t has been about two months  since citizens of the United Kingdom (UK) voted to leave the European Union (EU). While the British Pound and stock markets took an instant hit, the following weeks witnessed deliberations around how the UK and the EU will move forward. While the new UK Prime Minister Theresa May traverses across countries allaying fears and setting negotiations in motion (albeit unofficially at this stage, until Article 50 is triggered), businesses in the UK and other parts of the world are finally accepting the decision and taking steps to sort through the prevailing confusion. The following are some of the developments since Brexit:

  • The UK and South Korea have formed a fintech bridge.
  • Start-ups in London are increasingly looking at Berlin as a relocation option.
  • Taavet Hinrikus, the Chief Executive Officer (CEO) of TransferWise, has tweeted, “Ireland, Switzerland, others reaching out and tempting @TransferWise to start/move operations there – competition between states is good :)”

While the UK government will continue in its efforts to retain the country’s leadership in the financial services industry, there are early signs that start-ups and fintech firms are relooking at their strategic decisions to be best prepared for an uncertain future.

Fintech: As We Know It Today

According to the British Treasury, in 2015, more than 60,000 people were employed in the fintech sector that generated more than £6.6 billion revenue. Industry estimates suggest that the number of fintech employees in the UK exceeds that in New York, Singapore, Hong Kong, and Australia combined. As per other estimates, fintech investments in the UK amounted to $5.4 billion (as against $4.5 billion in the rest of the EU) during 2010–2015. Regardless of the metric used, the UK—London in particular—has been leading the fintech industry.

Over the last few decades, various factors have led the UK to strengthen its position in the financial services market. Some of these are:

  • Availability of infrastructure
  • Ability to attract talent from different parts of the EU
  • Government encouragement for start-ups
  • Presence of investment firms
  • Networking opportunities with other professionals in the financial services sector
  • An outstanding academic network
  • The facility of “passporting” and the presence of leading global banks

The quality and strength of its human capital and overall competitiveness have ensured top ranking for London in the financial services sector.

The UK is one of the funding members of Digital 5 (D5), a group of digitally advanced countries (South Korea, Estonia, Israel, and New Zealand being the other members). With the latest initiative that led to the creation of a fintech bridge with South Korea, efforts to move beyond Brexit are visible.

Fintech Post Brexit: Strategy Realignment

Given the prevailing uncertainty, discussions on “what happens next” can be endless. Once (and if) Article 50 is invoked, the UK will be allowed a period of two years to complete negotiations for new terms of trade with the EU. According to experts, given the extent of negotiations and the complexities involved, chances of this period being extended are high. While policymakers and others are at pains to convince stakeholders that nothing changes in the short term (as negotiations and decision-making will take time), the reality is likely to be somewhat different.

Fintech firms are probably already weighing their options. Two years is a long time in the life of technology; especially for a start-up, it can be akin to a lifetime. Up against the strength of incumbents such as large banks and other financial institutions, legacy infrastructures, and consumers looking for rapid change, fintech firms will need to move ahead with their plans, even if this involves making decisions in an extremely uncertain environment. Some of the key considerations for fintech firms are outlined below.

Alternate Location: While London was once an almost automatic choice for fintech firms, it seems certain that many will consider possible alternatives given the current scenario. Fintech companies from North America and Asia-Pacific that saw London as an entry point to the EU are now likely to also consider Amsterdam, Berlin, Dublin, Frankfurt, Paris, and Stockholm among their options. Business development companies in other locations such as Berlin have indicated that they have received enquiries from companies about relocation. This is not to say that the companies will move immediately; many will wait and watch, albeit with risk mitigation plans in place. However, going forward, some realignment of decisions and strategy to execute expansion plans is inevitable. Taavet Hinrikus, CEO of TransferWise, one of the unicorns in the fintech industry, mentioned in a tweet that offers to relocate are already coming in. Taavet Hinrikus, an Estonian entrepreneur, established the company with headquarters in the UK.

Passporting: Another aspect that is likely to have a significant impact on fintech firms is the financial passporting facility that allows firms in one jurisdiction to conduct business and offer services in another location within the EU without any special permission. For fintech firms and incumbent financial services firms, the loss of this facility with Brexit poses a significant hurdle for expansion. Although the UK promises an improved ecosystem with forward-looking policies and lower taxes, fintech firms setting up offices in the country will gain access to only one market; and need to open other offices and put in additional effort, time, and money to expand in the EU. It may also mean adjusting to different sets of regulations. Any benefits that the UK promises with lower taxes are likely to be eroded by the additional costs.

Talent Pool: The financial sector in the UK currently employs about 1.2 million people with diverse skill sets; and a large number of them have emigrated from myriad countries within and outside of the EU. Free movement of people, money, things, and services has been the hallmark of the EU. Fintech firms that have set up their offices in London to maintain proximity with the financial community, not surprisingly, are worried about the impaired access to people, skills, investments and eroding competitiveness that they may now have to deal with. The lack of talented professionals and adequate infrastructure in other locations is also a cause of concern.

Although many firms may have been wrong footed with Brexit, the fact that there is a two-year period before things really begin to change offers a respite. As company managements modify their strategies to ensure that they stay on track with their growth plans, here are a few things that need to be considered when scouting for other locations:

  • Existing strength of the financial services sector
    • Presence of international banks
    • Presence of fintech firms
    • Venture investment in fintech
  • Presence of information technology (IT) companies
  • Availability of talent pool
  • Government policies
    • Taxation
    • Immigration
    • Ease of business


The overall ambiguity related to the impact of Brexit will further impact currency fluctuations and valuations, hiring, advertising, and other growth plans as investments will be difficult to come by.

Although it will be difficult to replicate the success of London in other cities in the near future, the status of the UK as the most favored destination is in jeopardy. For existing fintech firms, the decision is not simply related to staying in or leaving London. Rather, it involves several complexities with regard to networking, regulations, costs, infrastructure, talent, and market access. Immediate and short-term plans will remain the same, but mid-term and long-term plans will definitely undergo changes.

Brexit could restrain the pace of progress in the fintech sector. Venture funding in the near future is likely to slow down as investors deal with new market complexities and uncertainties. Similarly, incumbents such as banks and insurance companies seeking to embrace fintech may be forced to shift some of their focus to dealing with the impacts of Brexit on their core businesses.

In the next 12 months, fintech firms seeking to expand in Europe and globally are likely to move their headquarters from London to other European cities. While Germany seems to be the most probable option for relocation, other alternatives are France, Sweden, Ireland, and the Netherlands. The uncertainty, expected to last for two to three years, can only negatively impact the UK’s strong position in this market. As companies reconcile and mitigate risks, the big question will be about the cost of lost opportunities. The reality of a new financial services world that may not be centred on London is finally setting in.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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