentially – both globally and in the Netherlands. Fintech companies are increasingly gaining territory in the broader financial services landscape. PSD2 is helping to promote broader acceptance of Fintech developments, while incumbents are also embracing the potential of fintech solutions.
The largest Dutch banks and insurance companies have acceleration programmes (eg, ING – www.ing.com/About-us/ING-Labs.htm), or have founded their own fintech start-ups (eg, ABN AMRO’s crowdlending platform New10 and the account information service provider services provided via its Gripp app; Rabobank’s investment app Peaks; Nationale Nederlanden’s insurance app Gappie; and Kasbank’s currency overlay platform for professional investors, KasHedge). Dutch incumbents are also investing in fintech companies and exploring other ways of collaborating with them (eg, Aegon’s fintech investments – in particular, in alternative financing platforms – via its venture fund Transamerica Ventures; ABN AMRO’s collaboration with Fintech Temenos and investment through its Digital Impact Fund; and ING Ventures, a fund focused on fintech investments, such as in Dutch Fintech company Cobase, which recently obtained its PSD2 licence from the Dutch Central Bank, enabling it to launch its multibank platform).
Increased disruption and competition should perhaps be expected from the tech giants – for example, ING recently announced the launch of Apple Pay as an instore payment method for its customers.
Answer ... Given that market support and back-end tech solutions is one of the most embedded fintech sub-sectors in the Netherlands, fintech start-ups are often the entities to which services are outsourced.
As fintech start-ups generally have a strong focus on their core business, back office functions such as payroll, human resources, tax administration services and debt collection services are quite often outsourced. There is a well-developed outsourcing market in the Netherlands. The fee structures of outsourcing companies are diverse in terms of volumes, turnover and similar quantitative indicators, enabling both start-ups and multinationals to access this market.
The main legal implications are presented by privacy laws (the General Data Protection Regulation) and financial regulatory laws. Financial regulatory laws generally entail the following:
- The outsourcing of key functions may be limited or prohibited;
- The regulated entity remains responsible and liable for the outsourced services, and must ensure that the party to which services are outsourced is aware of and complies with applicable regulatory laws and regulations; and
The outsourcing cannot negatively impact the regulator’s ability to supervise the regulated entity.
Another development in this field worth mentioning is the growing use of ‘white labelling’ structures. White labelling is becoming increasingly common in the financial regulatory sector, where, for example, a regulated alternative financing platform or even a regulated exchange and multilateral trading facility (such as nxchange) is offered to be used by third parties under the full responsibility of the regulated holder of the licence or regulatory approval.