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What Mario Draghi’s appointment as Italian PM means for fintech

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Mario Draghi’s surprise appointment to lead a national unity government in Italy was welcomed by financial markets and political experts alike last week. The former European Central Bank chief has promised an ambitious programme of reforms, and fintech is expected to be a key part of the plans.

In his first address to parliament on Wednesday, Draghi pledged to invest a large share of the money Italy receives from the EU Recovery Fund in digital infrastructure and technological upgrades. Vittorio Colao, the former chief executive of Vodafone, has been appointed minister for innovation and digital transition.

Last year, Italy was one of the worst performers in the EU’s Digital Economy and Society Index, which tracks the digital competitiveness of member states — with only Romania, Greece and Bulgaria further behind.

Colao has yet to unveil the details of his plans, but he is expected to focus on extending high speed internet access across the country and passing legislation to encourage the use of digital payment methods. He outlined similar priorities last year in a 53-page recovery and resilience plan that was ultimately ignored by the previous government.

“Draghi’s focus on innovation . . . is undoubtedly good news for the fintech sector and the appointment of minister Colao is a clear message of a strong push on the [tech and innovation] agenda,” said Corrado Passera, chief executive of digital bank Illimity and a minister in Italy’s last technocratic government.

Digital payments have long been seen as a way to combat tax evasion in Italy, where an estimated €130bn, or 8 per cent of GDP, escapes tax authorities each year.

Successive governments have encouraged the shift from cash to cards, and payments companies have been among the country’s most successful within Italy’s fintech sector, with companies like Nexi becoming continental players. 

Less than 40 per cent of all payments in Italy were digital before the coronavirus pandemic, but experts believe that the combined impact of Covid, plus the arrival of the EU funds, will drive further change.

The pandemic caused some strain for Italian banks and insurers whose relationships with customers are still often based on branches, according to a recent report by PwC. Sudden lockdowns and prolonged working from home “forced experimentation of new ways of collaborating remotely through digital solutions”, encouraging traditional institutions to try more partnerships and strengthen collaboration with younger tech-focused companies. 

However, the sector has continued to face challenges despite regulatory support and favourable legislation in the past.

Illimity, which specialises in small business loans and distressed debt, grew its assets to €4bn by the end of 2020, its first full year of operations. It posted a return on equity of 5.5 per cent despite the impact of the pandemic and said it expects to increase it further this year.

Such rapid growth, however, is not the norm. Out of the 278 Italian fintech companies analysed by PwC, only 37 had an annual turnover above €1m, and 70 per cent employ 10 people or less.

The consultancy says low levels of investment and a focus on more mature companies, as opposed to start-ups, have been key challenges. In 2018, for example, a single deal — a €100m investment in insurance company Prima Assicurazioni — accounted for a third of all the money invested in Italian fintech start-ups. The rest trickled down to 34 other companies.

The lack of investments in the Italian ecosystem has encouraged several larger fintechs like Moneyfarm, Soldo and OvalMoney to move their headquarters abroad.

Still, Illimity’s Passera remains optimistic, highlighting progress on initiatives like open banking, which forces institutions to share customer data, enabling new competitors or collaboration with third-party developers to build new services. “Digitalisation is changing the entire banking sector, innovation will play a significant role in its future . . . increasingly, [fintech] banks will act as disrupters for the sector and will emerge as new winners,” said Passera, who previously ran Italy’s largest bank Intesa Sanpaolo.

“Without inferiority complexes toward other countries, [while] trying to follow their best practices, there’s a great potential in Italy.”

Quick fire Q&A

What’s your name? SeedFi

When were you founded? March 2019

Where are you based? San Francisco and New York

Who are your founders? Chief executive Jim McGinley, chief operating officer Eric Burton, chief technology officer Rodrigo Menezes, head of marketing Greg Berman and head of product Bernardo Menezes.

What do you sell, and who do you sell it to? SeedFi is a financial health start-up helping underserved Americans build credit, save money, access funds and plan for the future.

How did you get started? The founding team wanted to help underserved communities after spending years working together at mission-driven start-ups and big banks.

