Jun
28
Unless you were away climbing Kilimanjaro, you likely heard that last week the UK voted to secede from the European Union (EU).
In the final tally, 48 percent voted to remain while 52 percent voted to secede. In the aftermath, the media have spilled over with reports of UK citizens now ruing the vote for Brexit, short for “British Exit.” There are tales of people who didn’t bother voting but now wish they had, people who were misled by campaign misrepresentations or misunderstood the issue, people who—incomprehensibly—voted for Brexit to make a statement while counting on it to fail, and people who voted for Brexit but would now change their vote if they could. It’s important to keep in mind that such are anecdotal and not statistically valid. Whether to take the reports with more than one or two grains of salt remains to be seen.
The Brexit vote has raised myriad questions or, perhaps more accurately, myriad fears regarding economic and political outcomes. As for what Brexit portends for the payments industry, there has been an explosion of informed opinions, few of which paint the rosiest of pictures.
Prior to the vote, CNBC’s Arjun Kharpal quoted German venture capitalist Andreas Haug:
… other regions will grow stronger at the expense of the U.K. in the event of a Brexit … The fintech sector will take a huge hit. Teams in the U.K. are supported by the financial industry, and a constructive government and regulator, but if you can’t roll your product out European-wide, a lot of teams will move away.
Telis Demos wrote in The Wall Street Journal:
Europe is a key region for payments experimentation, with licenses allowing technology upstarts to make digital transfers across borders, a contrast to state-by-state regulation in the U.S. Several fintech firms such as TransferWise Ltd., Klarna, PayPal Holdings Ltd. and Circle Internet Financial Ltd. do business across the EU.
But the U.K.’s exit from the EU could add hurdles and disrupt discussions about how upstart firms and technologies can work with incumbent banks and networks.
BrickVest CEO Emmanuel Lumineau blogged in Financial IT:
Without doubt the UK is now a less attractive option for fintech investment platforms who want to operate across Europe. Platforms such as Brickvest are typically regulated by the FCA whose framework allows us, and companies like ours, to target investors across Europe. Brexit now means firms will eventually need to find a new regulator on the continent in order to continue doing business across Europe. Cities such as Paris, Berlin or Frankfurt can offer this. Consequently, BrickVest may have to shift some of our business and team abroad. Paris and Berlin are established fintech hubs, so it would be logical for us to open an office there, while maintaining a London office to support investment activity both locally and internationally.
Ultimately, the UK’s exit from the EU will limit the growth potential of UK-based fintech companies. These companies, as they will no longer be equipped to navigate the complex regulatory environment across borders, will be confined to doing business only in the UK. Eventually it will lead to London losing its fintech hub status.
Not all predict doom and gloom, however. 11:FS co-founder and director Simon Taylor blogged quite the positive take:
Banks in the UK have a rocky few weeks ahead, but the rank and file within banks and those in the fintech community can start the fight back now. We need a good Brexit, Brexit light and we need to solve the real challenges banks face. Call me an optimist, but I think we can.
All of the above-cited articles and blogs are well worth reading in their entirety.
So, what’s my take on the implications of Brexit for the payments industry? I’ll give you my short-term predictions after a little while, and my long-term predictions after a long while. I find that predictions are most easily made in retrospect.