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Europe’s economic recovery could slow down amid Delta variant



LONDON, UNITED KINGDOM – 2021/07/27: Women protect themselves from rain under an umbrella as they walk by a sign in a shop.

SOPA Images | LightRocket | Getty Images

LONDON — European consumers are proving more reluctant to spend money this summer, and it could hurt the economic recovery following the shock from Covid-19, experts told CNBC.

The behavior marks a sharp contrast to last year, when there was a feeling of seizing the moment after the first Covid lockdowns in the region were lifted. Now, consumers are afraid they will be living with Covid-19 for longer than they had expected and are adjusting their attitudes accordingly.

“Because [the pandemic] has been going on for 18 months or so, we have got used to working from home and [are] more cautious about spending,” Marchel Alexandrovich, European economist at investment bank Jefferies, told CNBC on Monday.

Consumers are particularly skeptical about attending crowded events, according to Paul O’Connor, head of the U.K.-based multi-asset team at Janus Henderson.

There are some areas where we see continued consumer caution.

Paul O’Connor

head of the multi-asset U.K. team at Janus Henderson

Speaking to CNBC on Monday, O’Connor said there had been a “steady improvement” in some economic indicators, such as the number of people using public transport, going shopping and even attending the gym. “But there are some areas where we see continued consumer caution,” he added.

A survey published in July by Ipsos Moris showed that 40% of U.K. consumers were not yet comfortable taking vacations abroad. Over 40% of respondents also said they were not comfortable going to large public gatherings such as sports or music events.

In addition, “the return to work has been very hesitant,” O’Connor said, despite the relaxation of Covid restrictions in the U.K. and elsewhere in Europe. This is impacting “the economy around the office,” such as coffee shops, he added, as people opt for a hybrid working model, spending most of their time at home.

The root causes

This consumer behavior is being influenced by both government legislation and the evolution of the pandemic.

Alexandrovich gave the example of some “hesitant” consumers who are not leaving their house before they go on holiday to avoid being in contact with someone who has the virus.

In the U.K., for instance, if you are in contact with someone who tests positive for the coronavirus in the following days, you must self-isolate for 10 days — even if you’re fully vaccinated (at least for now).

Meanwhile, the highly transmissible Delta Covid variant has led to a surge in infections in recent weeks.

 “The evidence from the U.K. suggests that the surge in cases is hampering economic activity as people refrain from taking full advantage of reopening,” economists at Pantheon Macroeconomics said in a note in July.

As a result, this economic consultancy slightly lowered its expectations for U.K. growth in the third quarter. “We suspect forecasters will soon have to contemplate the same in Europe, especially those coming into the third quarter with a baseline that (euro zone) GDP will leap by 3%,” they wrote.

Data released Friday showed that the euro zone grew by 2% in the second quarter of this year, recovering after two consecutive quarters in negative territory.

Though many economists are bullish on the euro zone economy in the coming quarters, they describe it as a “cautious optimism”.

“The surging ‘delta’ variant of SARS-CoV-2 infections across Europe during June and July raised the risk that the ongoing lifting of restrictions could be delayed significantly, ” analysts at Berenberg said in a note last week, although they did note that the number of new infections seems to be cresting in the 19-member bloc.

A waiter wearing a face mask serves customers at a restaurant in Leadenhall Market in the City of London on July 27, 2021.

TOLGA AKMEN | AFP | Getty Images

Bert Colijn, senior economist at ING, also said in a note last week that “looking ahead at [the third quarter], we would note that the Delta variant is causing some delays in the easing of restrictions and that supply chain problems continue to weigh on manufacturing production.” However, he is still expecting GDP to grow by 2% next quarter.

Momentum could be hit by other factors too.

“Growth in most major economies is likely to slow over the coming quarters,” Neil Shearing, group chief economist at Capital Economics, said in a note Monday.

“But the main reason is that most economies have already recouped much of their lost output,” he added, arguing that this likely be seen in the U.K. and euro area later this year.

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Epic Games v. Apple: Judge reaches decision



Judge Yvonne Gonzalez Rogers handed down a decision in a closely-watched trial between Apple and Epic Games on Friday.

Rogers issued an injunction that said that Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing, of which it takes 15% to 30% of gross sales.

The injunction addresses a longstanding developer complaint and raises the possibility that developers could direct their users to their website to subscribe to or purchase digital content, hurting Apple’s App Store sales.

Apple stock dropped 2% in trading on Friday.

