Does Europe really need its own Big Tech?
Europe still hasn’t birthed its very own Big Tech. This perceived lack on Europe’s part has prompted various initiatives designed to ween the continent off US Big Techs, such as Facebook and Amazon, which have long gone unrivalled by a domestic player.
The European Central Bank (ECB) set up the European Payments Initiative (EPI) to explore the creation a unified pan-European payment solution. One of the current pathways being discussed is the creation of a European Big Tech.
Countries within Europe are also exploring it. The UK’s chief advisor to the prime minister, Dominic Cummings, sent emails discussing the necessary environment to create a £1 trillion technology company.
Individuals who have thrived off the European technology scene are now putting back into it. Spotify’s CEO, Swedish-born Daniel Ek, pledged around $1.2 billion to “moonshot” bets in Europe.
There are a variety of parties which all share vested interests in one day seeing Europe house its very own Big Tech to trump the Googles and the Alipays.
But whilst the mega funding rounds and dizzying valuations might make the continent feel like it’s missing out, does it really need a Big Tech? At least, does it really need the Big Tech we know today?
Environment first, Big Tech second
If you compare Europe to Big Tech-adorned regions like the US and Asia, it raises the question of why these Big Techs came into being in the first place.
If Europe grows its own Big Tech, what would its purpose be? And is a Big Tech really the best model for what the EU wants to achieve?
The EU is in the midst of a five-year digital strategy to help boost innovation across the continent. It is also mid-way through discussions over the shape the EPI will take.
Lu Zurawski, consumer payments practice lead at ACI Worldwide, is a member of one of the EPI boards.
“It’s an attempt by EU policy members and the ECB to create Europe’s own platform, specifically moving away from Visa and Mastercard,” Zurawski tells FinTech Futures.
“The government is trying to stimulate commercial activities. In the past 20 years, policies clearly haven’t been very good, so now it’s trying to create the environment for commercial success.”
But the form the EU wants that success to take looks very different to the Big Techs as we know them today.
Big Techs of today are the result of no governance
Whilst governments in the US and Asia are now trying to claw back some of the autonomy given up to the Big Techs over the years, Europe has managed to resist similar frictions with domestic technology companies.
“Both China and US have allowed big companies to evolve very rapidly,” explains Zurawski. “Their growth is partly a result of the absence of government.
“A lot of US corporate policy has come from the post-Reagan era [1989 onwards]. The school of economics back then was ‘let the market decide’ which naturally resulted in a very loose regulatory environment.
“That’s actually been reflected in China, which deliberately allowed Tencent and Alibaba to create finance companies without regulations. Now they’re huge and the country needs to put regulation back in.”
One of the reasons why Big Techs like Tencent and Ant Financial rose to such prominence so quickly is their role in offering financial inclusion. According to the World Bank, some 1.7 billion adults still lack a bank or mobile money account.
With deeper pockets and better access to data, Big Techs can utilise relationships banks simply don’t have to change this.
Their success to date is down to three things, according to a joint report by the World Bank and the People’s Bank of China. These include relieving the reliance on bank branches, offering services at lower prices, and boosting competition simply by entering the industry.
And despite incumbents banking on loyalty they’ve built up in their customer bases, Capgemini data shows almost a third of consumers find the idea of banking with a Big Tech appealing.
Europe’s controlled approach to Big Tech
Margrethe Vestager, a Danish politician, is currently serving as executive vice president of Europe’s five-year strategy.
“She has a very strong agenda,” says Zurawski. “She’s got the difficult challenge. Europe wants to create the spirit of a free market like the US, without allowing a ‘free for all’ which puts EU citizens at risk.”
Zurawski thinks that two years ago, if you’d raised the issue of privacy around a Big Tech like Facebook in the US, “people would have thought you’d drunken too much of the GDPR juice “.
But since then, the Californian equivalent of GDPR has come into force. “There is a focus now on changing how these companies operate,” says Zurawski.
Facebook founder Mark Zuckerberg aims to consolidate messaging services on Instagram, Facebook and WhatsApp. Whilst they will remain standalone apps, the move could raise antitrust concerns over the Big Tech’s dominance.
“Europe has always been careful,” says Zurawski. He puts the lack of a Big Tech in Europe down to the fact the continent “doesn’t want to break rules and is focused on antitrust and fair competition” before anything else.
“We see the problems of US Big Techs’ dominant position in Europe. But they’re not necessarily suffering in the US, as America is a single market. But they are starting to.”
The Federal Trade Commission is in the midst of conducting investigations into tech giants Google, Facebook, Amazon, and Apple over antitrust concerns. The investigations, which seem to have stalled, are currently focusing on Google.
Facebook and Google hold a duopoly on digital advertising. In July, the UK’s Competition and Markets Authority proposed the creation of a “Digital Markets Unit” to rein in the big digital advertising platforms.
Because of their size, their monopoly has been easy to maintain – simply acquiring or duplicating the competition. Whilst Snapchat and Twitter’s values are slowly growing, their user bases are still a fraction of Facebook’s.
Setting a new standard for the world
George Soros, a Hungarian–American billionaire, wrote a piece for the Guardian two years ago. In it, he predicted that “regulation and taxation, spearheaded by Vestager” would be Big Techs’ “undoing”.
He said the likes of Google, Amazon and Facebook contribute “mightily to the US government’s impotence”.
“In the US, regulators are not strong enough to stand up to the monopolies’ political influence. The EU is better positioned, because it doesn’t have any platform giants of its own.”
Zurawski agrees. “Europe, by accident or design, is in a great position to set the rules for the global data economy.”
He predicts that identity management and payments will be the two focal areas of any ‘Big Techs’ Europe eventually creates.
“There’s been lots of investment into peer-to-peer (P2P) and peer-to-business (P2B) models. And the other area is open banking and immediate payments.”
Open banking-powered payments would also give Europe a chance to relieve the stranglehold Visa and Mastercard have on Europe’s payment system.
Looking ahead, Zurawski says “there isn’t necessarily a feeling [held by the EU] that there needs to be a brand-new company”.
“What’s more important is that there is the creation of a recognisable brand backed by rules, contracts, and universal behaviour.”
But whilst this, in theory, would avoid the problems US and Chinese governments are now facing, it’s up to the EU to prove something which has never been done before can work in practice.