Unless you've been living under a rock for the past year and a half (an idea which seems to have become increasingly attractive in today's political environment), Brexit has been impossible to avoid. Whether turning on the news, checking social media or catching up with friends, the topic is guaranteed to feature centre stage. Only last week, a now-familiar tremble made its way through the fintech sector as the latest news emerged: the UK won't be able to maintain its passporting rights after it leaves the EU. Of course, the (frankly unsurprising) announcement provided fresh ammunition for yet more predictions of doom and gloom.
But is Brexit really that big of a deal for the UK fintech scene?
The regulatory and financial hurdles surrounding the loss of passporting the single market will certainly result in logistical challenges for firms operating out of the UK. However, in the grand scheme of things, Brexit is just another speed bump in the road for the fintech industry – no more so than previous obstacles from regulation and investment.
The strength of the UK's tech sector, as well as London's continued position as the fintech capital of Europe, illustrate the fact that the heart of the industry is still thriving, even in the face of such era-defining political and national upheaval.
Hard Brexit, Soft Brexit...fintech Brexit?
Contrary to what many of the scaremongers would have us believe, the fintech industry flourished in 2017, despite political instability. Encouraging signs can be witnessed across the entire technology landscape, with UK firms attracting close to £3bn in venture capital funding over the calendar year – a whole four times greater than that of runner up Germany. Clearly, investors are undeterred by the uncertainty surrounding Brexit.
What's more, many firms in the industry have actually outperformed their metrics over the past financial year. Here at Currencycloud, we are expecting to double in size this year, and have had our first 'billion-dollar month' in terms of cross-border payments processed in December (2017). While the industry will still face a huge challenge in separating from the EU, the current momentum means fintech will be able to push through these barriers with ease.
A big reason for this is the solid foundations of the industry and the perfect infrastructure in place for growth and development regardless of outside factors. The talent pool is also impressive, and many essentials for the industry are exclusive to the UK. Whether it's specialised legal firms, a conductive regulatory environment or something as basic as the time zone, there are many factors that are incredibly difficult – if not outright impossible - for other nations to replicate.
Sure, it will be trickier to recruit emerging talent from the continent post-Brexit. But as long as London remains the focal point of the industry, the brightest minds will continue to flock to the UK from all around the world. In fact, 40% of new employees we've recruited in the last few months have come from abroad, including many Europeans.
A bridge over troubled water
Admittedly, the loss of passporting will mean that those with global ambitions will likely have to establish and maintain an office on the continent and get regulated in other markets. But, this does not spell the end of the UK's fintech dominance.
Rather than a curse, these difficulties could even serve as an opportunity for localised organisations to truly embrace globalisation and widen their scope beyond our shores. We are planning on retaining our London headquarters, but also opening an office somewhere in Europe in the distant future to overcome any issues from the loss of passporting. At the minute, the Netherlands is looking like the strongest contender because of its closeness to the UK – both literally in terms of its location, and also from a cultural perspective.
With fintech bridges already established between the UK and Asian nations such as Singapore and South Korea, it's clear that the industry's partnerships will continue to develop, and Brexit will only strengthen this resolve. There is a lot of untapped potential, money and innovation in these areas, and the threat of isolation has only encouraged the UK to be proactive about its global relations.
Is open banking the true catalyst for change?
Ultimately, for something so politically and socially divisive, Brexit really won't be a deal breaker for the fintech industry in the UK. While it is undoubtedly a roadblock in the path of progress, momentous pieces of legislation like PSD2 are the true crossroads that could shape the future of financial firms across the continent. Through its ability to give third parties access to major banks' data and initiate payments without any need to use the incumbent provider's own system, open banking is not only opening the door to better deals for customers, but also to new opportunities for fintech. Shortly after the regulation came into law in the UK (January 2017), TrueLayer began taking advantage of it by integrating with challenger bank Monzo. Clearly, momentum around the regulation is starting to build and I believe this will only grow.
As I'm sure you're aware by this point, Brexit means Brexit. But with positive signs of growth, solid infrastructure for technology firms to thrive within London, and the bigger challenges posed by open banking, it's unlikely to spell catastrophe for the UK fintech industry.
Todd Latham is CMO & Head of Product, Currencycloud.