Fintech And The UK’s Post-Brexit Allure
by Madhvi Mavadiya for Forbes,
After I discussed Germany’s post-Brexit allure in a previous article, Deutsche Bank announced that it would be committing to a new office in London. This is particularly poignant in the current climate, where financial institutions are contemplating moving from the UK capital to other European technology or finance centers. With the Article 50 trigger date fast approaching, it questions whether banks will weather a potential storm or make a quick exit to other UK countries like Scotland or Ireland.
According to the BBC, big lender Deutsche Bank could enter into a 25 year lease on the new building and the UK CEO Garth Ritchie highlighted that this decision “underlines the bank’s commitment to the City of London.” This could signal similar actions being taken by other traditional banks and in turn, minimise the impact Brexit will have on the UK, or more importantly, the London fintech scene.
However, in the same week, a Goldman Sachs executive explored how moving jobs away from their new London office, in order to increase European presence, as a result of Brexit, would be beneficial. Although, this is a US bank and it is interesting to point out that as France and Germany have experienced increased investment in comparison to the UK, it could mean that other institutions may follow suit and set up shop in other countries too.
A recent report from PwC and Startupbootcamp, fintech startup accelerator, found that Brexit will not make an impact on the UK’s fintech sector because of increased speculation alongside a lack of action. This makes sense, in my opinion and as the terms and conditions of what a Brexit actually means are finalized, banks and fintechs alike will take months or even years to work out how they will handle leaving the European Union.
“One of the key areas of speculation is whether London will remain the ‘fintech capital of Europe’ or be surpassed by cities such as Paris or Berlin. However, rather than seeing these cities as competition, there is a positive story to be told around increasing innovation across Europe,” the report read. This statement alludes to the idea that although the UK is occasionally thought of as separate from the rest of the continent, and perhaps will be thought of in this respect more so post-Brexit, what really matters is fintech growth in Europe as a whole.
On the other hand, London’s success must not be forgotten. There is a reason why fintech is an industry in which the UK capital has excelled in and the reason behind that could be the introduction of the Financial Conduct Authority’s regulatory sandbox or initiatives like Innovate Finance being based right in the centre of Canary Wharf. This is what the PwC report picks up on: “the fact that London is home to such a large concentration of financial services businesses and technology companies, in close proximity to one another, is also a natural advantage.”
The report goes on to say that this success has not been hindered by the vote for Brexit and many bridges have been built between London and Asian tech hotspots. Although, concluding predictions by PwC and Startupbootcamp reveal that London will remain fintech capital of the world because growth in other regions will inevitably slow down. Is this view too optimistic? How healthy is the European fintech industry in reality?
However, like France and Germany, a country’s capital is not the only city in which fintech can blossom and boom. There are too many examples of this in England to provide a full picture of the extent of work being completed in the fintech arena, but again, Scotland and Ireland must be taken into consideration also. ScotlandB2B explored how the digital technology trade body ScotlandIS is preparing for Brexit with a series of briefings for the IT industry.
The article states that Glasgow and Edinburgh are developing into fintech hubs because of the support provided by the Scottish financial services. However, Scottish fintechs that are regulated at an EU level may be forced to adapt if they remain a part of the United Kingdom, of course. ScotlandIS’ research and policy manager Svea Miesch suggested that British banks and fintechs have succeeded because of EU passporting rights in the single market that have enabled trade to be conducted efficiently.
“The majority of fintech companies are operating only in the UK and therefore do not rely directly on passporting. However, fintech businesses often work in partnership with banks and will therefore be indirectly affected. The loss of passporting would also make future expansion to other European countries more difficult for UK fintech firms,” Miesch said.
Like Paris’ Station F, Scotland’s accelerator announced earlier this month by Royal Bank of Scotland and Entrepreneurial Spark will be sure to enhance and bolster fintech innovation, as the industry has seen with Glasgow’s Rookie Oven and Edinburgh’s CodeBase. KPMG’s Tech Monitor revealed that Scotland tech grew by 43.4% between 2010 and 2015, which was second only to London (54.6%).
Ever since talks began about the EU referendum, the technology industry somewhat assumed that London firms would jump over to Dublin and as a burgeoning financial hub, this could happen. As the French finance ministers visited London a few weeks ago to try and woo fintech startups to move to Paris, the start of this year saw junior finance minister Eoghan Murphy, as well as IDA Ireland and William Fry, invited companies to make the move.
B Capital Group co-founder Raj Ganguly believes that Ireland will compete with Germany to become a financial technology hub and could emerge out of the shadows in a surprising way. “We are bullish on Ireland. Germany is very active but then there is Ireland, which we think is the dark horse in this race. In reality there won’t be just one winner. London can keep a lot of its investment, but both Ireland and Germany can also succeed.”
Could Wales be the real dark horse? Cardiff saw the opening of a new fintech services hub by government provider Liberata, which truly has the potential to transform the digital industry. Charlie Bruin, CEO of Liberata stated that fintech in South Wales has been expanding for some time, but in the end, it comes back to regulation. “It comes as the Government continues the drive to digitise and automate more public services to improve efficiency, while reducing costs for taxpayers,” Bruin said.