British fintech can outrun the Brexit blues

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Maxim Chmyshuk
Co-Founder & Managing Partner
Fleximize
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From lending and digital currency, to investment management and payments, Financial Technology (fintech) startups are rapidly changing the world in which we live. By redefining what it means to receive and provide a financial service, fintech is disturbing areas once deemed the sole domain of financial and banking institutions.

The UK, in particular, has become a hub for imaginative fintech startups in recent years. As a report by EY has recently highlighted, the UK’s fintech industry is producing £6.6 billion in revenues, enticing roughly £524 million in annual investment and generating more billion pound-valued startups than any other British sector.

With Britain’s 500 fintech companies directly supporting 61,000 jobs in the UK, fintech is thriving.

Yet post-Brexit many have speculated that London risks losing its crown as fintech capital of the world.

Given that the UK lost its coveted AAA credit rating within 24 hours of the leave vote and several British businesses declared their readiness to relocate to mainland Europe, this unease is understandable.

The foreign exchange service TransferWise and the London-based online money transfer company Azimo, for instance, were amongst those businesses expressing concern that Brexit would reduce access to markets, talent, passporting powers and funding for UK SMEs.

Yet, as the recent All-Parliamentary Group (APPG) report ‘Stepping Forward for Fintech’ has recently highlighted, Brexit is unlikely to hamper British entrepreneurship and innovation in the long term.

Citing examples such as GoCardless and Currency Cloud, the APPG report stated that fintech is providing businesses with a ‘meaningful alternative to their bank when making a payment or when moving money across borders and currencies’. Likewise, by presenting solutions to the challenges of financial transparency and completion amongst consumers, it is challenging the traditional financial domain.

With this in mind it is unsurprising that MarketInvoice raised a $7.2m funding round at the beginning of July 2016, an investment of £6.5 million was confirmed by WeSwap and the fast-growing foreign exchange startup Revolut just succeeded in attaining £6.75 million from venture capitalists in London.

Nonetheless, three policy objectives outlined by the APPG Fintech indicate that there is room for development when it comes to access & financial inclusion, choice & fairness and security & integrity.

The report outlined how new prototypes are currently being restricted by infrastructure and legislation that is outmoded and outdated. To tackle this, the APPG urged the Payment Systems Regulator to take added action for entrants who do not have effective access to the payments infrastructure and called for a regulatory framework that promotes an inclusive, competitive and growing fintech industry.

The committee also stressed that more needs to be done to inform SMEs on the numerous and varied funding options that are now accessible to them. Business owners who are, for instance, concerned about taking on large amounts of debt to fund their expansion, need to be educated on the number of flexible finance options available outside of the banks.

There are also a number of schemes that can be applied for through alternative providers, such as the Enterprise Finance Guarantee. This is a key part of working towards full financial inclusion, as well as creating a more diverse, fairer finance sector.

Recognising the value of alternative lending providers such as Fleximize and Funding circle, the APPG report explained that fintech is giving individuals and businesses greater access to affordable options that are tailored to the specific needs of each business and thus providing a “bridge between citizens and the financial services they need and want”.

Given a recent forecast by the EY Item Club that bank lending will fall in the aftermath of the Brexit vote, it is likely that more companies will turn to alternative finance to fund their business ventures.

As well as supporting banks with their efforts to lend to businesses, the APPG committee thus urged the government to continue to back alternative providers that offer British SMEs a viable, rapid alternative when the banks say no. Such a policy can be further backed by the government’s already pro-business attitude and favourable tax schemes for investors and entrepreneurs, such as EIS and SEIS.

With the active and positive governmental investment in fintech and alternative finance, there is cause to believe that UK-based fintech companies will expand and thrive post-Brexit.

After all, the likes of Funding Circle materialised in the aftermath of the 2008 financial crisis, displaying the adaptability and innovation required to survive any period of economic uncertainty.

So long as this mentality endures, there is good reason to believe that fintech startups will successfully tackle the numerous challenges presented to them post-Brexit.

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By chunky1
26th Sep 2016 09:34

Very well said, I hope it will work well also.

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