Brexit prompts UK fintech firms to divert resources to Europe
TransferWise CEO Taavet Hinrikus has said his company is looking to open a European base after Brexit, adding that he probably wouldn't choose London if he was launching his money transfer start-up now. His comments chimed with those of other UK firms, which have said they are diverting resources to open European offices since the Brexit vote – a blow to Chancellor of the Exchequer Philip Hammond's hopes of making the UK the world's fintech hub. "I don’t know of a licensed fintech company in the UK that isn’t looking at options [in Europe]," said Simon Black, CEO of cash transfer start-up Azimo.

UK fintech startups such as TransferWise and Azimo are setting up new European headquarters outside of Britain;

Expansion is driven by fears of losing out under Brexit deal and represents lost growth for UK economy;

Luxembourg's fintech lobbyist believes US and Asian fintech businesses looking to expand will now snub Britain as a result of Brexit.

TransferWise CEO Taavet Hinrikus. Jan Haas/DPA/PA Images

LONDON — It was less than two hours into the Treasury's first International Fintech conference last week that Taavet Hinrikus pierced the government's jingoistic bubble.

The conference was meant to promote Britain as a global hub for fintech post-Brexit, with over 400 investors from around the world invited and around 100 local businesses. Chancellor Philip Hammond told the audience that fintech could help create a "global Britain" by exporting to the world.

But Hinrikus, the CEO of online money transfer business TransferWise, told the same crowd shortly after: "If I was setting up TransferWise today, I probably would not choose London."

Even worse, he told a reporter from Reuters on the sidelines of the conference that, while TransferWise will keep its global headquarters in London, it will be setting up a new European headquarters as a result of Brexit. Locations like Dublin, Berlin, Barcelona, and Paris will all likely be considered.

Hinrikus' comments are a huge blow, not just to the Treasury's hopes of promoting Britain, but to the UK's real fintech economy, worth £7 billion annually. The sector is facing a Brexit-driven drain: money and other resources that would have been invested in British offices are now being redirected towards setting up overseas locations.

'To try and ignore the fact that they need an EU is a bit of a folly'

"Any good business leader is planning now for those known unknowns," Nasir Zubairi told Business Insider last week. Zubairi is the CEO of Luxembourg House of Financial Technology, a non-profit part owned by the government that aims to promote and develop Luxembourg as a fintech hub.

Zubairi, who is British and spent many years in working in finance here, said: "There could be a scenario in which passporting is kept but do you want to risk that and wait two years to find out at the last minute and then panic? I personally can’t see any scenario within which London keeps passporting. In which case, firms in the UK need a European focal point. They need an access channel."

Azimo cofounders Michael Kent, left, and Marta Krupinska. Azimo

Passporting allows companies to sell products and services anywhere within Europe under once licence. It seems likely that Britain will lose this right in negotiation. Worried by the uncertainty, finance businesses big and small are making a move to ensure they can continue to sell to customers on the continent no matter what.

Azimo, another online money transfer business, recently made the decision to open a Dublin office. PPRO Group, a payments business, has opened an office in Luxembourg. Its CEO Simon Black, told the Guardian at the time: "I don’t know of a licensed fintech company in the UK that isn’t looking at options [in Europe]."

Rival fintech "hubs" are also keenly aware of the opportunity currently presented to them. Envoys from Paris, for example, have made repeated visits to London in recent months to pitch the city to firms.

"It’s not about luring firms, because nobody is going to shift their entire business and you’d be stupid to think that," says Zubairi. "They’re going to put a token office in a centre somewhere to be able to continue to follow passporting rules within Europe. To try and ignore the fact that they need an EU office is kind of a bit of a folly."

'London is no longer Europe. Then they need to find another hub.'

This Brexit fintech drain is less severe than people feared in the immediate aftermath of last year's referendum. Companies aren't leaving, they're just working on a 'Plan B'.

But Britain's fintech sector will likely grow at a slower rate than it otherwise would have. These new offices are not beachheads into new markets that will bring more revenue, but exercises in box-ticking and paperwork that bring with them more cost. Azimo, for example, already offered its services in Ireland prior to the Dublin office.

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Zubairi believes Britain will miss out on external investment, as well as see a drag on internal growth.

"The opportunity for us is outside of Europe," he says of the Luxembourg view. "It’s not about the firms from London, it’s about the firms from the US, from Israel, from China, Japan, Hong Kong, Singapore.

"These startups are at the point where they’re looking at international expansion. All of them are starting to look at Europe. The Americans don’t jump over Europe, the Asians don’t go to America first — they go to Europe. Here’s the critical element — London is no longer Europe. Then they need to find another hub. That’s where the European hubs will benefit."

Here’s the critical element — London is no longer Europe. Then they need to find another hub. That’s where the European hubs will benefit.

Luxembourg is already benefiting. Zubairi points to Chinese payments business Ping Pong, which recently set up in Luxembourg, and Japanese e-commerce company Rakuten, which has a $100 million fintech investment fund and chose Luxembourg for the European branch of its commercial bank.

"Obviously London will continue to be a centre because London has a big consumer market — nobody comes to Luxembourg to serve the local market," Zubairi says. "You come to Luxembourg to service Europe. That’s what Luxembourg is all about."

Ultimately, if the Treasury truly wants Britain to maintain its position as the global capital of fintech, it will have to do more than put on conferences.

Hinrikus said in his speech last week: "If London wants to cement its position as the fintech capital of the world, it needs to take some action... we need action, not just words."

Fintech companies want clarity on their ability to hire talent from Europe and to sell products and services to the continent post-Brexit. Whether the government can give such clarity with its hands tied by Brexit is another question.

In the meantime, momentum may well ebb away from London. Rivals smell blood in the water. A press release sent out this week to the British Australia Chamber of Commerce's Fintech Forum is titled: "Australia fintech on the hunt for London’s top tech talent post-Brexit" — they're not alone.