How much money have you raised so far? $69m ($19m equity and $50m debt)

What’s your most recent valuation? N/A

Who are your major shareholders? Founders, Andreessen Horowitz, Flourish Ventures, Core Innovation Capital, and Quiet Capital

There are lots of fintechs out there — what makes you so special? We’re helping struggling consumers escape cycles of debt and build long-term financial health, which is more important in today’s economy than ever.

Fintech fascination 

Mark Carney joins Stripe: Speaking of high-profile former central bankers, Mark Carney, former Bank of England governor, has added to his growing list of post-BoE jobs by joining the board of payments group Stripe. Carney is already head of impact investing at Brookfield Asset Management, and he has been active in pushing finance firms to do more to fight climate change. Carney said he wanted Stripe’s payments infrastructure to help encourage “strong and inclusive economic growth”.

More bad news for Ant Group: Anyone hoping Jack Ma’s Ant Group would be able to put its recent travails behind it after reaching a restructuring deal with Chinese authorities last month are likely to have been disappointed this week. At the weekend, regulators confirmed new rules governing how platforms like Ant fund their loans, which analysts say could hit Ant’s valuation. Pressure on the company has boosted rivals who charge much higher interest rates, raising fears that a drive that was officially intended to reduce credit risk in the economy could actually spur more defaults. An investigation by the Wall Street Journal sheds some light on why authorities may be willing to put up with such an outcome.

Transferwho? TransferWise has become one of the best-known names in fintech over the past decade, but co-founder Kristo Käärmann says the name doesn’t suit it any more. As of Monday, it will just be “Wise”. The change reflects the company’s efforts to expand beyond its roots as a simple money transfer service into a broader platform for internationally-minded consumers and, especially, businesses. 

Wirecard fallout: The Wirecard saga continues to produce new ways to shock even the most jaded of financial journalists. This week it emerged that a senior investment banker at UniCredit continued to moonlight for now-disgraced Wirecard CEO Markus Braun until just before the payments company collapsed. Jana Hecker, who had worked with Wirecard in a previous role at Deutsche Bank, ran up around €800,000 of invoices with Braun, who is currently in police custody after being accused of being the linchpin of a criminal racket that conducted “fraud in the billions”.





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French Greens given a grilling over meat-free school lunches

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Grégory Doucet, mayor of Lyon, said he had no inkling that the school lunches served up in the French city this week would put him at the centre of a political storm. 

But the decision by the environmentalist mayor that children should be offered just a single lunch option — one without meat — prompted immediate denunciations from French government ministers, and protests by farmers who responded by releasing herds of cows outside city hall. 

The ruling — which Doucet said he took for a limited period to avoid long queues for multiple menus that would bunch pupils close together during the Covid-19 pandemic — has set carnivores against vegetarians, town against country, and right against left. 

“It touches a lot of topics deeply rooted in French political culture,” said Vincent Martigny, politics professor at the University of Nice. “Everybody knows we should be eating less meat, but we’re still a very traditional food culture in France, quite conservative. If you don’t eat meat and drink wine, you’re not very French.” 

Doucet and his Europe Ecologie-Les Verts (EELV) , which took Lyon from the centre-right in local elections last year, say the row has more to do with June’s regional elections and the presidential and legislative polls due in 2021. 

“They’re targeting the ecologists because we’re the biggest threat,” Doucet told the Financial Times. 

Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches
Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches © Olivier Chassignole/AFP via Getty Images

Even so, a mini-campaign by some ministers in President Emmanuel Macron’s government to curry favour with conservative voters and paint the Greens as crazed ideologues quickly spun out of control and exposed divisions in the cabinet.

Gérald Darmanin, the hardline interior minister, denounced the Lyon Greens for what he called a “moralistic, elitist policy” to deprive working-class students of meat. Julien Denormandie, who holds the agriculture portfolio, leapt to the defence of farmers, calling the decision “shameful” and saying: “Let’s stop putting ideology on our children’s plates!”

Environment minister Barbara Pompili, however, said she was sorry to hear a “prehistoric debate” full of clichés about the supposed nutritional inadequacies of vegetarian food. Macron eventually had to tell them to stop disagreeing in public as he called for an end to the “idiotic” argument. 

The school meals controversy is the latest manifestation of a long-running debate in France and abroad over the environmental sustainability of meat consumption by an increasingly wealthy and numerous world population, given the land taken up by cattle and their greenhouse gas emissions. 

