As soon as the results of the Brexit referendum were announced in June 2016, the U.K.’s many fintechs found themselves being surreptitiously approached by various investment agencies across Europe, all eyeing an opportunity to position themselves as one of the continent’s new financial hubs.
“You get hit reasonably regularly by most of the European jurisdictions saying you should come and invest in their particular country,” said Michael Kent, CEO of London-based online remittance service Azimo. “Some of the Eastern European jurisdictions were very much on the front foot about chasing down early stage financial services businesses.”
From Malta to Belgium, the past three years have served as something of a shopping market between payments-based fintechs seeking alternative jurisdictions through which they could still be licensed within the EU, and investment agencies hoping for a piece of their business.
“I think one of the key drivers of the success of U.K. fintech has been European market access, having more than 500 million potential customers on your doorstep,” said Kent. “We have a large number of continental European customers, it was very important for us that they would be able to continue to use our service uninterrupted in any Brexit eventuality, and so it became clear that we needed to operate a second regulated entity within the EU.”
But while countries like Lithuania, Latvia and Malta have been highly active in approaching fintechs — in July 2018, the Bank of Lithuania introduced an e-licensing tool which made it cheaper and quicker to submit the information required to obtain a license — such approaches have been met with mixed opinions. While Revolut, TransferWise and others now have Lithuanian e-money licenses, other fintechs have remained wary.
“Reputation is very important for us,” said Kent. “We like well resourced, strict regulators, who understand our business model, and there have been quite a lot of stories about issues in some of the Eastern European countries, primarily Latvia, with regards to their regulators or central banks.”
Instead, one of the first ports of call for many U.K. fintechs has been Ireland. The Irish government has made it clear that it is looking to utilize Brexit to develop the country’s fintech sector over the next six years, publishing its ‘Ireland for Finance 2025’ strategy in April 2019. Over the past couple of years, Stripe, Soldo, PFS, Optal and others have all secured Irish e-money licenses.
“We have facilitated over 80 Brexit-related investments, many of which are in the fintech sector,” said Katie Thurston, Vice President of Financial Services at investment agency IDA Ireland. “We feel Ireland has a very compelling offering for these companies. Given fintechs are typically fast-growth, cost-sensitive firms, Ireland has consistently featured high on many fintechs’ locational shortlists for establishing an overseas presence due to its proximity to the U.K., cultural and business environment similarities, talent and skills base, attractive corporate tax rate, and the well-established financial services and technology sectors.”
But while Ireland offers the benefits of close proximity, it may well prove to be one of the central European nations to become the biggest beneficiary of Brexit. In particular, the Netherlands looks set to experience a fintech boom, with many U.K. payments companies choosing to apply for e-money licenses from the Dutch Central Bank. This is in part due to the culture created by the success of Adyen — a Dutch fintech created in 2006 which provides a platform for businesses to accept e-commerce, mobile, and point-of-sale payments — which is widely regarded as one of Europe’s biggest fintech success stories.
“Almost 100 companies have already decided to set up in the Netherlands due to Brexit, and we are in talks with another 325 companies on a Brexit-related move to the Netherlands,” said Michiel Bakhuizen, a spokesperson for the Netherlands Foreign Investment Agency (NFIA). “A significant amount of these companies are in the financial services industries. The Netherlands is an interesting location for business, because of the Dutch good logistical and digital infrastructure, as well as a skilled, English-speaking workforce, and the security and continuity of doing business with the European internal market.”
Azimo, which obtained an e-money license in the Netherlands in April 2019, said that the NFIA have been quick to recognize the potential opportunity for them.
“There’s currently dozens of payments institutions in the Netherlands compared to thousands in the U.K. but they’re well versed in fintech and they recognize that if you can become a tech cluster there is an opportunity,” said Kent. “We’re probably not out of the first chapter of the fintech story in Europe, and having these companies draws more investment in, leads to people being upskilled in the country, and more tax revenues.”
Kent predicts this will ultimately have consequences for the U.K. and its standing in the global payments market.
“I think the impact will be larger for the less flexible financial institutions, but if you think about the tech industry, the main factor we feel limited by is human capital,” he said. “And where will young, millennial tech workers want to base themselves in the future? They don’t come to London for the weather or for the cost of living, they come for the opportunities. And if those aren’t present to the same extent, I think you’ll start to see financial institutions increasingly diverting from London as the automatic choice to scale up.”