The decision concludes the first part of the battle between the two companies over Apple’s App Store policies and whether they stifle competition. Apple won on 9 of 10 counts but was found to engage in anticompetitive conduct under California law, and will be forced to change its App Store policies and loosen its grip over in-app purchases. The injunction will come into effect in December.

“The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice,” Rogers wrote. “When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.”

However, Rogers said that Apple was not a monopolist and “success is not illegal.”

“Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” Rogers wrote.

The trial took place in Oakland, California in May, and included both company CEOs testifying in open court. People familiar with the trial previously told CNBC that both sides expected the decision to be appealed regardless of what it was.

“Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. As the Court recognized ‘success is not illegal,'” Apple said in a statement. “‘Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world.”

Since the trial ended but before the decision was handed down, Apple has made several changes to mollify critics, some as part of settlements with other app developers, including relaxing some rules about emailing customers to encourage them to make off-app purchases and allowing some links in apps.

Rogers wrote in the decision that she disagreed with both Apple and Epic Games over the framing of the market Apple allegedly dominates. Rogers found that it was “digital mobile gaming transactions,” not all iPhone apps, as Epic Games had alleged, nor was it all video games, as Apple had claimed.

Battle over Fortnite

Epic Games is among the most prominent companies to challenge Apple’s control of its iPhone App Store, which has strict rules about what is allowed and not, and requires many software developers to use in in-app payment system, which takes between 15% to 30% of each transaction.

Epic’s most popular game is Fortnite, which makes money when players buy V-bucks, or the in-game currency to buy costumes and other cosmetic changes.

Epic wasn’t seeking money from Apple— instead, it wanted to be allowed to install its own app store on iPhones, which would allow it to bypass Apple’s cut, and impose its own fees on games it distributed. Epic Games CEO Tim Sweeney had chafed against Apple’s in-app purchase rules as early as 2015, according to court filings and exhibits. Friday’s ruling does not allow Epic Games to offer an app store on Apple’s App Store.

Apple CEO Tim Cook is cross examined by Gary Bornstein as he testifies on the stand during a weeks-long antitrust trial at federal court in Oakland, California, U.S. May 21, 2021 in this courtroom sketch.

Vicki Behringer | Reuters

But the public clash between the two companies started in earnest in August 2020, when Epic implemented a plan to challenge Apple called “Project Liberty,” according to court filings.

Epic Games updated Fortnite on its servers to reduce the price of its in-game currency by 20% if players bought directly from the company, bypassing Apple’s take, and violating Apple’s rules on steering users away from its in-app payments.

Apple removed Fortnite from the App Store, meaning that new users could not download it and that it would eventually stop working on iPhones because the app could not be updated. As it planned, Epic then filed a lawsuit that culminated in May’s trial.

Epic Games will also have to pay Apple damages because it breached its contract, Rogers ruled. Epic will pay Apple 30% of all revenue it collected from iOS Fortnite through direct payments.

At the trial, Apple CEO Tim Cook testified on one of the last days, and faced pointed questioning from Judge Rogers over its restrictions on steering users to make purchases off-app, which ended up being the topic of Friday’s injunction.

“It doesn’t seem to me that you feel any pressure or competition to actually change the manner in which you act to address the concerns of developers,” Rogers said at the time.

Epic Games also sued Google over its control of the Play Store for Android phones. That case has not yet gone to trial.

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UK terminates one of its data-sharing contracts with Palantir



Peter Thiel, co-founder and chairman of Palantir Technologies Inc., pauses during a news conference in Tokyo, Japan, on Monday, Nov. 18, 2019.

Kiyoshi Ota | Bloomberg | Getty Images

The U.K. government has terminated a controversial data-sharing agreement with U.S. tech firm Palantir following criticism from privacy campaigners.

The Department of Health and Social Care issued a tender in August to move its Adult Social Care Dashboard from Palantir to a new system called EDGE, which has been built by U.K. defense giant BAE Systems.

 “The future UK Health Security Agency Architecture … is seeking to move away from reliance on third party data analytics platforms and software,” the tender reads.

“DHSC wishes to migrate from the current Palantir solution to the EDGE (Environment for Data Gathering and Engineering) system. This system was established and developed by BAE Systems for DHSC (and it) was progressed at pace during the pandemic.”

The tender was won by London-based IT consultant Mozaic Services, who will receive £100,000 ($138,000) for completing the migration, according to public records. The project started on Aug. 18 and runs until Sept. 30, which is when the contract with Palantir would have automatically renewed.

