In the 14 months since the EU referendum, Brexit has become synonymous with uncertainty. Questions over how hard or soft the exit deal with the rest of the union are as unclear today as they were the moment Johnson and Gove emerged befuddled yet victorious the morning after the historical vote. And if a small bunch of die-hard Remainers calling for a new referendum are to be believed, Brexit may never happen anyway.
Speculating about what will or will not happen (if and) when we quit the EU on or before 29 March 2019 is no easy business. And this is no truer than when it comes to predicting the future of the flourishing fintech industry.
Over the last few years the sector has enjoyed explosive growth. According to a 2015 report by international consulting firm Accenture, global investment in fintech tripled in a single year to more than $12 billion in 2014. Although the annual increase slumped to 10% last year, another report by Accenture in 2017 put this down to a temporary stalling, maintaining that the fintech “revolution” still offered the “prospect of a new energy source to power financial services”.
Against this appealing backdrop, the City of London is widely considered to be a fintech capital of the world and a key regulator of the fintech community – a status the UK is keen to hold on to. Stakeholders are rightly concerned about what the effect would be if the industry, which is more used to being disruptive than disrupted, found more favourable operating conditions overseas in a post-Brexit world.
Disrupting the disruptors
A major consequence of a hard Brexit, which we might take to mean the UK’s departure from the EU single market and the end of free movement of workers across our borders, would be on the validity of UK authorisations in EU member states. Businesses may, for example, be required to seek authorisation to operate in EU states, increasing costs and administration. If that happens investors may be reluctant to invest, seeing UK-based companies as restricted in terms of their ability to scale up and expand internationally.
Furthermore, a key contributor to London’s emergence as a fintech leader has been its ability to attract tech talent from overseas, a large proportion of whom are from Europe. The effects of making it harder for these foreigners to work here hardly needs spelling out.
It is safe to say, therefore, that the nature of the UK’s exit from the EU will be a major factor in determining the consequences on fintech startups in London. Businesses can already be seen to be hedging their bets, opening up offices in other financial centres such as Dublin, Luxembourg and Berlin as part of a long-term contingency plan. By having a physical presence in these EU states, these firms see themselves as being better placed to take advantage of European talent and the protection offered by EU regulation, something that will certainly appeal to investors. A hard Brexit will likely lead to more businesses shifting part or even the whole of their offices to foreign soils.
Faith in the city – fintech startups in London are here to stay
Despite all the uncertainty there are a number of reliable indicators to cautiously suggest that the burgeoning fintech industry will not be abandoning London any time soon.
- For many years the City has attracted some of the world’s top financial experts, either lured here by the promise of highly valued jobs in innovative and sector-leading companies or to establish their own startups. Even the hardest Brexit will not see this talent suddenly shunted from our shores, as this would almost certainly kickstart a recession that would have devastating consequences felt across the planet. Moves are also under way – such as calls for a “digital skills visa” – to ensure that post-Brexit, the City continues to be a strong draw for fresh overseas talent to live and work here.
- The City has been the beating heart of the global financial system for many years, and is the home of many successful fintech startups in London. It has weathered many storms over the decades, and amid all the uncertainty over Brexit – both now and in the formative years that will follow – its history, size and resilience will continue to offer a reassuring sense of security to nervy investors and company bosses.
- The business world communicates in English, whether that be on the phone, in person, by email, online and so on. It may seem a simplistic generalisation, but many fintech startups in London will be reluctant to shift their entire operations to a foreign language-speaking country for fear of misaligning themselves with the global business community. It is more convenient – and cheaper in the short term at least – to stay put, and many fintechs will most likely be willing to ride out the uncertainty before taking such overarching business decisions.
Like many other businesses, fintech startups in London are in a quandary over Brexit. Should they bank on a hard exit and set in place costly contingency plans today, or hope for a softer withdrawal with less anticipated impact? Planning for different outcomes of course makes good business sense, but whatever the likely fallout over Brexit, the fintech community in London will no doubt prefer to stay where they are if they can be confident of continued investment and future growth. Whether or not that is possible remains to be seen.