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The Three Cities Challenging London’s Claim as Fintech Capital of Europe

The Three Cities Challenging London’s Claim as Fintech Capital of Europe

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FinTech in the United Kingdom employed 60,000 people and generated revenue of £6.6bn in 2015, according to HM Treasury. So when the UK voted in June to leave the European Union, other financial centers across Europe leapt at the chance to pry away parts of that enormous community, which now faces unwanted regulatory uncertainty.

During London FinTech Week this summer, Berlin’s Senator for Economics, Technology, and Research, Cornelia Yzer, made waves when she announced that the number of London startups that have inquired with her office about relocating to Berlin was in the hundreds.

Indeed, Berlin’s tech scene has been steadily growing for years. According to Ernst & Young, it was the number one city in Europe in 2015 for venture capital invested in startups at €2.5 billion (followed by London at €1.77 billion and Stockholm at roughly €1 billion). Germany is also a continental powerhouse in financial services, with the European Central Bank and the European Insurance and Occupational Pensions Authority headquartered in the country, among a number of other supportive institutions.

“Berlin is the FinTech capital of Germany and provides ample opportunity to reimagine banking,” said Stefan Franzke, CEO of Berlin Partner for Business and Technology, an economic development organization. “Young entrepreneurs also receive support from established banks: in this way, Deutsche Bank opened an innovation lab in Berlin.”

But Berlin is not the only European city tempting disenchanted London Fintech companies. London-based TransferWise CEO Taavet Hinrikus’ musings on whether the Brexit’s impact could affect his long-term plans apparently caught the attention of Dublin, already the EU home of tech giants Microsoft, Google, Facebook and Apple, as well as a 12.5% corporate tax rate.

However the Brexit unfolds, it will likely take years; the UK has yet to invoke Article 50, which formally commences the process of leaving the EU, and the political forces opposed to the Brexit continue to press their case. In fact, opinions are divided as to whether the impact will ever extend beyond the uncertainty.

But, uncertainty alone could be deleterious enough, argues Brookings Institution Fellow Aaron Klein, co-author of the FinTech Law Report and former Deputy Assistant Secretary for Economic Policy at the U.S. Department of the Treasury. Klein believes that for London and its FinTech scene, Brexit is a “self-inflicted wound.”

“The magnitude of the impact may be debatable but the direction is clearly negative,” Klein said.

Besides Berlin and Dublin, another Fintech hotbed in Europe that is (not-so) quietly making a name for itself as an alternative to London is Stockholm.

“I don’t think there is any other city coming close in Europe right now,” said Erik Engellau-Nilsson, head of communications for Klarna, the Stockholm-based e-commerce company that provides payment services for online storefronts.

Stockholm has become known as a “unicorn” factory; besides Klarna, Engellau-Nilsson notes that Stockholm is already home to FinTech successes including iZettle (mobile payments), Trustly (payments), and Tink (personal money management).

According to the 2016 European Innovation Scoreboard, an annual report by the European Commission, Sweden is the most innovative country in the EU.
According to the 2016 European Innovation Scoreboard, an annual report by the European Commission, Sweden is the most innovative country in the EU.

Meanwhile, British leaders aren’t standing still, but are rather working to buffer their FinTech constituents from whatever the Brexit’s effects may be. For example, on July 22nd the British government signed a “fintech bridge” with the government of South Korea that will expand access in the countries’ respective markets, following a similar agreement with Singapore.

“Given how active the UK government has been when it comes to supporting the FinTech industry in the UK – they are arguably the first movers in the policy/regulatory response to FinTech – I find it hard to see FinTech firms immediately moving operations across the Channel, at least not until there’s greater clarity surrounding the Brexit negotiations, which are just beginning,” said Jackson Mueller, deputy director of the FinTech program at the Milken Institute’s Center for Financial Markets.

To wit: peer-to-peer lender MarketInvoice has become the first London FinTech firm to raise a new round of funds (£7.2 million, led by the MCI. TechVentures Fund of MCI Capital) after the Brexit vote. Sylwester Janik, senior partner at MCI Capital, said that, in fact, he saw investment opportunities in London in the Brexit’s aftermath.

“Following the result of the UK referendum, many might perceive investing in Fintech as a risk,” said Janik. “With MarketInvoice, it’s actually the opposite. We see an economic slowdown and a distracted banking sector as a potential opportunity to fuel growth of the platform.”

For further clarity on the Brexit and its impact on European FinTech, look for the coming comprehensive European Commission report on FinTech in the EU.

Also Brexit will be a hot topic at LendIt Europe’s annual fall conference which this year will be held at the InterContinental London – The 02 on October 10-11. The event is held in conjunction with the P2PFA, the Europe’s premier P2P lending association, and will be the largest European conference yet.