Just at the time when the COVID-19 economic uncertainty has sucked capital out of the UK’s FinTech landscape, the threats of no-deal Brexit can make the situation even more worse for them.
FinTech startups in the UK have accelerated their working on contingency plans in case of no-deal Brexit. The European Union and Britain are yet to come to mutual agreements for a trade deal before December 31, 2020.
So far, the UK continues to get access to the European market as part of the transition period. However, once that ends, financial companies will be losing their “passporting” rights which allow them to operate across the EU member countries.
Some of the FinTech companies based out of London have already established offices in the EU. This will help them to ensure that they can continue to operate in the region without any major disruptions. However, some big banking institutions of the UK have already asked customers in the EU to close their accounts.
For e.g. back in September 2020, banking giants like Barclays and Lloyds informed all British customers in the EU that their accounts will be closed by the year-end. Even other lenders had informed of similar measures with their withdrawal from the EU.
While these measures could be favorable for the giant players, some blooming FinTech startups have adapted a different stand. Instead of going domestic to serve only the UK customers, a majority of the FinTechs decided to serve the EU. Speaking to CNBC, Pavel Matveev, CEO of cryptocurrency trading platform Wirex, said:
“Fintechs tend to care a bit more about their customers. I see it as an opportunity for fintech because by definition the smaller companies will probably be more flexible and hungry for customers.”
Wirex is also seeking a license to operate in the EU and is currently in talks with the European regulators. However, this is not happening anytime soon, said the CEO.
UK FinTech Sector: Changes in the Investment Landscape
The United Kingdom is home to some of the world’s most emerging FinTech companies. Besides, the ‘financial hub’ status of London makes things altogether more favorable for FinTechs. But investments have been drying up this year dropping 39% in the first half of 2020.
Iana Vidal, head of government affairs and policy said that the COVID-19 pandemic created major economic challenges for FinTechs. He added:
“Innovate Finance is concerned about the impact a no-deal Brexit would have on the U.K.’s fintech sector as well as our standing as a leading financial services hub. Many firms have already spent significant time and resources setting up in Europe in preparation for the end of the transition period. There is real concern that these compounding factors will damage the long-term growth of a sector that has performed so strongly over the past decade.”
Other analysts said that a no-deal Brexit can further spoil the show for FinTechs. Besides, it can also give a major blow to the UK being a favorable place for FinTech growth.
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