Within the past three years, everyone in Europe (if not the world) has heard at least once the word “Brexit”.
The divorce between the United Kingdom and Europe has been a hot topic all over the news, constantly changing but always trending.
Many are in favour, and many are against it, but the only certain thing is that businesses and individuals will be affected either lightly or heavily by this divorce we call “Brexit”.
Such businesses are also FinTech-related, and we aim to analyse how this political conflict will affect one of the world’s top growing industries.
Before digging into the whole business-FinTech issue, it is important to understand what the UK is trying to achieve through Brexit, and why this its gotten businesses, internationals living in the UK, as well as the British people panicking.
Now, let’s have a look at some facts.
The UK entered the EU (then known as the EEC; European Economic Community), in 1973.
On Thursday the 23rd of June 2016 a public vote took place in the UK, where 17.4 million voters (52%) agreed to leave the EU and 16.1 million (48%) wanted to stay.
But the real question is why does the UK want to leave the EU 45+ years later?
Well, the UK believes that the EU imposes too many restrictions on British lawmakers.
In order to put new laws into action, they must be aligned with the EU policies, and the Brits feel like they’re not in charge of their own country.
Almost half (49%) of the voters who are in favour of Brexit, stated that the biggest reason they want out is that they feel the decisions about their country should be taken in the UK and not made by another decision-taking body such as the European Commission.
Critics also believe that the UK will have to sacrifice its currency since all European countries will have to adopt the “Euro” by 2020.
Thus, the Brits are against this because the Euro has always been weaker than the Sterling (but we also know how much they love their Queen-looking currency and traditions).
The UK is also concerned about the European restrictions imposed on their immigration laws.
They want to be in charge of who goes in and out of their country, especially now with the high numbers in immigration from other countries into the UK.
Now, although the decision to leave was made back in 2016, the UK still remains part of the EU in 2019.
Deal or No Deal?
The deadline to leave was on the 29th of March 2019, but it seems like the UK and the EU are yet to find common ground on how to have this “divorce deal”.
This deal is known as the “Withdrawal Agreement”, which basically says:
1. The UK must pay the EU about £39bn for breaking their partnership.
2. Where will UK citizens living in the EU and the EU citizens living in the UK go?
3. What will happen to the border between Northern Ireland and the Republic of Ireland when it becomes the frontier between the UK and the EU?
The Withdrawal Agreement also refers to the transition period businesses would need in order to adjust if they left the UK as a result of Brexit.
Therefore, if the withdrawal agreement is accepted by the EU, no big changes will be made between the date of Brexit and the 31st December 2020.
Besides this agreement, a shorter document was drawn up in order to give an overview of how the EU-UK relationship would be like in the future.
This was called the “Political Declaration”.
The deal was agreed by the UK’s then Prime Minister Theresa May and the EU in November 2018, but it also had to be approved by British MPs, and, well, it wasn’t.
Here’s how things went down:
– 15th of January MPs rejected Theresa May’s withdrawal agreement by 432 votes to 202.
– 12th of March, Theresa May went back to the EU to secure further legal assurances, and MPs rejected it again.
– 29th of March was the official day that the UK was planning to leave the EU. MPs rejected May’s proposal for a third time.
It seems like neither May or the EU want to bring back guard posts and checks, and therefore a sort of safety net was suggested in the deal.
After trying three times to get the British MPs on board with her Brexit deal, Theresa May eventually gave up.
The new deadline for Brexit is now the 31st of October 2019, and as a result of the whole May-drama, Boris Johnson took over as the new Prime Minister of the United Kingdom.
If Johnson fails to convince the EU to make alterations to the withdrawal agreement, he promised to take the UK out of the EU without a deal.
This means that businesses will have no transition period while getting out of the EU, and could cost them billions of pounds.
The sterling will fall tremendously, and there will be an increase in many food prices and custom checks at borders.
Here is a list of 10 ways you could be affected by a no-deal Brexit.
Moving on to the Fintech-side of things, as we mentioned in a previous blog post, London has managed to become Europe’s FinTech hub.
The “capital” of Europe has been an established business and global financial centre for companies of all industries, consisting of a variety of talented individuals.
The whole Brexit situation, however, has caused uncertainty to these businesses which could eventually move to a whole different country that has more to offer as an EU member.
It is safe to say, that many businesses are worried and frustrated about the unpredictable future, and this could be catastrophic for them.
Christophe Rieche, CEO and co-founder of a credit platform for small businesses called iwoca, stated that “London offers deep pools of talent for native speakers across all levels of seniority and functions from developers, marketers, account managers to credit analysts. If we cannot hire people easily from these regions in London we will have to relocate some or all of our operations.”
Sarah Hall, professor of economic geography in the Faculty of Social Sciences at the University of Nottingham agreed with this statement and explained that “Attracting the international ‘tech talent’ that has been vital to London’s FinTech success could be harder after Brexit. This depends on the immigration rules that are put in place by the U.K. after Brexit.”
The so-called talent pool is not the only concern companies have, however; funds are a whole other chapter that causes FinTech businesses anxiety.
Rieche explained that his company relies on international investors to fund the growth of the business, and today nearly all of their equity funding comes from continental Europe.
Therefore, it would be very difficult for the company to thrive, if investors stop their funds.
Additionally, market access is another difficulty FinTech companies will have to face if the UK has a no-deal Brexit.
Nick Botton, a consultant at Landmark Public Affairs confirmed this and explained that the UK will need authorization to access EU markets, which means it will be more expensive and heavily administrative to do so.
So basically, without talent diversity, funds and high prices on importing/exporting fees for products or services, it is very possible that the UK will stop being the FinTech industry’s most attractive destination.
Co-founder and CEO of Early Metrics Antoine Baschiera, also confirmed this as the main factors of the British FinTech success are the access to highly-qualified international talent, the presence of financial institutions and the connections with overseas funds.
“If the divorce were to affect any of these, there’s a significant chance the UK would lose its lead in the FinTech scene” Baschiera said.
Unlike Baschiera, Botton and Rieche, a number of financial experts claim that Brexit will not slow down the growing FinTech industry in the UK.
Finextra published figures where UK FinTech is seen to have recorded a $2.9 billion of funding in the first half of this year, across a total of 123 deals.
Based on these numbers, CEO of Innovate Finance Charlotte Crosswell stated that “Investment into the UK FinTech sector shows no sign of slowing down. The flow and impressive size of individual investments demonstrate an ecosystem that is showing signs of growing maturity. It is hugely encouraging to see evidence of this resilience and growth despite the uncertainty and challenging times ahead.”
Additionally, the Business Insider argues that London could actually retain its FinTech popularity if they maintain a global standing rather than just European.
It is believed that the UK’s financial services sector is built on strong foundations and will manage to survive the no-deal Brexit hit.
Also, TheCityUK reported that lasting partnerships with universities should be created in order to reach skilled individuals while also looking at options such as existing trained staff. With this in mind, the talent pool will not be completely drained.
The only certain thing is that no one knows exactly what’s going to happen yet, even though the MPs have been having heated discussions over the past 3 years.
A large number of Brits have changed their minds about Brexit, as they weren’t properly informed about its consequences, whilst others are loyal to their initial Brexit choice.
As they all struggle to find common ground, the option to ask the people what they want again is somewhere on the table talks.
Our thoughts on this are just: EU can’t always get what EU want, but if EU try sometimes, EU might just find what EU need.