Following Britain’s departure from the EU, several UK fintechs have increased their presence in the Benelux region. This isn’t hard to understand: cities like Amsterdam and Brussels are perfect for ambitious globalised fintechs keen to access the European market. Abi Millar talks to Simon Boonen, fintech lead at ING, and Kim Van Esbroeck, country head Belgium at Aion Bank, about why so many financial players are drawn to the Benelux.

From a banking perspective, the Benelux region punches above its weight. With a population barely nudging 30 million, this small chunk of land in Western Europe plays host to some of Europe’s leading banks and a buzzing fintech ecosystem.

The Netherlands’ banking sector is the seventh largest in Europe, while Belgium’s is ninth and Luxembourg’s is tenth. The latter also ranks as the EU’s leading financial centre, according to CDI’s Global Financial Centres Index, despite having just 645,000 residents.

The region’s outsize impact is due in part to its international openness. Aptly enough for the home of the European parliament, the Benelux has garnered a reputation for being outward-looking and cosmopolitan. That represents a real draw for the international startups setting up operations here, not least the wave of fintechs seeking a European home after Brexit.

The post-Brexit promise

In 2019, the National Bank of Belgium reported that it had seen a rise in applications from British financial services firms interested in relocating here. These included Moneygram and eBury in 2017, along with Worldremit, TransferWise and Prepay Solutions in 2019.

“A Belgian license ensures we can continue to provide a great service globally to our customers, whatever happens with the Brexit deal… Brussels is at the heart of all EU affairs, so establishing an office in the city makes great sense for us,” said TransferWise chief executive Kristo Käärmann.

The Netherlands, meanwhile, is one of Europe’s leading fintech hubs. According to KPMG, 84 fintech companies have applied for licenses here over the past five years – the second highest total in Europe behind Lithuania.

Around 20% of these companies have their headquarters outside the EU, mostly in the US or UK, and have chosen the Netherlands as their entry point to the European market. Examples include Tradeweb, MarketAxess, Azimo, CME and CurrencyCloud.

According to the think-tank New Financial, 48 firms (mostly in financial services) have shifted operations from London to Amsterdam since the Brexit vote. Though the big investment banks are more likely to set up shop in Paris or Frankfurt (largely due to Dutch caps on bankers’ bonuses), Amsterdam has attracted a proliferation of trading platforms, brokerage firms and fintechs. Along the way, it has overtaken London as Europe’s largest share trading hub.

Last year, American equities exchange Cboe launched a new derivatives venture in Amsterdam. The company’s president, Dave Howson, said he saw “substantive growth” in his sector in the Netherlands. As he told Reuters, while other European countries prioritise domestically focused firms, Dutch regulation is amenable to global investors.

Going Dutch

In term of the retail banking landscape, Luxembourg and Belgium are dominated by foreign entities. However, the majority of Dutch residents bank with local banks. Top of the list is ING, the 11^th largest bank in Europe by assets, which has clients across more than 40 countries.

Simon Boonen, fintech lead at ING, sees a number of benefits to being based here.

“Amsterdam is a very international and open minded city, with a highly skilled workforce,” he says. “There is good physical and digital infrastructure. And the regulator is in general quite open for conversation around new themes and technologies.”

He adds that the country is well positioned to attract talent. In 2021, around a quarter of a million people immigrated to the Netherlands, most of them from elsewhere in Europe. Many would have been attracted by the country’s 30% tax ruling, which gives a tax break to highly skilled migrants moving here for a specific role. It helps that English is the lingua franca in many workplaces, with around 90% of the population speaking English with near-native fluency.

“ING prides itself on its diverse and international workforce,” says Boonen. “Some of the points that make Amsterdam/NL attractive for business also apply to attracting talent. Amsterdam has a good work-life balance and a vibrant tech-oriented business climate. It is a compact city with many great facilities – culture, parks, nightlife etc – and is close to other appealing hotspots like the beach!”

Many of these advantages apply elsewhere in the Benelux too. Generally speaking, the region boasts a rich business ecosystem, with plenty of funding opportunities to help new entrants get off the ground. 

According to Silicon Canals, the region’s startups have access to 35 incubators, 97 accelerators, 406 VC funds and 635 business angels. Benelux startups secured €6.2bn in VC funding in the first three quarters of 2021, a big rise on €2.7bn the year before.

