Brexit and FinTech

What is the impact of the Brexit vote on FinTech? I assume that, given the referendum, EU exit must follow. 

a man with his hand on his head

An exit creates concerns for the future in two broad areas:

  1. The ability of UK FinTech startups to access VC funding and of VCs themselves to access LP funding

  2. The number and strength of FinTech startups in the UK

Clearly, the second is the larger issue and to some extent either solves the first or makes it irrelevant. Ease of funding facilitates business creation but if the UK throws up a slew of great business models they will likely always find investors, though perhaps at lower valuations initially. 

Startup and VC Funding – hear that sucking sound?

Some context: Around a third of deals across the UK and Continental Europe are from the former whether measured by number or dollar investment (CB Insights data). 

Three points:

  • Firstly, the EIF, as the largest investor in VC funds in Europe, probably won’t invest in the UK going forward.  The assumption must be that it is a matter of when, and not whether, its mandate changes.

  • Secondly, in the UK there is – and will be for some time – uncertainty over large areas of law and regulation. I expect a sharp slowdown in investments into and by VCs (from anywhere) in relation to UK FinTech. 

  • As a consequence – and despite the likely continuity of the SEIS and EIS tax benefits – some entrepreneurs may opt for company formation in Berlin or Dublin. 

Brexit – Short- and Long-Term Issues


  • There is now, in Larry Summers’ words,

    a significant risk – though not an odds-on bet

    – of a recession that starts within the next 12 months. 

    • credit quality – a significant concern

      • Alternative lending standards have generally not been tested by a recession and every recession throws up nasty surprises.

    • origination volumes – differentiation is key

      • FinTech businesses can grow even in a contracting market – but only if they work in niches where Banks are shrinking, absent or inefficient (e.g., SMEs, SPV buy to let mortgages).

Longer-term (structural) factors:

  • Passporting isn’t dead but it is on life support. Gone within two years is a reasonable view and will be what investors assume. UK FinTech businesses will either limit their horizons to the UK or bear the cost of added regulatory structures. Expect lower exit multiples.

  • Access to talent: the consensus is that London will suffer. The ability to hire European talent frictionlessly will soon be gone. However, note that – having harnessed the populist vote around the issue of immigration – Brexit proponents are already rowing back in favour of free movement of labour (See:


    ). Perhaps more of the IT talent will come from India or China? To work for Fintech and not just big business, any system put in place needs to be much faster than the ‘points’ systems operated by e.g., Australia. 

  • Incumbent firms exit London: European finance is fragmenting. It has been an advantage of UK Fintech that so much of the industry to be disrupted is here in London. London will remain a major financial centre – partly, because the banks and insurers will again be able to bully a government and regulator desperate to hold on to the industry (one of the many ironies of a populist Brexit vote). Regulatory arbitrage is back.  Firms will move people and businesses to the EU (Dublin and Frankfurt, perhaps even Paris) but how many or how soon nobody knows.

  • Uncertainty, uncertainty, uncertainty.   


  1. Key short-term issues are the likely economic downturn and stuttering capital flows (which will create some investment opportunities as valuations fall). 

  2. I expect longer-term issues which will weigh heavily on FinTech are

    1. the end of passporting and

    2. ongoing uncertainty over the legal and regulatory framework. 

We can expect a winnowing of UK FinTech with weaker businesses folding and some businesses moving to EU jurisdictions. Generally, Brexit is a significant negative; in rare cases, lower valuations for fundamentally sound businesses will also create value for brave VCs.    

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