Doucet, a “flexitarian” who said he tried to limit his intake of meat and fish, has campaigned to reduce consumption of animal protein and provide more vegetarian meals in schools, but he said his immediate priority was to ensure the meat served comes from local farmers.

He also pointed out that Gérard Collomb, his centre-right predecessor as mayor, had made exactly the same decision for a single, no-meat menu acceptable to the largest number of school pupils during an early phase of the pandemic — and there had been no political backlash. 

“When we took the decision, we didn’t think for one minute it would lead to a political polemic,” Doucet said. 

Somewhat later than neighbouring countries such as the UK, France is in any case gradually coming to accept vegetarianism. The Michelin Guide this year for the first time awarded one of its prized stars of approval to a French vegan restaurant called ONA — for Origine Non Animale

“People used to be treated as the village idiot if they were vegetarian,” said Jean-Pierre Poulain, a sociologist specialising in food at the University of Toulouse. “That’s no longer the case.” 

The change was slow in coming, said Poulain, but as in other urbanised societies, French city dwellers anthropomorphised pets, idealised wild animals and no longer automatically accepted the legitimacy of killing animals to eat them.

As mayor of Lyon, Doucet has also found himself at the heart of another contemporary debate — this time a particularly French one — about the role of schools and other state institutions in shaping the values and ideals of the nation’s youngest citizens.

Macron and his ministers, who are currently promoting legislation designed to curb Islamist “separatist” ideology and lifestyles, are demanding strict adherence to French secular values. As such they are reluctant to see the state’s prerogatives usurped by local governments with their own priorities.

Conservatives have already fulminated about the Green mayor of Bordeaux rejecting a public Christmas fir because he did not want to celebrate around a “dead tree”. Other Green civic leaders have refused to host the Tour de France cycle race in their towns because of the carbon footprint of all the accompanying motor vehicles.

On the right, the loss of meat as a choice for school meals is sometimes portrayed as another step towards the forced dismantling of the French way of life, but politicians wary of pointless conflicts are more phlegmatic about the affair.

“I don’t think the children of Lyon are going to die of anaemia in the days ahead, but I also don’t think this will do much to reduce greenhouse gases,” Roland Lescure, an MP with Macron’s governing La République en Marche! party, was quoted as saying in Le Parisien.

“Everyone is playing politics,” he added, “including the mayor of Lyon.” 



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ECB signals rising concern about eurozone bond market sell-off

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The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise.

Philip Lane, chief economist of the ECB, said on Thursday that the central bank was “closely monitoring the evolution of longer-term nominal bond yields” and its asset purchases “will be conducted to preserve favourable financing conditions over the pandemic period”.

The ECB has pledged to ensure financial conditions encourage investment and spending, helping the eurozone economy to make a swift recovery and lifting inflation towards the central bank objective of just below 2 per cent.

To achieve this, Lane signalled that it would rely on its pandemic emergency purchase programme, under which it plans to spend up to €1.85tn on buying bonds by March 2022. There is just under €1tn of that amount left to spend.

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” he said.

Eurozone government bonds fell to their lowest levels for almost six months this week, and while Lane’s comments caused a brief rally on Thursday afternoon, prices then resumed their downward path.

Bond yields move inversely to prices, so the sell-off is pushing up the cost of borrowing for governments, which must sell vast amounts of extra debt this year to cover the cost of the coronavirus pandemic and its consequences.

Germany’s 10-year bond yield has risen to its highest level since last March, while the French equivalent returned to a positive yield for the first time since June and Italian sovereign yields hit their highest level since November.

ECB president Christine Lagarde said in a speech on Monday that policymakers were “closely monitoring” the rises. 

Isabel Schnabel, another ECB executive board member, said in an interview with Latvian news agency Leta published on Thursday: “A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.”

Lane gave more detail of how the ECB defines “favourable” financing conditions, saying it would track the availability and cost of bank lending and market-based funding — in particular, the risk-free overnight index swap curve and the GDP-weighted eurozone sovereign bond yield curve, which have both risen in recent days.

He warned of the need to avoid “a mutually-reinforcing adverse loop” in which banks interpret lower borrowing demand as a negative signal about the economy and companies interpret a tightening of bank lending conditions as a worrying sign about the outlook. 