New kids on the block

Among other types of fintech, the region boasts its fair share of neobanks. Some of these are foreign banks looking to corner the Benelux market, such as Germany’s N26 and the UK’s Revolut. The former has been present here since 2016, while the latter launched as a full bank (as opposed to an e-money institution) in January this year.

Others are home-grown challengers, such as the Dutch banks bunq and Knab. Bunq was founded in 2012 and obtained its banking license in 2014. After a long period of self-funding, it secured a €193m investment last year to reach a valuation of €1.6bn. The bank has subsequently become the first European digital bank to offer mortgages.

Knab was spun out from insurance company Aegon in 2012. It predominantly offers business banking services, with a particular focus on the self-employed.

Luxembourg-based Sogexia started out in 2010 as a firm offering prepaid cards. It launched its first online payment accounts in 2016, and was granted a Luxembourg payments license in 2020. That meant it could migrate its customers (previously serviced by a UK-based banking partner) to its own systems, bypassing the threat of Brexit.

Aion Bank, meanwhile, was founded in Belgium in 2020 as a full-service digital bank and credit institution. It has since moved into Banking-as-a-Service (BaaS) provision, and aims to become one of the top European BaaS players within the next two to three years.

“We are a pan-European BaaS provider, which means we offer both financial and non-financial entities a full suite of banking services, alongside access to our banking license and regulatory and compliance expertise,” says Kim Van Esbroeck, country head Belgium at Aion Bank.

She adds that being headquartered in Belgium brings many advantages to the business. As the capital of the EU, Brussels represents the ideal jumping-off point for a fintech that wants to conquer Europe.

“National Bank of Belgium, our regulator, has a good understanding of digital banking, and our clients feel secure that our products are the highest standard and fully compliant,” says Van Esbroek. “We see a tremendous opportunity in BaaS, with a sizable addressable market in Europe projected to be $300 billion plus.”

Collaboration is key

Despite the rise of the challengers, incumbents like ING say the region’s startups are more to be welcomed than feared. According to Boonen, the bank routinely collaborates with fintechs and likes to apply partnerships at scale. It currently has more than 110 live partnerships, including 17 investments.

“Partnerships are great win-win opportunities,” says Boonen. “We learn about agility, creativity and entrepreneurship, while we offer the fintech a strong brand, a large client base and financial expertise. Also it will enable us to bring new services to our clients faster.”

For instance, ING recently teamed up with Samsung and NXP Semiconductors to pilot a peer-to-peer payment app based on radio waves. The app, called NEAR, enables users to transfer money simply by pointing their smartphone towards the recipient’s.

The bank is also working with fintech Cogo to trial a carbon footprint tracking app. The feature, called Footprint Insight, calculates the CO2 emissions associated with the person’s spending. Cogo previously took part in ING’s innovation accelerator, as part of the ING Labs Brussels 2022 cohort of startups.

It’s worth noting that, while ING is an established presence in the Netherlands and Belgium, its business model varies significantly depending on the country. Boonen remarks that in some parts of the world, ING is more of a challenger bank itself.

“In some markets we offer a fully digital model,” he says. “In others, we only offer wholesale banking services or a combination of retail and wholesale.”

He adds that Dutch customers are highly digitised with a do-it-yourself culture. That means the Netherlands – along with the rest of the Benelux – is the perfect place to trial new innovations.

“Dutch customers’ high expectations regarding digital services and interactions make us do our utmost to meet those expectations,” says Boonen.

It’s an ethos that the region’s banking sector has taken on board, especially since the Brexit vote. If Europe is to ‘become a global hub for fintech’ – the stated goal of the European Commission – it will need a supportive regulatory climate, a rich talent pool and an international focus. By any metric, the Netherlands, Belgium and Luxembourg have that ambition firmly in their sights.

Stats

1 – The Netherlands’ ranking in the global EF English Proficiency Index 2021 –  https://www.ef.com/wwen/epi/

8 – The number of domestic banks in Luxembourg, out of a total of 128 – https://www.statista.com/topics/5783/banking-in-the-benelux/#dossierKeyfigures

440 – Estimated number of financial firms that have moved their business from the UK to the EU after Brexit – https://newfinancial.org/brexit-the-city-the-impact-so-far/

This article appears in the Winter 2022 edition of Future Banking