Hundreds of financial institutions and fintech startups have used London as a window to the EU’s 27 countries and common market of more than 500 people. But the window is now closing, and the UK must embark on an unknown future. Tomas Likar, vice president of strategy and business development at Hyperwallet, writes
The UK’s shocking decision to leave the European Union (EU) has left its citizens fearful for what is to come. Local news stations have been ringing the alarms for some time, with constant warnings of how Brexit will result in higher interest rates and an increase in currency volatility – particularly in relation to the pound. Meanwhile, this well-known financial capital must also consider the potential consequences of Brexit on the payments and fintech industries.
The relationship between big UK banks and fintech startups is likely to waver in the coming months. For a long time, these organisations relied on a win-win partnership – UK financial institutions gained greater exposure to new technologies and business models, while fintech startups saw an increase in capital and access to the EU’s internal banking market. But now, fintech startups will have to look to greener pastures when identifying potential business partners.
Prior to Brexit, fintech startups had the option of passporting their British eMoney license from the Financial Conduct Authority to all other EU countries – giving them essentially a seamless process for cross-border transfers.
However, the Brexit decision will force such startups to apply for a license with different regulators across Europe. This will likely force them to move operations from London altogether, because the only way they can maintain regulatory freedom within the EU is if they set up additional offices across Europe.
Major payment processors with London-based operations face similar threats. For privacy and data security purposes, European law requires processing centres to be part of the EU, so they too may need to leave London.
As we continue to embark on a new and not fully understood financial reality, the coming months will be crucial for these organisations to solidify their future in Europe.
With both fintech startups and their processing counterparts having no option but to leave London, the future of the UK’s financial services market is questionable at best.