Can The UK Make Lemonade From Its Brexit Lemons?

The U.K. may have a new Prime Minister in place to guide the region through the next phase of Brexit, but uncertainty and a sense of unease remains, worldwide.

Will companies begin migrating to “greener” E.U. pastures? What’s the impact to England’s FinTech ecosystem? How long will it take for whatever those impacts are to actually play out?

These are just a few of the questions that remain top of mind as the U.K. takes the results of its Brexit decision day by day. Richard Steggall, CEO of Urban FT, sat down with Karen Webster to share his take on Brexit and how the U.K. may be positioned to make the best out of a very uncertain situation.

An excerpt of their discussion is below:

Webster: What was your initial reaction – broadly and, more specifically, about the impact to FinTech — once you received word about the “Leave” vote?

Steggall: I remember when Urban FT was domiciled in the U.K., the challenge I felt for the business at that point in time was the many different language barriers that needed to be overcome to do business across the E.U. When you’re trying to do business across Europe, language becomes a big barrier. It was much easier to get a business off the ground in the U.S. because as much as there’s a more challenging legal system over here in terms of having to comply with requirements in all 50 states, there is an English-speaking background which made it a lot easier to do business.

That is one of the reasons the the U.K. is so appealing – it is an English speaking environment. For innovators, so, is the E-money license issued under the Financial Services Authority regulations there. That E-money license effectively gives any English-speaking country the ability to do business with any other one of the E.U. nations. With Brexit, that will disappear.

Some innovators and businesses are also saying they’ll move to other countries – Germany pops to a lot of those lists. But the U.K. was a natural partner to be working with given the ease of doing business there, so now the thought process is “we need to find the next best partner.”

In terms of the repatriation of different people, there’s no doubt that free trade agreements, in particular between the U.S. and the U.K., will most likely stay in place. I don’t think we are going to have to see U.S. citizens repatriated back to the U.S., but I think what we will see is that it will be harder for those U.S. citizens simply because the U.S. doesn’t have the same sort of free trade agreements with some of the other E.U. nations. It’s going to be hard to place those people over in different jurisdictions.

Webster: Is there a concern that the E.U. may make an example out of the U.K. and play tough – serving as a deterrent from other countries who might be thinking of their own “-xits?”

Steggall: I would be really surprised if corporations felt that they were going to be the policemen in this situation. I don’t think you want to be ruffling the feathers of any regulators of any nation – as it is now, it will be self-evident to the regulators that the U.K. is no longer as attractive as it once was. I think it may still be able to be a base, but ultimately what Brexit has done is delivered a period of uncertainty – probably of at least two years – before we understand what free trade agreements they might put in place with the former E.U. partners and whether or not someone in the U.K. can still rely on similar provisions that were there.

It’s more a case of uncertainty. Whether it be the largest of the large or the smallest of the small, companies can’t afford to wait two years until we have that certainty, therefore they may need to make plans around it now.

Webster: What effect do you think the vote will have on the digital banking industry in the U.K. and Europe, if any?

Steggall: Brexit or no Brexit, I think the shift into digital banking is becoming even more present in the U.K. as well as a number of countries in the E.U. Effectively, the entire banking experience has to be more accessible through a digital format and that means lending services as well as simply transactional type of accounts. I think we are starting to see that more and more.

I think we are actually starting to see the European banks, and in fact some of the British banks, start implementing a more complete suite of banking capabilities that extend far more beyond just digital payments and account aggregation. I think you’re starting to even see the lending services become part of that offering. Over time, that strategy is going to increase value to the share price.

I think it has a real impact on the people who are unable to determine their current plans or their future plans based on the uncertainty of what the options are going to be. What I’m really saying though is that if you put all of that uncertainty aside, they’re still going to have a very similar growth strategy that they are going to follow, whether they are part of the E.U. or not – digital is clearly that strategy. I think they are going to continue to do that. It comes down to whether or not they can achieve the same rollout strategy across the E.U. versus simply within Great Britain or potentially even just England.

Webster: As you point out, the uncertainty is creating anxiety and people won’t wait to see if all play out around them. They’ll assume it’s happening and just make decisions based off that.

Steggall: Everything about this is the uncertainty – the share prices, value of the pound, and the direction that FinTech and finance companies in general are having to rethink in terms of how they move into Europe – all of them are.

My thoughts on it are that for whoever ends up leading the U.K. through this migration – it’s now Theresa May –  it’s almost unthinkable that she won’t maintain the free trade relationships that they have. U.K. is too important to the E.U. and other nations as a trading partner. It might come at a great economic cost, depending on the tariffs and other decisions that could be made, but I do believe those relationships will stay in place.

But, it’s going to take at least two to three years for them to unwind what they’ve currently got and by the time they make the decision that there will not be the sort of free trade available to British companies, those British companies will have sufficient time to reorganize themselves so that they can get on with Europe.

Webster: Is there a scenario where the U.K. wins with Brexit? Is it possible to make lemonade out of lemons in this scenario?

Steggall: The way in which they win is accepting that a decision has been made and now all that can be done is you look at a way to get that lemonade out of lemons.

The way I think they will do that is by negotiating good quality trade agreements with the most prominent trade partners they have and probably inviting other European nations to become part of a European treaty on immigration and common law. If you’ve addressed those three issues –  immigration, trade and common law principles –  then they could very well benefit, depending on how well they negotiate and execute on that strategy. I’m not entirely sure that’s likely, but it is a possibility.

Webster: Is there anything you’re doing differently as a result of what’s come down since Brexit?

Steggall: No, I don’t think so. I was shocked by it, I think everyone was. As it’s set in and you look at the reality of it, decisions need to be made on a pragmatic basis as opposed to an emotional or hysterical basis. Life will go on and I don’t honestly think it’s going to affect the FinTech sector, but I do agree that it brings a large degree of uncertainty. But uncertainty tends to affect the bigger institutions rather than the small ones. For the smaller ones there’s an opportunity, and for the bigger ones there’s a vulnerability.