News that the contract had been terminated was first reported by Bloomberg. The Department of Health and Social Care and Palantir did not immediately respond to a CNBC request for comment. 

Founded by billionaire Peter Thiel, a venture capitalist with a seat on Facebook’s board, Palantir provides its data analytics platform to government departments, spy agencies and businesses around the world.

It saw a rise in demand for its software during the coronavirus pandemic as nations attempted to draw insights from health data. Britain, for example, used Palantir’s technology and expertise to try to understand the large quantities of Covid-19 data that it collected. It was awarded a two-year contract in Dec. 2020 that is yet to be terminated.

Palantir says patient data is “pseudonymized” before it is processed by the software as part of an effort to protect patient privacy. The data management technique involves switching the original data set with an alias or pseudonym. However, it is a reversible process that allows for re-identification if necessary, and some have questioned whether it goes far enough to protect people’s private information.

A campaign was launched in June to try to stop Palantir from working with the U.K.’s National Health Service. “Their background has generally been in contracts where people are harmed, not healed,” argued  Cori Crider, the lawyer who co-founded Foxglove.

Clive Lewis, a Labour party member of Parliament and one of the campaign’s backers, accused Palantir of having an “appalling track record.”

“It’s built its business supporting drone and missile strikes, immigration raids and arrests, not the delivery and care of medicine,” Lewis told CNBC. “It’s got a questionable agenda, and I think that will have an negative impact on patient trust, particularly among minoritized communities who may feel a threat from big government.”

Palantir also has contracts with Britain’s the Cabinet Office and the Ministry of Defense. 

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Monzo and Revolut to enter buy now, pay later market



A Mastercard debit card from U.K. digital bank Monzo.


LONDON — Monzo and Revolut, two of Britain’s best-known financial technology firms, are planning to enter the booming “buy now, pay later” industry.

Buy now, pay later, or BNPL, plans are an increasingly popular method of payment that lets users spread the cost of their purchases over a series of instalments. The trend was pioneered by the likes of Swedish fintech Klarna and Australian firm Afterpay.

It’s now attracting interest from some of the world’s biggest companies, with PayPal launching its own BNPL service, Amazon and Apple partnering with U.S. provider Affirm, and Afterpay being sold to Square, the payments company owned by Twitter CEO Jack Dorsey.

Now, two of the U.K.’s hottest fintech companies are trying to get in on the action.

Monzo, which offers checking accounts through an app, is soon set to announce plans to launch its own version of BNPL, a person familiar with the matter told CNBC.

The person, who preferred to remain anonymous as the information is not yet public, said the digital bank would introduce affordability checks on customers.

The news was first reported by London’s Evening Standard newspaper.

Meanwhile, Revolut CEO Nik Storonsky told the Standard earlier this week the company was working on its own pay later product. Revolut, a digital banking and trading app, was recently valued at $33 billion following an $800 million funding round led by SoftBank and Tiger Global.

But Monzo, unlike Revolut, is a regulated bank in the U.K. While Revolut was granted a European banking license in Lithuania, it is currently seeking further licenses in Britain, the U.S. and Australia.

Still, Monzo is smaller in size than Revolut, with 5 million customers and a £1.25 billion ($1.7 billion) valuation. Revolut says it now has more than 15 million users. Starling, another popular digital bank in the U.K., has over 2 million customers and was last valued at £1.1 billion.

Regulators take notice

While the BNPL industry is growing fast, its rapid rise hasn’t gone unnoticed by regulators.

The British government has plans to introduce regulation for the sector. Proposals announced by the Treasury department earlier this year included the requirement that firms make affordability checks before lending to customers and the ability to escalate complaints to the U.K.’s financial ombudsman.

According to a review published by the Financial Conduct Authority in February, the U.K.’s BNPL market is worth £2.7 billion, with 5 million Brits using such products since the start of the coronavirus pandemic. More than one in 10 customers of a major bank using BNPL services were already in arrears, the review said.

“The FCA has already taken a significant step towards bringing BNPL into the fold, with the review they unveiled earlier this year — and they are certain to increase controls if only due to the growing popularity of BNPL in the market,” David Brear, CEO of London-based fintech consultancy 11:FS, told CNBC.

“Unlike some of the other providers of BNPL in the U.K., Monzo is already a regulated entity under the FCA and wouldn’t do anything to risk their reputation with the regulator.”

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