LONDON will retain its status as Europe’s fintech hub after Brexit as long as it remains attractive to talent, with a dense cluster of financial institutions and in the digital single market, research suggests.
Antoine Baschiera, chief executive of Early Metrics, an international rating agency for start-ups and small- and medium-sized enterprises, highlighted Innovate Finance statistics showing UK-based fintech start-ups pulled in $564m (£425m) of venture capital investment in the first half of the year, surpassing pre-Brexit levels.
This was despite speculation that sterling’s devaluation and uncertainty about corporate passporting would reduce the availability of capital to young start-ups.
In 2016, London hosted 17 of the top 50 fintech companies in the world, the biggest cluster ahead of San Francisco with 16.
“London remains an attractive hub for talent and a dense cluster of financial institutions. London will maintain its fintech influence if this landscape does not change,” Baschiera said.
However, he suggested problems could arise if the UK is excluded from the digital single market, single European payments area (SEPA) and overall banking regulation, especially for companies in the payment space.
In addition, investors and start-ups in wealth management are cautious about the implications of passporting rights post-Brexit, given that technology behind fintech start-ups is highly dependent on third-party integration.
More than 75 per cent of fintech start-ups rated by Early Metrics rely on external technology (API and others) to integrate payment solutions or draw market information.
Another threat is the competition that is growing outside of Europe, Baschiera said.
Both Asia and Africa have enough talent and capital to establish new fintech centres and achieve significant market growth.
Although London currently benefits from strong streams of US investment, just under half of the top 100 fintech companies are non-Western, according to H2 Ventures and KPMG.
Asia raised $4.8bn in fintech investments when Brexit was initially announced.
Baschiera added: “The UK has the infrastructure and capabilities to maintain its global fintech leadership position. However, the British government must negotiate the best outcome regarding free movement of talent, the digital single market and SEPA.”
Early Metrics’ analysis of 1,500 firms across Europe found fintech start-ups have the second-highest rating average among the 15 industries covered. Four in 10 fintech start-ups were placed in the first quartile.
Retail and e-commerce ranked first, according to the agency’s non-financial metrics.