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Will a Brexit kill Britain’s fastest growing industry?

George Osborne hopes to make London a fintech leader, but the Brexit threatens the industry’s survival. Why would Britain champion this booming industry only to destroy it?

Modern politics is all about simple opposites and simple solutions: left vs right, save vs spend, and now, in vs out. The black and white nature of politics, at its worst, is stultifying. The Brexit discussion is just the same: ‘In vs out’ simply does not reflect the complexity of the situation. Britain, whether in or out of the EU, will be part of Europe. The only real difference is that within the EU, its industries and bargaining powers are much stronger than they would be from the outside.

Even out of the EU, European laws will still impact Britain, and the UK will have to use Europe as a springboard to enter into global markets, taking advantage of wider talent pools and trade capabilities – areas that the UK and London currently have advantages in. 

As a native German who has spent more than 16 years living in the UK working in finance, I can say that British people tend to consider themselves as ‘outside Europe’. I won’t go into how surprising the ‘island nation’ mentality can be, I will just talk about how this mentality will kill off Britain’s fastest growing industry: fintech.

Fintech: What even is it?

You already know what it is, even if you don’t know you know. It’s a not so pretty portmanteau of finance and technology. When you buy a sandwich with contactless payment, that’s fintech in action. But there’s much more. Take TransferWise, it’s a peer-to-peer money transfer service that cuts out international transfer costs by matching senders in transferring countries and sending that money locally – the company enables money to actually reach the destination, rather than being sucked up in fees. Or how about Nutmeg? It’s an investment service for normal people. You might want to invest in something but are put off by the image of super-wealthy paying for Modigliani’s on their Amex. And why shouldn’t you invest in something? Nutmeg lets you do this for as little as £1000.

Fintech is Chancellor George Osborne’s pet industry. He aims to make London the global leader in the industry. While the UK and London could certainly reach that goal, a Brexit will kill off the industry very quickly.

London is Europe’s fintech home. In 2015, it attracted upwards of £500 million worth of venture capital investment – this for a bunch of startups. In 2014, London fintech startups attracted £343 million in investment, and in 2013 roughly a third of that. That’s incredible growth for a young industry.

The UK government also helped form Innovate Finance, a not-for-profit platform for fintechs that acts as an all-purpose lobby for the industry. Prime Minister David Cameron has championed the lobby’s manifesto entitled UK Fintech 2020, and has appointed a special fintech envoy — American VC Eileen Burbidge — to ensure that the phenomenal growth in the country continues. Nowhere else in Europe can compete with London – not Berlin, not Paris – nowhere. So with so much support and investment, with such a great lead – why would the UK kill this industry?

Fintech and the Brexit

Financial leaders and experts are overwhelmingly against a Brexit – but have been advised not to speak about the issue publicly, for fear of damaging the Prime Minister’s ability to negotiate the deal with European leaders. But the financial industry is particularly at risk.

Combined, the UK’s financial services industry makes up a gigantic 9.6% of UK’s GDP. An Open Society report in 2015 highlighted how the financial services industry is more at risk than others. A Brexit would not instantly wipe 9.6% of Britain’s GDP off the books, but it is at risk. A likelier outcome is that the big players of the financial industry will up sticks for Paris or Frankfurt, and new, creative, fast-growing industries like fintech will be killed.

Let’s take a closer look:

1.    Governmental support: The UK leads the world in support for its fintech industry. The US, despite having substantial investment power, suffers from a chronic lack of trust between the government and the tech industries – and my own native Germany is only beginning to look at the potential of fintech as an industry that could transform society. The UK government has been looking into this for at least five years: why abandon that lead?

2.    Good regulation: Within the EU, the UK’s environment is well-regulated. Regulatory bodies provide clear rules that enable both financial incumbents and fintechs to flourish. These regulations are seamlessly enmeshed with Europe’s. Leaving the EU would mean undoing regulatory frameworks, which would itself take years to re-create. Former MEP Sharon Bowles commented that leaving the EU wouldn’t reduce the volume of financial regulation affecting the UK – so the argument that the industry would be less hindered doesn’t actually hold water.

