What do EU elections and a new Prime Minister mean for fintech and alternative finance?
Theresa May is stepping down and the Brexit Party has topped the EU elections prompting the spectre of further political disruption.
In just two weeks Theresa May will step down as leader of the Conservative party prompting a new UK Prime Minister and, most likely, political direction. The Brexit party and Liberal Democrat surge in the European election results, announced last night, makes this event super-charged and fraught with uncertainty.
These two developments could have huge and wide-ranging consequences for the UK’s star industry: fintech and alternative finance.
A new Prime Minister means a reshuffle of the senior cabinet positions, most notably for fintech and alternative finance: in the position of Chancellor Phillip Hammond.
Hammond took over from George Osborne, a big advocate for disruptive financial firms, and while a little cautious at first has over the past two years increasingly backed the sector. Speaking at the Innovate Finance Global Summit last month he gave a strongly worded message of support for the UK’s lead in fintech and unveiled the Fintech Alliance a new body bringing “together the UK’s fintech network in one easily accessible ‘digital marketplace”.
The newly(ish) appointed Secretary of State for Digital, Culture, Media and Sport (DCMS) Jeremy Wright, who took over from Matt Hancock, another tech and digital enthusiast, in July 2018, has only recently started to vocalise the importance of the fintech sector. A new minister in DCMS may well also be cautious to quickly get behind the fintech industry, if at all.
Governmental support is hugely important but the health of the economy is critical. A weakening economy could hit venture capital-hungry firms hard.
Azad Zangana, Senior European Economist and Strategist at Schroders, says May’s resignation raises UK recession risk as it increases the likelihood of Boris Johnson becoming the new PM, the odds-on favourite to replace May.
“The hard-line Brexiteer may look to take the UK out of the European Union (EU) without a deal, despite Parliament voting in favour of essentially removing the option. He could do this by failing to comply with the EU's demands that the UK should continue to follow the rules. This presumably would lead to the EU agreeing to terminate the relationship in October,” he said.
“If this were to happen, we would anticipate the economy to slow and fall into recession around the turn of the year. While the Bank of England would probably cut interest rates eventually, the expected depreciation in the pound would cause inflation to spike. The household sector has already run down its safety buffer in the form of its savings rate, therefore a contraction in demand is very likely,” he said.
This, of course, has huge implications for fintech lenders particularly those focusing on the SME and consumer lending markets where volumes are key to growth and long term profitability of scaling up platforms.
“Fintechs and financial services companies are eager to know what's going to happen with the Brexit negotiations – one way or the other. Uncertainty can hinder collaboration as well as partnerships, and a clear direction for the UK fintech community is crucial now to continue the momentum."
He says one other reason for this is the all-important access to top tech talent.
"There has been a lot of talk about the impact Brexit might have on talent. Many companies are already struggling to fill roles and it’s up to the new prime minister and government to create an environment that welcomes the most competitive and diverse talent pool possible. If healthy regulation remains and investment in the best ideas continues, there’s no reason why the UK can’t maintain its position as a world fintech leader."