Part II: Is FinTech the UK’s most valuable bargaining chip post-Brexit?

Posted: 23 May 2016
Author: Mark Hurren

Following on from Part I of this blog, this time I’ll be looking at FinTech in the face of a potential Brexit from the EU…

The UK is currently the world leader in financial technology and – although the FinTech market globally is in a period of development and growth – it would be wrong to underestimate the strength of Britain’s position in that market. London is the world’s leading financial centre, a hub of international trade and commerce, and there’s evidence that FinTech start-ups often use the UK market as a base for future growth into international markets.

Does the UK’s FinTech expertise put us in a strong position?

Analysts have also suggested that the current boom in UK FinTech is no bubble, and that the recent emergence of disruptive start-ups is the herald of a more serious period of investment in which established banks will start to fund FinTech more heavily. There’s also an argument that any period of change and transition that would inevitably follow a Brexit vote could in fact be an ideal time for innovative FinTech start-ups to make their mark.

However, seasoned start-up investor and founder/CEO of personalised financial news feed CityFALCON, Ruzbeh Bacha, believes original ideas and innovation aren’t always top of an investor’s list of considerations…

“I’ve seen several entrepreneurs with good ideas and prototypes, failing to raise funding. You’d be amazed at how investors are ready to pour tons of money into copycats, especially when the idea is proven and the market opportunity is large. Most investors are risk-averse and look for factors that may reduce their risks – particularly in the UK. Why do you think the government has come up with so many tax benefits to encourage angel investors to invest in start-ups?”

Would a Brexit trigger a FinTech exodus?

Some have argued vehemently that leaving the EU would destroy the UK’s world-leading position in the FinTech market. There’s no denying that there are many businesses – from the largest multinationals to the smallest start-ups – to whom Britain’s membership of the EU is an absolutely integral part of their reason for being based here. Reuters recently reported that 7 out of 10 London-based FinTech companies they interviewed said they would consider moving their headquarters out of the UK if the country voted to leave the EU.

Mr Bacha echoes this sentiment…

“For early stage companies, including FinTech start-ups, the uncertainty that Brexit brings is bad for business, at least in the short to medium term, which means they may not be around in the long term. Some companies only have enough money to survive for a few months, so market volatility and uncertainty could be fatal in some cases.

“And if you’re a non-UK investor looking to invest in a UK start-up, you’ll probably want to wait for clarity on how a Brexit will affect the British economy, currency and future business plans before making a commitment. You’d certainly be forgiven for exploring more calculable opportunities in the meantime.”

Would the IT talent pool dry up?

There’s also the very real possibility that the pool of IT talent available to UK FinTech businesses would be diminished in the aftermath of a Brexit vote. Currently, tech firms in London and across the UK benefit from the free movement of workers between EU member states; many employ graduates from Hungary, Poland, Romania and the Baltic states, which are renowned for high educational standards in maths, science and technology. Stricter – and more expensive – visa requirements in an independent Britain would make these workers more likely to seek work in established EU FinTech centres, such as Germany or France.

“As a FinTech entrepreneur, I want to make sure we hire the right people so I’m very hands-on with the recruitment process,” says Ruzbeh Bacha. “I look for people who are a good fit with the company culture, are passionate about what we do, who love to solve the problems faced by our target audiences, and who are ready to learn and fail fast if required. We prefer hungry, young dev talent that isn’t motivated purely by money – whether that’s from inside or outside the EU makes little difference, aside from the cost implications.”

Freedom to attract better FinTech talent?

Without our current obligations to EU immigration agreements, the UK would be free to revise its own visa requirements; this could potentially be leveraged to attract top-notch IT talent from outside the European Union. Reduced access to tech graduates from within Europe could feasibly be offset by attracting skilled workers from places such as South Korea, Malaysia and Sri Lanka, who are already contributing to FinTech booms in China, Hong Kong and Singapore.

“CityFALCON hired two people in the UK last year, but couldn’t hold onto them due to salary demands,” explains Ruzbeh. “The FinTech skills gap in the UK means quality people are picked up for big salary packages by the big companies, so start-ups like ours have no option but to look outside the UK and the EU.

“We’re currently building a team in Ukraine, where we’re able to source highly skilled technical personnel, who are hardworking, diligent and passionate about what they do – and cost a fraction of what we’d have to pay in the UK.”

Which way Britain will vote in the EU membership referendum remains to be seen. If we do vote to leave, it will have a rapid and long-lasting effect on every sector of the UK economy. However, it is my belief that the current strength of our world-leading FinTech sector could be a powerful bargaining tool in our future dealings with both Europe and the rest of the world. Of course, this would have to be backed up by legislation and regulation that will allow us to attract and retain the best available talent, as well as ensuring the continued availability of investment capital to UK-based FinTech enterprises.

I’d love to get your opinions on how you think Brexit might affect the FinTech sector, and IT recruitment in general, so please drop us a line. We look forward to hearing from you!

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