In June, we published an article on advantages and disadvantages of Brexit in the fintech industry. Now, two months after Brexit, let us look at what is happening in the London fintech sector.
The UK has been a leading fintech hub, supported by the UK government investment initiatives helping investment in the rapid growing sector through the EIS, SEIS, Startup Loans and more. However, this could easily change, according to many startups investors and executives, some of whom are questioning their future in the UK.
According to Innovate Finance, the UK’s financial technology trade body, venture funding for UK fintech firms is declining as the country struggles with Brexit. According to the trade body, venture capital funding for global fintech companies grew by 150% in the first half of 2016. The fintech sector registered about $13bn of VC funding compared to about $5bn in the same time last year. On the contrary, funding for UK companies decreased by a third, registering $386m of investment early this year compared to $580m for the same time last year. Innovative Finance said that Brexit was responsible for the decline.
Recently, the American Damian Kimmelman, the founder DueDil data firm, told Forbes that he wants his company to be an international company and not a British one. He said that he cannot expand his company in the UK because of talent pipeline shortages after Brexit.
TaavetHinrikus, the co-founder of Transferwise Company, told the Guardian that he is considering relocating his company’s head office to another city. However, there is no final decision that has been made. Transferwise has a valuation of more than $1 billion and over 400 employees.
According to Fundbase, statistics shows that 7 out of 10 fintech companies are considering moving their HOs out of London. Relocating their headOffice out of UK has been their main topic of discussion. According to Eileen Burbidge, a partner at VC firm Passion Capital, there is no possibility of the British government re-instilling their faith in the fintech industry,
With the faith of fintech companies and their investors decreasing in London, what other city alternatives are there? With London city dropping from the radar, there are several cities that will be the next go-to for fintech startups.
For the first time in fintech history, China is attracting more VC funding for fintech than the United States. According to Sameer Gulati, policy advisor of Innovate Finance, China is becoming an influential competitor to UK fintech companies looking for funding. Also, according to Warren Mead, a KPMG consultant in the fintech sector, London will face stiff competition from Hong Kong fintech firms in future.
Another city that has the potential to become the next fintech hub is Berlin in Germany. Some of the most innovative products in the world are coming from this German city. In 2015, this city was the world’s fastest growing start-ups ecosystem, receiving more VC investments than any other city in Europe. The cost of living in the city is a plus for startups as the city boast of a 43% lower living cost than in London.
Although other business sectors such as Tourism and Retail claim to be performing well after Brexit due to record number of tourists and visitors to London, London might still lose its crown as the top “fintech” city in the world. Hong Kong or Berlin might be the next top fintech hub in the future. But let us wait and see what will happen after invoking the Article 50.