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Brexit: All eyes on fintech

The most immediate startup victim of Brexit is the financial technology sector. So-called ‘passporting’ allows financial firms to carry out services licensed in one EU country across European borders. That’s all been thrown into jeopardy.

26 Jul 2016

The ‘fintech’ sector has in recent years been earmarked as London’s trump startup sector; a number of companies doing innovative stuff around financial services have engendered enthusiasm about a booming economy in the making and the possibility that at least one could even rise as a bona fide global player.

Talent hub

As well as money transfer firms like Transferwise and Azimo, other services such as peer-to-peer lending, bitcoin exchangers and crowdfunding platforms have also emerged in the UK, with talent, knowledge and ideas around fintech coalescing in the capital.

These startups have been able to get products tested in the UK and expand to Europe quickly and easily.

The potential risk is outlined by Tom Blomfield, founder of Mondo, one of four digital banks currently in development with pending licences from the UK finance regulator.

UK banking licence

‘The big question for our business is the value of a UK banking licence. Passporting is a big deal,’ says Blomfield. ‘Instead of having access to 500 million people, that licence will now be restricted to just 60 million [as a result of Brexit].’

He adds: ‘We’re considering setting up an office in Berlin or Frankfurt. It won’t add any value to us but it will delay us by a couple of years and cost us £1m or so.’

Michael Kent, founder of Azimo, says: ‘I anticipate that we’ll see many finance players moving some, or potentially all, operations elsewhere in Europe. Frankfurt, Amsterdam and Dublin are all obvious candidates.’

Paris or Frankfurt?

Every fintech firm Courier spoke to said investors were worried about the impact of Brexit on the sector, although they were all adamant that they would withstand the shocks. 

Companies are seeking clarification on passporting, but they fear the worst. Many assume European policymakers would leap on the opportunity to attract financial tech firms to cities like Frankfurt or Paris as credible financial hubs to rival London. For years, European politicians have looked on enviously at the million or so jobs in London’s finance sector and the tax receipts it generates (£66.5bn in 2015, 11 per cent of the total UK tax income).

‘If I were a European regulator, I’d be looking to make myself more attractive. It’s such an obvious move,’ says Ahmed Bahr of GoCardless.

This story is part of a special report on Brexit’s impact on startups – covering fintech, currency, investment, talent, regulation and funding – featured in Courier Aug/Sept.