While the U.K. government continues to decline to provide any substantial intelligence on its plan for Brexit, and some continue to question whether it even has a plan, U.K. businesses are left to wonder what Brexit will actually mean.
The Prime Minister’s insistence that “Brexit means Brexit” might be a crafty soundbite, but it’s a fat lot of good to anyone trying to build a business plan.
Or indeed to the Office for Budget Responsibility trying to forecast the fiscal impact of the U.K. leaving the European Union…
Still, London-based fintech startup GoCardless reckons there’s a glimmer of hope for the domestic fintech industry at least — following the chancellor’s Autumn Statement yesterday, which included a few specific measures aimed at supporting the sector (along with a boost in spending on broadband infrastructure, autonomous and electric cars and VC, among other areas).
The fintech measures outlined in the Autumn Statement include £500,000 per year for startups; a plan to create a network of regional fintech envoys; an annual “State of UK fintech” report; and the modernization of guidance on electronic ID verification.
In the sprawling scheme of Brexit — which the OBR, peering into the gloom, estimates has put a £59 billion hole in the U.K.’s public finances — £500,000 per year for fintech sounds like pretty small beer. Nonetheless, U.K. startups have to get their Brexit silver linings from somewhere.
“What we think the government is doing here is indicating that they see fintech as a high growth area and one with lots of potential,” says Ahmed Badr, GoCardless’ head of legal. “And one which they want to continue to nurture — albeit if it’s not by injecting billions of pounds then it’s certainly focusing the nation’s attention on that, it’s focusing its own attentions on the sector.”
Is this the first sign that the current government has taken note of the economic potential of U.K. fintech startups? “I think it’s probably the first very public indication,” he says. “What we’ve seen is the government continuing the dialogue — maybe not in documents as shiny and important as the Statement — there’s been engagement via bodies such as Innovate Finance. That’s been continuing, which is really positive. But it’s even better obviously to see that embodied in something such as the Statement.”
Badr also welcomes — and describes as “extremely encouraging” — the government’s intention to modernize electronic ID verification in line with advice from the financial services trade association group, the Joint Money Laundering Steering Group, with the aim of supporting technology for accessing financial services (versus relying on paper-based ID checks).
“The use of that electronic identification can really streamline onboarding and due diligence processes,” he says. “This is something which customers can find a bit of a pain. And companies like ours, and other fintechs, which are trying to really streamline the customer experience it’s actually a really important thing.
“Electronic identity can also be a great tool to help us fight against fraud or identity theft. And we really want to see that shift away from old legacy paper documents to easily accessible — and, to be honest, more trustworthy electronic ID.”
Of course the really big fintech question triggered by Brexit is whether the U.K. will lose financial passporting as the government negotiates the terms of the U.K.’s exit from the EU — a multi-year process that’s expected to kick off by the end of March next year. Passporting is the system that allows financial services firms authorized to offer services in one European Economic Area state the right to offer the same permitted services in other EEA states without needing to go through the lengthy and complex regulation process in each.
Despite Badr’s positive read for U.K. fintech startups off the back of yesterday’s Autumn Statement, he is not going so far as to predict the government is now committed to retaining the passporting system that underpins the sector. “It’s extremely hard to say at this point,” he says, discussing the looming Brexit negotiation process. “I wouldn’t want to predict what may or may not happen.”
“Obviously we’ve made it clear to the government how important passporting is to the fintech sector. I don’t think they need telling; they know that continued access to the market would be a great thing in terms of financial services,” he adds. “We’d be surprised if there were not very high level discussions ongoing now about how that might be maintained — whether it’s passporting or some other method.”
Still, GoCardless has a contingency plan should Brexit end up meaning the end of passporting in the U.K. Badr says it would look at setting up a European subsidiary and becoming regulated in another Member State to retain passporting across the EU. “That is something we would do,” he confirms.
But pulling out of the U.K. entirely isn’t something the five-year-old company feels would be necessary at this point. He talks up what he sees as immutable positives to London — as a city to live in and a place to access talent, pointing, for example, to quality local universities. “Those things are not going anywhere,” he argues. “It is really just the maintaining of that passport which would drive us to perhaps push forward activity that we might have left to a little bit later.”
Does he think Brexit threatens London’s position as Europe’s fintech capital? His hopeful hedge on this is that fresh fintech competition across Europe should serve to stimulate more homegrown financial services innovation, not just inject incentives to take business elsewhere.
“I think we can all agree how important passporting rights are to the financial services sector — not only for UK financial services actually, but also for the vast number of European financial entities that passport into the UK,” he says.
“Will we see others do this as well? If passporting rights are removed and there’s no replacement or similar then I’m pretty sure we will see that. I think we’ll see movement both ways — so we’ll see UK companies who passport into Europe setting up European Subsidiaries and those European companies which currently passport into the UK will most likely set up UK subsidiaries as well.
“For us the majority of our revenue does come from the UK at present so those other subsidiaries would be smaller in the meantime but would hopefully see some of the high growth that we’ve seen in the UK. So it might be that we see other fintech ‘centers of excellence’… popping up or increasing their standing in Europe but what I wouldn’t necessarily expect is for everyone in the U.K. to decamp to a particular city or a particular area. I think we’ll probably see a few key cities emerge where people consider moving to.”
For now, despite Brexit’s ongoing unknowns, Badr describes GoCardless as “quietly confident” it can weather the storm. “This is one thing that a startup has to face in terms of challenges,” he says. “We’re used to being adaptable to the environment and what happens internally. So I’d hope that we can continue to show just how adaptable we are going forwards.”