Before you even think it, I know, I know … a Twitter poll of likeminded fintech practitioners is hardly gospel when discussing the issue of Brexit in our industry. There are certainly enough column inches dedicated to the subject of Brexit, but I’ve struggled to find decent coverage of what it might mean for those of us in fintech, hence my initial unscientific foray into Twitter polling and then into the wider issues that will affect the industry.
Why is Brexit so befuddling?
Read the current press and you would be forgiven for being utterly confused. Views range from total financial meltdown across the globe and FTSE 100 chiefs warning of thousands of jobs lost, to powerful bankers such as Axel Weber of UBS saying all will be just fine. It says a lot for the quagmire of analysis and reporting that has surrounded Brexit that some of UBS’s own research seems to suggest all won’t be fine by foreseeing a collapse in the pound, despite reassurances that ‘the market would re-price to parity – and to the extent that it could accommodate a shift in the current account by 2.7% of GDP’.
That 2.7% GDP figure is certainly eye-catching, especially given Mark Carney’s revelation that the Bank of England had cut its growth forecasts for 2016 and 2017 from 2.5% to 2.2%, and 2.6% to 2.3% respectively. The news this weekend that John Longworth had resigned from his position as director-general of the British Chambers of Commerce is the latest twist in what is turning into a manic battle between the two sides for support of the major business players in the UK. The Financial Times revealed that Longworth had made ‘several high-profile interventions’ in favor of leaving the EU. Boris Johnson, increasingly becoming Brexit’s very own soundbite, came out swinging and labelled the affair “scandalous”, accusing the government of engineering Longworth’s resignation through “project fear”.
The ugly side of hierarchy is being exposed; the BCC has reportedly acted without the best interests of the 90,000 businesses (including SMEs) it represents, and if Boris Johnson is to be believed, then the government has trampled all over the BCC to have its say. When the heavyweights start swinging at each other, it’s best to take a ringside seat.
Blocking out the noise
As an industry, we need to block out the noise and focus on what exactly British fintech should be concerned about, and whether we should Brexit or not.
The financial markets – One of the more outspoken eurosceptics, Michael Gove, has penned an essay published in The Independent arguing that “the EU is an institution rooted in the past and is proving incapable of reforming to meet the big technological, demographic and economic challenges of our time … the EU is built to keep power and control with the elites rather than the people.” Surely this paints the EU as British fintech’s antichrist. I would argue that Gove’s strong rhetoric paints over the fundamental short- and medium-term issues that the UK (and fintech) would undoubtedly face.
Uncertainty is always bad for business, and the City’s major players sending out analytical report after analytical report minutely altering complex probability equations will only make bums squeakier in the run-up to the June vote. And if the establishment suffers, just think what it could do to our sector.
It’s also widely agreed throughout Europe that the impact of Brexit for trade and investment channels would be most severe for the UK. There is no doubt that regulatory divergence would increase over time, affecting trade volumes and reducing the attractiveness of the UK for investment. This would impact on European businesses investing or trading in the, UK and any supply chains involving UK firms. So, is it all doom and gloom? Not necessarily. On the other hand, a weaker pound could attract foreign investment to UK fintech and renew an export boom. However, in my humble view, many aspects of the fintech market, more than ever before, need secure economic conditions to prosper, to secure investment, fix partnerships and close new deals to grow into established and trusted businesses. As a sector, we simply don’t need huge uncertainty at this time, and Brexit brings significantly more headache than it does opportunity.
Regulation – Big companies can withstand such uncertainty, while small fintechs won’t necessarily. Contrary to some reports, Brexit would inevitably usher in more regulation, not less. Eurosceptics often point to the stringent and complex rules governing the trade of fresh produce around the continent, but in reality the two are incomparable. Any fintech platform currently trading in Europe (or with aspirations to trade in the future) will be hoping they won’t have to re-do their business models to fit the re-entrenched sovereign British laws.
Those of us who have suffered the six-month process it takes to be regulated by the FCA, and all the work that goes into an application – this would be but a litmus test of what is to come trying to break into the EU as a separate entity.
Regulation is a fact of life, and in terms of fintech, I can’t help feel we are better in the European Union rather than as an outsider looking in.
Audience – The universe of EU users for our fintech could shrink by 85% unless EU trade terms can be agreed. This is the extreme prediction, but let’s be honest with ourselves: leaving the EU is hardly going to add customers. Furthermore, new trade terms to get us back on an even keel could stymie the industry’s growth and stop it from contributing to the wider UK economy. In addition, no macroeconomic data really exists on what would happen to the EU if Brexit happens. The prevailing view in Europe is that it will have a reasonably significant economic impact in the short-term and that in turn could affect our European cousins’ willingness to spend in our industry.
Some of my colleagues in fintech are convinced that fintech is a borderless industry that challenges the traditional global paradigm, and to a great extent I share their views. However, I also believe that as our industry matures and the value of our activity in everyday lives increases, restriction, regulation, and so on, will play a significantly bigger part in our access to audiences. Unless we are part of a powerful group on the ‘world’ stage, as a standalone nation we could lose out significantly.
Talent – There’s a real chance that new fintech businesses would begin to dry up in the UK; many fintech founders are from banking backgrounds and they may feel the opportunities are too risky to launch a startup. As importantly, a loss of market confidence will lead to stalled IPOs and exit routes in the short- to medium-term, and this will add to the risk.
Talent from Europe drives a surprising amount of UK fintech, and for many on the continent, a non-EU member state may limit their desire to cross the pond. After all, Brexit could significantly damage Europe’s stability and a ‘them’ and ‘us’ mentality could come into play.
A debate synonymous with caution and fear of endemic proportions, Brexit has fallen at the wrong time for a young industry hungry to establish itself. If any benefits can only be long-term, maybe it’s in the best interests of fintech to stick with the climate that has allowed us to grow to where we are now. I for one will be voting to stay in Europe if for no other reason than to protect my interests in fintech.
Image: AppletonOnfoot CC0 Public Domain