General introduction and market overview
Belgium has always been a frontrunner when it comes to financial services and technology, even before it was called “FinTech”. Critical market infrastructure players such as Swift and Euroclear are based in Brussels and have been providing services to financial institutions worldwide for many years.
The FinTech hype got a boost around 2013/2014 with developments mainly in the field of alternative financing (crowdfunding, peer-to-peer lending, etc), rapidly followed by significant evolutions in the payments sector obviously powered by the regulatory innovation brought by PSD2. Popular payment solutions offered by FinTech companies in Belgium include retail payment platforms, but an important part of the market is working on B2B payment services such as professional FX payments for small and medium-sized enterprises (SMEs). As a result of Brexit, very high-profile UK payment service providers – the likes of MoneyGram, TransferWise, Ebury and WorldRemit – selected Brussels as their outpost to continue serving the continent. The arrival of these players adds a lot of maturity to this sector in Belgium.
Next to alternative financing solutions and payment platforms, we also see in Belgium several automated investment solutions (robo-advisers) and an important number of infrastructure and enabling technology service providers offering RegTech, data and accounting solutions. Although Belgium counts a few local champions developing well internationally, blockchain and crypto initiatives/ICOs remain rarer phenomena in the Belgian market.
A recent trend is clearly the rise of Belgium-based challenger banks, which are still under development but will be unleashed in the course of 2020. This is certainly an evolution to watch, and it will be interesting to see how they differ from the current digital banking offer on the market. Another recent trend along with the Covid-19 crisis, is the growing popularity of contactless payment in Belgium. This is seen as a safe way to make payments under the current pandemic circumstances and has been given an additional boost by Belgian banks that decided to double the amount limits for contactless payments.
Outside the Brexit context, Brussels has become an attractive choice for foreign FinTech companies from the Americas, Asia and even other European countries to set up their European headquarters, apply for a licence, and try to conquer the European continent with their products and services from Belgium. This shows that the current growth in the Belgian FinTech sector is not based on political circumstances (like Brexit) or mere coincidence, but is rather the result of a steady, sustainable and attractive local ecosystem.
The relation between FinTech companies and incumbents has evolved over the years from a denial of their existence by the traditional banks, through a phase of mistrust and competition, to today’s situation where a lot of collaboration is happening. Now, banks and other traditional financial groups are heavily investing in FinTech startups, but are also becoming their best clients as more and more FinTechs are focusing on B2B services, given the client acquisition cost that comes with serving consumers directly.
In early 2016, the non-profit organisation “FinTech Belgium” was launched to represent and bring together all FinTech companies established in or linked to Belgium. Through numerous specific events and general summits, this association has gathered the FinTech sector and facilitated several collaborations in the field. More recently, another non-profit organisation, PayBelgium, has been created to represent the Belgian payments industry and its interests to policymakers. They focus on developing common policy positions and engaging with the regulators to defend the industry’s interests. Also, the traditional banking sector, with support from the Government, has launched ecosystem initiatives in the past, and both Febelfin (the Belgian Financial Sector Federation) and EBF (the European Banking Federation) are actively involved in structuring the FinTech ecosystem.
Belgian financial regulation is mainly based on European directives. Most of the time, a maximum harmonisation approach is taken by the Belgian legislator, avoiding gold-plating practices. Therefore, the main pieces of financial legislation (PSD2, MiFID2, Banking Directive, IDD, etc) that matter to FinTech initiatives are very similar (if not identical) to the legislation applied in other European jurisdictions. Through the system of mutual recognition/EU licence passporting, financial services licences obtained in Belgium can be easily passported to other EU countries without the need to apply each time for a new local licence in targeted markets.
When certain subsectors remain overlooked by the European legislator, the Belgian authorities try to put in place dedicated pieces of legislation until appropriate action is taken at the EU level. This was notably the case for crowdfunding. This practice remained unregulated at both the European and Belgian levels until 2016, which caused legal uncertainty as to the status of existing crowdfunding platforms. The Belgian Alternative Finance Platform legislation put in place a dedicated legal status leading to growth in this area of FinTech.
In the financial services industry at large, three regulators are relevant for FinTech companies in Belgium:
The National Bank of Belgium (NBB) is the competent supervisor when it comes to the prudential regime applicable to credit institutions (banks), e-money institutions, payment institutions and large stockbroker companies (next to more general central bank macro-economic responsibilities). Due to the nature of its competencies (o.a. payment services and (challenger) banking), the NBB is the regulator which is very often confronted with FinTech initiatives. They have put in place dedicated teams dealing separately with each type of licence. Generally speaking, the NBB is very pragmatic, open to innovation and tech-savvy, with supervision of high quality. In our experience, foreign FinTech companies are often very happily surprised by the level of tech awareness and personal approach of the NBB, which is more seen as a partner than as a ‘necessary evil’.
The Financial Services and Markets Authority (FSMA) is the competent supervisor when it comes to the prudential regime applicable on smaller investment companies, regulated credit providers, insurance companies, crowdfunding platforms, and banking, investment and insurance intermediaries. The FSMA is also in charge of the oversight of the rules of conduct applicable to insurance and investment services, next to more general authority over public offers, listed companies and the financial markets. Although unregulated at this stage, it is also the FSMA (in its role of supervisor of financial markets and information) which closely follows developments in cryptocurrencies and ICOs, mostly by issuing warnings on the dangers associated with these types of assets and investment structures. The FSMA also follows up on local initiatives in this field, making sure that these practices do not fall within the scope of existing regulations (such as public offerings).
The FSMA and the NBB have set up a joint ‘FinTech portal’ to point FinTech companies to the right regulator in accordance with their (contemplated) activity.
The Federal Public Service Economy (FPS Economy) has very specific powers over the rules of conduct applicable to regulated credits and payment services.
FinTech companies from around the globe are attracted by the Belgian professional and tech-savvy regulators who are accepting licence applications and supervisory interactions in English, the central location of Belgium in Europe, a highly skilled and multilingual workforce, the presence of key EU institutions, and the fact that Belgium, being at the crossroads of different cultures and benefiting from a very cosmopolitan population, is an interesting test market for their new products and services.
We expect further significant developments in the market in 2021, mostly in the payments and challenger banking field, driven by foreign investments.