The British public voted. I didn’t. I don’t have the vote here. I observed with unfolding horror as hollow and oversimplistic campaigning led to a narrow win for the Leave campaign. Emotions aside, a lot is in the balance for London’s fintech ecosystem and the greatest imperative at the moment can be eloquently summarised as, “Don’t just sit there, do something”.
And I don’t mean protesting. I get the urge, but I doubt the outcome at this point, particularly as the language of the debate so far has been oversimplified, offering fire and brimstone where complexity was inevitable, and dialogue of the essence. There are three reasons why we need to act now, and the subtlety of the reason dictates the nature of the response. I fear there is little here to shake a fist at, but a lot to lend a hand with.
Just as things were easing off …
I remember negotiating a contract 10 years ago for a five-man startup (we didn’t call them that back then) and a tier-1 bank. It was simultaneously impossibly hard and impossibly easy. Hard because procurement treated us as if a duck-billed platypus had been put forward where a puppy was required, and easy because we were a rare thing, therefore existential questions around the rise of fintech didn’t feature. The big boys wanted our software, so a way was found and everyone went home happy.
However, as fintech became “a thing”, established players started being more apprehensive. And it has taken us years to reassure the banks that fintech isn’t out to get them. Just as they were getting to a point of accepting collaboration and coexistence, and trying to find a meaningful home for everything they had hitherto been dipping a toe into, Brexit occurs.
It has been rightly said that nothing much will happen for a couple of years. Those who said that to reassure don’t know much about the markets. For the FS world, “nothing much happening” while we wait, slow evolution towards an unknown status is the worst kind of climate. Uncertainty isn’t a friend of the markets, and to navigate it, banks and FS institutions will retrench, limit “nice to have” activity, stretch timelines for experiments and investment cycles, diversify and minimise exposure and risk. The aspirational and experimental initiatives will be the first to suffer, not because banks suddenly don’t care, but because they need to protect their staff, shareholders and regulatory standing in order to still be around at the end of the storm to still have aspirations.
The uncertainty as to what will happen now will actually distract decision makers, divert/freeze spending and turn focus on staying in business today, to have tomorrow’s problems in the first place. It won’t be a change of heart, just an economy of energy and headspace and an even bigger sense of hedging bets across companies, initiatives, geographies and opportunities. After a period of waiting.
Time flies when you’re having fun, but waiting is hard
It’s emotionally hard. It’s intellectually stalling and is a massive drain on resources. Banks and FS institutions will slow down, wait, spend time and money in a more diffused manner. Some startups already have operations in multiple geographies, and focusing on those will make short-term sense. The even more stretched out timings and geographic diffusion may test quite a few startup resources to breaking point.
Meanwhile, uncertainty runs deeper for startups. While they wait for the landscape to settle, most founders have two massive unknowns to contend with: will their company ‘passports’ survive the transition? Many startups are incorporated in the UK because its regulatory setup permits for a European bridge. And will their staff have a right to continue to live and work here once all is said and done?
Surviving the wait will be hard enough. With no guarantee that what they’re waiting for will be viable, startups may be tempted to relocate and follow VC funding or institutional stability.
What came about by lucky accident can be destroyed with carelessness
Most civilisational turning points have been unplanned, not accidental but not a result of strategic design either. The advent of the nation state as a measure of political legitimacy; the enlightenment, urbanisation and industrialisation. The same mechanisms – if not the same gravitas – apply to the London fintech ecosystem.
We know what contributes to a stable democracy, but we have historically been singularly unable to manufacture those conditions. So what happens if the amazing London ecosystem is damaged? We lose something priceless, much bigger than its per capita output. What makes it: proximity of difference and cross-pollination of science, business and the arts. The enlightened, respected and proactive regulator. The money to finance, buy, and support new ideas, and the headspace afforded to create and not just run for cover. The danger is that we allow any or all of these to wither.
The opportunity is to act fast as a community to protect what we all know is precious, unique and an asset to the city, the sector, the global digital renaissance and the country as a whole.
Here lies the challenge
The current trend of simplified, slogan-strength truisms won’t cut it here. Neither will protesting. What the fintech ecosystem needs won’t fit on a placard. We need to do something, but this something needs to be measured and swift, driven by the three interconnected players:
The government – The government needs to clearly articulate cross-party intent on the fate of businesses, technology patent and non-UK passport holder knowledge workers in a way that’s clear and concrete enough to base business planning on. This is urgent, because moving a digital business is exceptionally easy (you can pack your laptops and apply for incorporation elsewhere within the EU in less time than it took to write this blog). There’s no way of measuring the value that’s being leaked by the work not getting done while hundreds of companies are spending precious time being stressed about their future here.
It would be easy to make this a bargaining chip with Europe. It would also be disastrous, and little would be left to bargain with the longer we wait.
The incumbents – These firms had Brexit plans in the vault. Perhaps they thought they would never need them, nevertheless they had them. The sophistication of the risk department of large FS institutions shouldn’t be underestimated. As the contingency plans are kicking in and the stress is undeniably high, discussing pilots and labs may feel frivolous. But the future of their firms and the ever-changing economy are not topics that can be parked for a quiet afternoon, because we may not get one of those for a long time.
A new normal will emerge and the FS players will be active in forming it. I know not what will happen to the common market; whether the euro-dollar clearing infrastructure will move; what will become of euro-bonds. I know that equilibrium will be reached once again, and although the new world will look different, there’s no reason why we can’t at least try to hold on to what we have learned over the past few years: platform economics may actually hold the key to the stability we all crave.
The fintech world – This group of thinkers, engineers, entrepreneurs, mentors, investors, designers and writers has never thought of itself as a lobby, and that has always been its charm. However, it represents a sizeable chunk of innovation, and the time has come to partner with representatives across those sectors of the economy powered by science and technology innovation to clearly and succinctly articulate the areas where policy can safeguard critical conditions for the survival of the ecosystem. Funding is obvious, but not in itself enough. Regulation, clear and reliable legislation around patents, employment, licensing, cross-border exchanges of goods and ideas, is absolutely essential for the survival of this amazing phenomenon London has been home to.
This is just some of the complexity that got drowned out during the debate. This is, however, the complexity that now needs to be tackled head-on, to protect the growth of the fintech phenomenon where London’s financial services, government services and science communities came together to unlock amazing creative potential engaging some of the brightest minds in the world. If that’s not something to be fiercely proud of and worth protecting, then what on Earth is?
Photo: chombosan, Shutterstock.com