London was the world’s fintech capital, but it is unlikely to retain this position post-Brexit.
One week on from Brexit, and the initial economic shock has passed (thanks in large part to the Bank of England’s promised £250bn of emergency capital). The fall in the value of the pound and other direct economic impacts (to say nothing of political impacts) will be challenging for consumers and businesses alike, but these are far from the only potential consequences for the payments market.
London is currently the single largest fintech center in the world, with the sector employing 61,000 people and being worth a combined £6.6bn in estimated revenue in 2015 ($9.8bn at year-end 2015). This position was owed to a combination of factors: the wealth and infrastructure of the City, the strong UK economy, the proximity of numerous multinational bank headquarters, and the UK’s membership of the EU. As an EU Member State, the UK allowed for fintech firms to access the 500 million-strong EU market to sell their products and services in, as well as access to skilled tech workers from all other Member States as well as the UK (currently, 20.7% of UK-based fintech workers are from other EU countries).
Perhaps the single greatest advantage of EU membership for UK fintechs, though, is the ability of firms to “passport” compliance with UK financial regulations to any other EU country. Post-Brexit, UK-based fintech firms are likely to need to shoulder the burden of regulatory compliance twice – once in the UK, and again in an EU nation to access the rest of the market.
It is possible that London’s intrinsic strengths as a financial hub will be enough to see it through Brexit turmoil. London is a global financial services hub as well as an EU hub, and this positioning may insulate the fintech market to an extent. However, for any start-up trying to build their business from London, the EU is the largest potential market – and the easiest to access, at least pre-Brexit.
The campaign to remove the UK from the EU was never fought on issues relating to finance or payments, so it is possible that the new UK leadership could attempt to safeguard the fintech industry by retaining all EU financial regulations and enshrining them in national law. However, it will likely take time to negotiate a formal relationship with the EU such that “passporting” may continue, even if the UK’s post-Brexit position makes this feasible.
It remains to be seen how Brexit will play out, but even if London retains some of its international financial services prestige, the economic uncertainty of Brexit – and the loss of key advantages for fintech firms such as access to skilled EU workers and “passporting,” make it unlikely that London will remain #1 for fintech.
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