Results of the recent referendum over Britain’s exit from the EU have left an ocean of confusion, dozens of questions and no answers. Brexit is by far the hottest topic at the moment, and debates about potential implications of such a bold move are intensifying.
London crowned a global fintech capital
In 2015, the British fintech sector generated £6.6 billion in revenues and attracted approximately £524 million in investment, according to EY, a professional service firm. UK fintech firms employ about 6,000 people which is about 5% of the total financial service workforce. That makes the UK larger than New York, Singapore, and Hong Kong competing for a status of the world’s fintech hub.
The UK has been at the forefront of the financial technology revolution with companies specializing in lending and money transfer feeling quite confident supported by government initiatives to help investment in a sector that is growing quite rapidly.
Fintech is hit hard in this game of truth or dare
However, following last Thursday’s referendum some fintech business players and investors have already started questioning the future of business in the UK. So, is the UK going to lose its status of the world’s fintech hub?
UK, being a member of the EU, offers technology companies a number of advantages. First of all, any businesses regulated by the UK authorities can ‘passport’ their products across the European Economic Area, therefore businesses’ concerns of whether the situation might change are fair.
Brain drain possible
As many fintech companies employ developers from countries like Portugal and Poland, the general worry that occupies fintech companies’ leaders is a brain drain of talent and skills. Brexit might make it more expensive and complicated to attract and retain staff.
In addition, companies are bound to a number of EU regulations about data protection. Currently, the European Commission is trying to harmonize rules across the EU in areas such as data protection and copyright by pushing through the ‘Digital Single Market’ agenda.
The question of the movement of the free labor and trade implications also concerns businesses in general, including fintech players. Brexit might also make it harder for companies to attract investment.
“Brexit will change things dramatically for London’s fintech community. The pool of banks that fintech companies can access out of London may be reduced. Everyone in fintech is now weighing up in which other European jurisdiction they should open an office”.
Forced to leave a warm nest?
There are over 500 fintech companies in the UK, some of them are now deciding on which way to go. Location is a very crucial issue. A friendly regulatory framework and strong political support for the sector allowed fintech business to flourish in the UK. However, Brexit might force many companies to reconsider their position. The challenge of relocating the business is bigger than just finding new premises, packing up offices and covering relocation costs. Moving to a new location means that business relationships will have to be re-established, access to key markets could be lost and customer confidence will be negatively affected.
Edan Yago, founder of Epiphyte, specializing in making transactions using Blockchain technology, warned that his company might have to consider leaving the UK in case the tension in country’s relationships with the EU increases.
UK Business Secretary: There is no need for panic
On Tuesday UK Business Secretary Sajid Javid held an emergency roundtable with UK business groups to discuss the implications of the Brexit vote.
Leaders from the CBI, Institute of Directors and British Chamber of Commerce, EEF representing manufacturing and BBA which represents banks and the British Retail Consortium were among the more than 20 representatives of business groups and figures from the UK’s most important industries at the meeting.
While business leaders in the UK are very concerned about what is going to follow further, Sajid Javid said that there is no need to panic and assured that keeping the UK’s access to the single market will be a priority during further negotiations with the EU.
Perhaps, seeking to avoid fintech businesses slipping away from the UK, the government will seize the opportunity to offer a more attractive tax regime and friendly regulations. Eventually we may see London becoming an even more attractive hub for fintech and start-ups than it has been before.
Brexit or Grexit - a chance to exit centralized financial system
Anticipating the UK referendum CoinTelegraph had a chance to talk to a few of the fintech business players at MoneyConf held in Madrid and hear their opinion on the impact of Brexit.
Joshua Scigala from Vaultoro explained:
“Brexit will certainly set a big precedent. I don’t know what might happen, but I think it will unveil another use-case for digital currencies. Brexit, Grexit, or any other sort of exit opens up some options. If you want to take control of your own money, put your money into Bitcoin, or gold, or something else outside this system. You don’t need to wait for a super state to come and tell you what to do with your own money or how to deal with this kind of crisis.”
Mariano Alvarellos from Bitinka believes in the potential of digital currencies:
“This is a new world. It shows that there is another way to move money without banks, or maybe still partnering with banks, but conducting transactions at a reduced price”.
It might turn out that fintech companies will eventually win in the case of Brexit, as they are now offered a chance to figure out how to develop, implement and manage a distributed ledger technology that will reduce the counterparty risk and margin requirements. Coming to the market now fintech companies have a chance to attract more customers with lower transaction costs, increased transparency and eventually bring more liquidity to the market.
Bitcoin trade doubled
Some consider a pound crisis as a great chance for Bitcoin and other digital currencies. Following the referendum, the pound fell to its lowest in more than 30 years. As a result, the demand for assets such as US dollars and gold has risen. Amidst all of the uncertainty caused by the impulsive decision to shut the door and leave the EU, people started looking for a safe place to keep their money.
Bitcoin in this case appeared as a safe haven as it is unconnected to any government or central bank. Reportedly, the volume of Bitcoin exchange has doubled as many people rushed to buy Bitcoin for pounds and euros, accelerating the rise of its value.
Gil Luria, managing director at Wedbush Securities commented to Bloomberg:
“Consumers are buying Bitcoin as an asset uncorrelated with the global monetary system, much like gold. If other countries in the EU pursue similar paths, I would expect some of their citizens to look at the British experience and want to protect some of their funds in Bitcoins.”
Even though Bitcoin is a young experimental money, and therefore highly volatile, Gil believes that volatility is still much better than knowing your money will be devalued by 10-30% within a few weeks.