Contrary to the fears that Brexit would affect VC UK Fintech investments, the first half of 2017 saw more investors pour their money into the UK Fintech sector. Compared to the investments over the same period last year, the investments have increased by more than a third, a clear sign that the sector is weathering Brexit.
Out of the $564 million worth of investments that the UK fintech startups pulled in the first six months of the year, more than half came from outside the UK. The 37 percent increase in fintech investments compared to the same period in 2016 puts the UK in the third position behind China and the U.S which received more investments. The UK has long been the European fintech hub, a sector that ranges from digital currencies like bitcoin to mobile payments apps. Some people were worried that the British vote to leave the European Union would make the country less attractive to fintech investors but that is not the case.
However, the investment over the first half of this year is still less than the investments over the same period in 2015 when a total of $676 million was invested. Innovate Finance chief financial officer, Abdul Haseeb Basit says that there was a period of uncertainty over the summer last year following the June Brexit vote but around the third quarter, the sector had started to recover.
The government attaches a lot of significance to fintech sector because it contributes around $9 billion to the economy and creates 60,000 jobs. Basit says that the sudden decline in fintech investments immediately after the referendum was as a result of some pre-referendum deals that had clauses providing that investment was subject to a vote to remain in the EU. The vote to leave the EU saw such deals cancelled.
Voting to remain in the EU would mean that companies in the UK would retain passporting rights that allow them to trade freely across the EU while voting to leave could jeopardize this chance. However, these worries have eased. Even if the UK loses the passporting rights, that would affect only 20 percent of the more than 300 startups that are members of innovate finance.
Another concern that businesses had was that voting to leave the EU would make it difficult to get adequate highly skilled labour. Innovate Finance estimates that 30 percent of people working in UK fintech companies are from outside the country, many of them being from EU member countries. This concern has not yet been addressed as uncertainty still remains because the terms of leaving the EU are still unsettled.
Despite the outcome of the referendum, investors are confident that Britain’s light-touch regulation, prowess in conventional finance and technology, pro-business culture and the fact that it is Anglophone gives it a competitive edge over other European centres.