By Moriah Costa on 11th January 2017
In this three part series, Moriah Costa examines the impact that Brexit could have on fintech in the UK, how it became the capital and what opportunities could arise.
The future of the UK’s vibrant financial technology sector remains uncertain after Brexit, as industry leaders worry about acquiring foreign staff, raising capital and passporting rights for financial services.
More than a third of European tech companies are based in the UK and the government estimates that the fintech industry is worth about £20bn in annual revenue. Now, there is concern that the industry could struggle to get the capital and talent it needs and could even move elsewhere.
“One of the immediate consequences of the referendum vote was that we saw a reduction in funding and no doubt it was because of the uncertainty that existed as a result of the referendum decision,” Dominic Hill, a partner at law-firm Hogan Lovells, said at a Fintech Connect conference in December.
The fintech industry received a blow when George Osborne resigned as chancellor. Osborne had been a strong supporter and helped establish London as the fintech capital of the world.
And while his replacement, Chancellor Philip Hammond announced a £500,000 a year investment in “fintech specialists” through the Department of International Trade, the money is not likely to help firms that are just focused on doing business in the U.K. The government is instead focusing on driving international business and attracting firms from other countries.
While details of Brexit negotiations are fuzzy, what is clear is the government’s commitment to decrease immigration in the tens of thousands. Prime Minister Theresa May recently signalled that the UK will leave the single market in order to maintain control over immigration.
That’s an issue for firms like peer-to-peer lender RateSetter. A quarter of its employees are from Europe. It is not just a question about whether the firm will be able to find the talent they need, but if current employees will be allowed to stay.
The UK’s focus on immigration has also created concern for companies wishing to acquire new talent. Often the most talented people in Europe move to London and Brexit threatens the pool of talent available in the UK, said Gionvanni Dapra, co-founder and CEO of robo advisor Money Farm, which also has offices in Italy.
“It's going to be hard to justify the higher cost of keeping a company here if you don't have access to the right talent,” he said.
Simon Redgrove co-founder of robo advisor Munnypot, does not think Brexit will have a negative impact. His firm is UK-based but outsources its development to a team based in Europe.
“Brexit in itself may complicate things but if you have the right opportunity coupled with the right earnings potential than most things are able to be overcome,” he said.
Firms are also concerned about whether or not they will gain passporting rights and with May’s recent comments, it’s becoming more likely that firms that don’t already have a branch on the continent will have to move if they wish to do business in Europe.
Edan Yago, a South African who founded blockchain transaction company Epipyte, moved his business from San Francisco to London, because of the welcoming regulatory guidance given to budding fintech firms like his own. But if London does not maintain access to the single market, moving to continental Europe will be “inevitable.”
“There would be very little point in maintaining our headquarters in London under that circumstance. The UK itself is a very, very small market,” he said.
Already some European and Asian cities are hoping to lure away fintech from the UK. About five UK-based fintech start-ups have relocated to Berlin since the referendum. Singapore is also hoping to attract financial entrepreneurs.
Regardless of what may come in March, fintech leaders all agree that the financial sector is vital to the UK economy.
“London is a financial centre; that is the heart of its economy, and financial technology is the future of finance and London is the financial heart of the UK,” Yago said.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.