The Potential Impact of “Brexit” on FinTech

FinTech leadership across the United Kingdom is expressing concern that the “Brexit” vote may have a meaningful and negative impact on start-ups that operate throughout countries remaining within the European Union.

The digital payment marketplace faces significant risks, with digital transfer payments that now easily move across borders highly dependent on licenses, which may now be at risk.

Among the unknowns: how will already established FinTech firms such as TransferWise Ltd., Klarna, PayPal Holdings Ltd., and Circle Internet Financial Ltd. be able to do business across the EU?

Even the ways in which FinTech firms are able to work with traditional banks and networks that crisscross between Great Briton and the E.U. face uncertainty.

Some leaders, such as Taavat Hinrikus, CEO and co-founder of the London-based payment start-up TransferWise, acknowledge that major changes have yet to take place, but he certainly sees them in the not too distant future.

Both personnel and regulatory issues pose major challenges, and could well lead London-based companies to re-domicile in order to retain easier access to EU based customers.

Executives of Fintech companies may find themselves forced to make a decision: Is the uncertainty of remaining a London-based organization worth the risk, or is now the time to relocate to (for example) Germany, removing the distraction and perhaps even getting closer to important customers. Such decisions become even more relevant if continued operation in the United Kingdom end up requiring a separate licence

These problems could be resolved if the U.K. negotiates a deal with the EU that leaves the current open-border economic structure largely intact.

Thus far, most firms are taking a wait and see approach, with the longer term implication of Britain’s departure from the EU still very unclear.

While the decision by Transferwise to suspend transfers from British pounds was short-lived, others such as PayPal remained operating as normal and highlighted their commitment to serving the U.K irrespective of the “Brexit” vote.

Regulatory issues, such as the European Banking Authority’s “PSD2”, or Directive on Payment Services, also present uncertainty in the face of “Brexit”.  Very importantly, PSD2 sets policies on the way FinTech firm’s extract data from bank accounts.  Now the U.K. is no longer required to implement these changes in regulations, which couldl heavily impact the digital payment environment.

While the specifics of PSD2 may become less of an international standard as a result of “Brexit”, the concepts behind it should remain on the agenda as the challenges it addresses won’t go away.

One question that also won’t be quickly resolved: will e-commerce within the EU take a hit, as the creativity and innovation of U.K. participants are separated from the rest of Europe.

http://www.wsj.com/articles/brexit-could-disrupt-fintech-business-1467019802

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