As the deadline for Brexit hurtles into fruition, London’s fintechs are scrambling to keep afloat should the worst-case scenario of exiting the EU without a trade deal come into being.
In the absence of a finalized trade deal between the EU and Britain, the U.K. has continued enjoying the privilege of access to Europe’s single market. However, once a deal is inked, banks and fintechs will likely lose the “passporting” rights that have enabled them to operate throughout the bloc freely. This casts a large grey area on what banks and fintechs could do to save their markets outside of the U.K. and vice versa, with European companies servicing U.K. nationals. What’s resulted is a frenetic array of ways in which companies are quietly resolving contingency plans to soften the blow of the inevitable losses. The stress and felt throughout the industry is no doubt understandable.
One strategy that companies have taken is to establish authorized European outposts to mitigate the disruption of services to users. Opting for this path is Curve, the app that allows users to link multiple bank cards into a unified spending card. The company has won regulatory approval to set up a new entity in Lithuania, which COO Nathalie Oestmann shared is intended to, “Ensure we could continue to serve 50% of our customers who are European after Brexit.”
Another example is Modulr, the payments software firm, who has been granted an e-money license from the Central Bank of Ireland after having formerly passported authorization from U.K. regulators across the EU.
Big banks, on the other hand, are struggling to be as agile and malleable to the changes as fintechs, with major institutions opting to close accounts. Lloyds and Barclays, for instance, wrote to British customers living in the EU to inform them that their accounts will be closed by end of year. This drastic action raises memories of the cautioning from reputable lenders back in 2017, such as JPMorgan and HSBC, who threatened to move hundreds of jobs out of London. Banks, it appears, are more able to focus on domestic clients. The impact of which is reflected in investment into the sector falling 39% in the first half of 2020 compared to same period last year. This poses a concern for the U.K.’s status as the world’s most mature fintech market.
While a lot of speculation is circulating as to the true impact of the potential no deal agreement, it is without a doubt that British financial services providers have had a particularly difficult year with focusing resources on combating the economic climate alongside the consequences of Brexit.