Among the many questions being asked following the June 2016 referendum on the UK’s membership of the European Union was just how Brexit will impact the emerging FinTech industry. It’s a relevant concern as the sector now employs some 135,000 people and in 2015 accounted for £20 billion of revenues in the UK. Naturally, there is some anxiety over whether Brexit will stop this momentum in its tracks.
At a recent conference hosted by The Telegraph, The Future of FinTech, the main theme was Driving UK FinTech forward post-Brexit. There are fears that Brexit will mean some companies will staff-up in other European locations rather than London, that the UK will be less attractive as it leaves the EU. Although these are legitimate concerns, perhaps people should be reassured that the needs of customers haven’t changed. They still want services to be faster, cheaper and more convenient, and these factors have been major drivers in the growth of FinTech.
The conference confirmed what we all know, that the traditional banking model based on banks taking deposits and extending credit, while earning on the margin, is being severely compromised by the rise of fee-based models that bring greater cost transparency to the consumer. Furthermore, regulation is reshaping the industry in a dramatic way. PSD2, for example, is enabling a move away from the dependency on established deposit and loan service models. This will open up opportunities for FinTech businesses that can complement bank offerings with new delivery models and value-added offerings.
Brexit brings some worries over London’s position in the worldwide economy as one of a handful of global financial centres. While some people may consider that London could be compromised by Brexit, it was reassuring to hear from the conference that the rise of an alternative 'hub' to London in Europe – such as Frankfurt or Paris – is unlikely. There was an underlying feeling that London is way ahead of competitors in Europe and that the regulators in the UK are relatively progressive and will want to ensure London remains competitive. In addition, the London 'ecosystem' is highly developed and connected across the globe.
At the same time, complacency has to be avoided. We still don’t know how so-called regulatory 'passporting' will change the landscape – it is possible that UK FinTech companies could lose their automatic right to operate in the EU. And with emerging markets, such as India, innovating and grasping new technologies and concepts with gusto, making strides towards the realisation of a cashless society, established markets like the UK and the US will have to confront new dynamics and determine exactly what their role could be in a rapidly-shifting world.
At present, FinTech companies in the UK are as besieged by the prospect of the unknown as the broader UK population. Hence, they are hedging and planning for a number of outcomes.
Whatever happens, Europe will be a leading region for growth. Over the last year, FinTech companies, backed by venture capital, raised £1 billion in funding, and with the UK playing a key role in that growth, and the current climate of uncertainty, it is understandable that people are nervous about the medium-term outlook.
However, London and the UK are nothing if not resilient. And nobody – inside or outside the EU – should underestimate their importance in the global economy.