There had been fears that Brexit would see the swift decline of London as a prominent fintech hub. Those fears have only increased in recent weeks after the Financial Times reported that Amsterdam had overtaken London as Europe’s top share trading centre in the wake of Brexit. Meanwhile, Bank of England governor, Andrew Bailey accused the EU of a “serious escalation” for trying to take derivatives clearing business away from the City.
However, it is less clear whether the tug of war between the EU and the UK over financial services is being fought as strongly in the fintech space.
Bisgaard says this is because fintechs are a different beast to a few years ago with a different responsibility in the financial services ecosystem and possessing a far closer relationship to large financial services firms.
“In the old days, a fintech was oftentimes two guys and a dog in a garage doing a mobile app. Those days are gone – fintechs have a different role today,” Bisgaard says.
“All of a sudden, they’re on the inside looking out, rather than on the outside doing a mobile app and there’s a massive difference in that.”
Because of this closer alignment with established financial players, Bisgaard says that the potential difficulties over passporting and other as of yet unresolved issues between the UK and EU have not conspired to make London or the UK an unattractive location for fintechs.
Despite this, the UK government is aware they cannot rest on their laurels. The long-awaited Kalifa review into the fintech sector, published February 26, notes that the future of UK fintech is at a critical “inflection point” and the government must help the sector tackle three key threats: Competition, Brexit and coronavirus.
“While the UK’s position is well established, its future is not assured,” the report warned.
Concern for start-ups
James Allum, vice president and head of Europe at global payments fintech Payoneer says that many organisations like his decided well before the Brexit deadline to incorporate an entity in the EU to ensure their service continued across the continent regardless of how Brexit negotiations unfolded.
“What’s happened is that it’s been a bit of survival of the fittest and the biggest,” Allum says. “The banks have pretty much done the same. They were probably some of the first to move some of their operations and regulatory stuff across to the EU – and the largest fintechs have done the same.”
Helene Panzarino, head of fintech and community bank strategic partnerships at fintech provider Vacuumlabs, says everyone in the fintech space started opening offices in places like Ireland as soon as the Brexit referendum result was announced in June 2016.
While creating satellite offices in places such as Ireland or the Netherlands is relatively painless for a large, well-established fintech, Allum is concerned about the impact Brexit will have on smaller, younger outfits.
“The pain in fintech has definitely been for the smaller firms,” he says. “It’s about £1m to set up a UK e-money licence, just in terms of legal costs and capital required. There are a lot of start-ups that are really being pushed and have probably been forced to make a decision of whether or not they just stay UK-focused or try and partner with someone for an EU licence.”
However, while Brexit has increased regulatory issues and made accessing funding more difficult for start-ups in the UK, Allum says these trends are not entirely a direct consequence of Britain’s departure from the bloc.
“We’ll probably see a bit more consolidation in the fintech space,” he says. “It’s a trend in the last few years that we’ve seen less and less start-ups. General regulatory costs have been prohibitive to many new entrants into the market.”
Like Bisgaard, Allum says that as fintechs have evolved the barriers to entry have gone up, meaning the “ship has sailed” to a large extent for smaller fintechs, regardless of Brexit.
In place of fledgling fintech start-ups, there has been an increased drive towards working with established banks.
“We’ve now got about 20 banking partnerships, whereas a few years ago the partnership was on the other side,” Allum says. “Now, we’re actually offering it [our services] to banks and banking platforms to help them with their growing pains.”
As fintechs have matured their business models to work with rather than against banks, they have also developed as a coherent community to the extent that Panzarino says the sector has direct lines of communication to the chancellor, Rishi Sunak MP.
“Everyone is mature enough now to understand how to navigate. There’s enough of a collective swell and subtle pressure, sometimes very overt pressure, on governments and regulators to make sure that fintech gets looked after,” she says.