3.    Passport licensing: Perhaps the single most important reason to stay within the EU. Passporting allows homegrown and major foreign companies to set-up in the UK, and transfer their businesses to the EU seamlessly. It’s a gateway for business, and it isn’t just used for establishing bases. American investors use London as a base to expand into Europe and use those markets as a test-bed for the less friendly American environment. True, the UK might still be able to negotiate a similar deal under the terms of a Brexit, but such a deal is far from certain – and why would you risk losing such a lucrative and powerful tool?

4.    Talent: I’ve often heard the complaint that the UK is losing the battle to other nations when it comes to educating children about tech: Estonian children are taught to code, why aren’t ours? From these very same people, I’ve heard the argument that British talent would be better off without the EU. But the opposite is true – Britain’s membership of the EU gives homegrown talent unparalleled opportunities to learn. The positive tech ecosystem allows British kids to learn, start their businesses and expand into Europe easily. Leaving the EU will mean UK talent simply goes elsewhere!

A Brexit will harm the UK’s financial scene generally, and kill off the UK’s fintech scene indefinitely. Paris, Berlin and Madrid are all waiting to capitalize on the UK sacrificing its London advantages in the financial and fintech industries – those jobs will go elsewhere. And think about the knock-on effects of harming the UK’s tech scene – if financial technology firms are hurt, so are satellite firms like cyber-security and data management. As is the legal industry, and the media, which benefits from digital market research.

There’s a lot to be said for the UK’s London-centric approach to jobs, but I assure you, a Brexit will hit London and the rest of the UK will feel the blow.

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Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 05 April, 2016, 13:04Be the first to give this comment the thumbs up 0 likes

All points make a strong case for what fintech will gain by remaining within EU. But, maybe it's only me, I didn't find anything to warrant the threat that Brexit will kill fintech.

A Finextra member
A Finextra member 06 April, 2016, 11:38Be the first to give this comment the thumbs up 0 likes

Hi Ketharaman, thanks for the comment. I agree that the Brexit won't kill fintech as such, but it will kill UK fintech. I really believe it's a mistake for the UK to abandon its advantages by opting out of the EU. The kinds of conditions required for an industry to thrive take years to build - and as it stands, the UK finance industry benefits hugely from conditions fostered by being in the EU. So, sure, fintechs will go elsewhere - Berlin, Paris or Madrid - but for sure, London will not gain by leaving. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 06 April, 2016, 17:36Be the first to give this comment the thumbs up 0 likes

@TobyTriebel: TY for your comment. I meant UK fintech only. I agree that "London will not gain by leaving" but I haven't read anything to believe that "London will be killed by leaving" either!

A Finextra member
A Finextra member 07 April, 2016, 09:36Be the first to give this comment the thumbs up 0 likes

Thanks again. Well I guess it's a matter of proportion - under the terms of a Brexit, UK fintech won't thrive. That is tantamount to killing the UK industry, if European and American competitors do. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 January, 2018, 11:11Be the first to give this comment the thumbs up 0 likes

UK Fintech is faring even better than I'd predicted. 

https://www.finextra.com/newsarticle/31496/fintech-leads-the-way-as-investment-in-uk-tech-firms-doubles-in-2017

"...London's fintech sector remains a hotbed of investment activity, capturing the lion's share of a £2.99 billion venture capital splurge on UK tech firms."

"...VC investment into the UK’s tech sector reaching an all-time high in 2017 at almost double the £1.63 billion invested in 2016." 

"Brexit may be a dark cloud on horizon, but UK firms attracted almost four times more funding in 2017 than Germany (£694m) and more than France, Ireland and Sweden combined."

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 July, 2019, 13:09Be the first to give this comment the thumbs up 0 likes

Nice to see events during the last year reinforcing my prediction that Brexit won't kill fintech in UK / London. 

According to this Finextra Blog post

"Not only is London one of the most cosmopolitan and exciting cities in the world, possibly more importantly, it has the language and culture too. When Frankfurt was touted as the next place to host large numbers of UK banking staff, the banks found it more difficult than expected to get their staff to move. In fact, even Deutsche Bank found it difficult to lure their London-based German staff back, scaling down their transfer plans from some 4,000 to just a few hundred."