Eurozone bank lending to the private sector grew by just under €12bn in January, down 75 per cent from the average monthly loan growth last year according to data published on Thursday.

Much of the slowdown was because of a sharp fall in net lending to insurers and pension funds. Lending to non-financial companies also retreated slightly, while lending to households still grew but at its slowest rate since last April.

Krishna Guha, vice-president at Evercore ISI, said “ECB jawboning” was “having little effect” and “the next step — in our view presaged by Lane — is for the ECB to dial up the pace of its [bond] purchases”.

Last week the ECB spent a net €17.3bn on its emergency bond purchase programme, up slightly from the previous week but still well below the levels of last April, during the previous sell-off in government bond markets.

Frederik Ducrozet, strategist at Pictet Wealth Management, said the ECB was likely to wait until it was clear the bond market sell-off was a lasting shift before increasing its emergency bond buying above €20bn per week. But he said that “will bring the risk of disappointment [for investors] — because you have to walk the walk as well as talk the talk as a central bank”.



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Armenia’s prime minister claims military is plotting a coup

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Armenia’s prime minister has claimed the country’s military is plotting a “coup,” and taken to the streets with his supporters after senior army figures in the former Soviet republic called on him to resign.

Nikol Pashinyan has faced months of protests demanding he step down after the defeat of Armenian forces in a six-week war with neighbouring Azerbaijan that ended in November.

The army weighed in on Thursday, calling on the prime minister to quit after he fired the first deputy chief of staff for criticising him.

A letter to the prime minister signed by 40 senior officers warned Pashinyan not to use force against demonstrators, but did not say whether the army would act to remove him from power.

“The current government’s ineffective management and serious mistakes in foreign policy have put the country on the brink of collapse,” the officers wrote on Facebook.

Pashinyan later fired the chief of the general staff, Onik Gasparyan, ordered police to secure government buildings in Yerevan and told his supporters in the capital’s Republic Square to avoid violent clashes.

Demonstrators at an opposition rally in Yerevan demand the resignation of Nikol Pashinyan. They cheered as a fighter jet flew overhead © Artem Mikryukov/Reuters

Describing the situation as “manageable” the prime minister denied he was planning to flee the country and said the army’s statement was an “emotional reaction” to a dispute over the defeat in the Nagorno-Karabakh conflict.

“We have no enemies in Armenia. I am calling for calm,” Pashinyan said, according to Russian news agency Interfax. “Of course, the situation is tense, but we need dialogue, not confrontation.”

He later took to the streets with several thousand supporters and a megaphone — an echo of the 2018 “velvet revolution” that swept him to power following a march across the country that galvanised popular support. A few thousand opposition supporters gathered at a different square and cheered as a fighter jet flew overhead.

Pashinyan has fought off calls for his resignation since signing a Moscow-brokered peace deal in November that cemented territorial gains for Azerbaijan in Nagorno-Karabakh. The mountainous enclave in the South Caucasus is internationally recognised as part of Azerbaijan, but is populated by ethnic Armenians who seized control after a war that broke out in the dying days of the Soviet Union.

Azerbaijan, a mostly Muslim country and a close ally of Turkey, launched an offensive in September with the aim of retaking the entire enclave. Armenia’s army was ill prepared for oil-rich Azerbaijan’s modern drone fleet and significant backing from Ankara.

More than 3,300 Armenian soldiers died in the conflict, with a further 9,000 wounded. Thousands of civilians were displaced, including some who set their own homes on fire as they fled land now under control of Azerbaijan.

Russia, the traditional regional power broker and Armenia’s most important ally, remained neutral even as several previous ceasefires failed and has deployed 2,000 peacekeepers to secure the region.

Pashinyan admitted the terms were “unbelievably painful for me and my people” but argued the concessions were necessary to prevent further losses.

The devastating defeat sparked fury among Armenians who stormed the country’s parliament and attacked its speaker, demanding the prime minister’s resignation.

Pashinyan backtracked on a pledge to step down after snap elections earlier this month and remained in office in the face of opposition from Armenia’s ceremonial president, three parliamentary opposition parties, and key church leaders.

The Kremlin said on Thursday it was “following events in Armenia with caution” but considered them “exclusively Armenia’s internal matter”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters Russia was “calling on everyone to be calm” and said “the situation should remain within constitutional limits,” according to Interfax.



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