UK-based banks and startups alike are preparing for the potential economic turbulence Britainâ€™s departure from the EU might bring – but itâ€™s the latter that are best prepared to react.
Speaking at the FinTech Investor Forum,Â Azimo and Tandem Bank founder Michael Kent said theÂ â€œpeople who are going to really struggle will be the big banks and institutions, who will be much slower at movingâ€.
By contrast he believes FinTech entrepreneurs can â€œreact to it fairly quicklyâ€, giving them a significant advantage in handling any Brexit fallout.Â
ThatÂ sentiment was echoed by consumer investing app Moo.laâ€™s founder and CEO Gemma Godfrey, who said her companyâ€™s business remained unchanged in the wake of the June 23rd vote.Â
She pointed to the more agile nature of FinTech startups compared to legacy institutions and said, â€œif youâ€™re a FinTech firm you’re smaller, youâ€™re able to be more nimble. Weâ€™re not this heavy tanker ship which is hard to move.â€
Ben Brabyn,Â head of Canary Wharf-based FinTech accelerator Level39, also finds startups are worried about how the vote will impact their traditional banking partners or clients,Â adding thatÂ often it isÂ earlier stage companies that find it easiest to adapt.
He said,Â â€œSome of the concerns expressed by companies in Level39 are actually not their own concerns but more representative of the organizations with which they partner – the bigger, more established institutions.â€
Itâ€™s a moreÂ positive take on something that many founders see as a challenge to overcome rather than a beneficial opportunityÂ for their businesses, with Kent branding BrexitÂ â€œa disasterâ€.
Access to capitalÂ
Access to capital and talent are the areasÂ the Brexit vote hasÂ sparked the greatestÂ concerns for Londonâ€™s FinTech community – the same areas in whichÂ the government previously made efforts to help startups.Â The changes Brexit could bring about means Kent is preparing to move remittance firm Azimoâ€™s operations outside of the UK.
Other EU nations are keen to attract would-be emigrating businesses, and Kent said, â€œI met the mayor of Amsterdam and sheâ€™s very keen to roll out the red carpet.â€
He doesnâ€™t think passporting, which allows UK companies to conduct business across the EU, will survive, and says the company is â€œlooking at setting up a regional hub and getting regulated for our European business somewhere elseâ€.
He adds, â€œWeâ€™re currently a UK institution regulated by the financial regulation authority and weâ€™ll keep that, but weâ€™ll set up a new business probably in Dublin, Luxembourg or the Netherlands.
â€œIt will probably see the majority of business because we have more European customers than British customers and weâ€™ll start focusing there.â€
In a year when investment into German FinTech companies is expected to outpace that in the UK, the added uncertainty of Brexit is only making it more difficult for startups in the area to raise capital.
Brabyn attempted to highlight sustained investor interest in UK FinTech, saying thatÂ following the money reveals, â€œthereâ€™s been more than Â£40m raised by companies in Level39 since the Brexit vote, thatâ€™s a strong indication of confidenceâ€.
Kent, however, points out that, â€œa lot of those deals will have taken months and months to put togetherâ€ and claims that he knows as many as 10 companies that are, â€œscreaming for cash and really struggling because the funding in the UK has become much harder to getâ€.
Susanne Chishti, the CEO and founder of angel network FINTECH Circle, offers some practical advice for business seeking funding.
She said, â€œbe realistic with your valuations from the beginning because what you want to avoid are down round.
â€œEspecially now as we move into more rocky territory potentially after Brexit and how much currency fluctuations may disincentives investors to come forward itâ€™s important to be pragmatic and realistic with valuations.â€
Growing strategic investmentÂ
There are also promising signs for companies looking for future funding in the growing presence of strategic capital and Asian firms in the European and UK investment ecosystems.
â€œEvery bank worth its salt has venture fund now,â€ says Kent.Â â€œInsurance players are putting money in now. So thereâ€™s more people to meet.â€
He says traditionally the company would look for capital in â€œthe UK, maybe Germany, then the US.
â€œThese days the US has been very turned off by Brexit but you can actually get on a plane and go to Asia or the Middle East a lot sooner than you might otherwise do so.â€
Competition for talent
The other major area of concern for any growing business is the impact changing border controls may have on access to the best talent.
Itâ€™s no exaggeration to say that many of Londonâ€™s most promising tech startups run on European talent.Â If the flow of tech talent into the UK is stemmed the costs of hiring the best developers will rise making it harder for startups to compete with cash-rich corporates.
Teams spanning boarders will also see the costs of securing talent grow.
Godfrey said, â€œWe have a developer in Switzerland and his costs have gone up with every currency move.â€
Itâ€™s leading companies to search further around the UK and Moo.la has, â€œjust opened an office in Belfast with the help of the government over there.â€
Godfrey says itâ€™s a growing region as, â€œitâ€™s in the UK but thereâ€™s a lot of government support there and a lot of businesses are saying that.â€
Retaining London’s FinTech crownÂ
Itâ€™s clear many FinTech leaders believe Brexit will create challenges for their growing business but there is still optimism that London and the UK can retain its title as, arguably, the global hub of FinTech.
Chishti says the vote, â€œsent the wrong signal out as a country. As an industry weâ€™ve been given bad cards.â€
But remains optimistic of the UKâ€™s position, saying: â€œpeople look up to London as the global FinTech hub.
â€œThey admire what weâ€™ve done here, the regulators and the ecosystem and they see us as the best hub globally and that hasnâ€™t changed.
â€œWe have to make sure we donâ€™t lose that leadership position but also that we work together with other hubs to have a collaborative approach.â€
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