A common rule of business is that even in times of adversity and hardship, there’s money to be made. Although it has been widely publicised Brexit is a bad thing for fintechs in the UK, we as an industry now need to face this reality. But fear not, every reality comes with opportunities.
Developing cross border e-commerce opportunities
With the exchange rate for sterling having fallen to levels not seen for many years, the Euro is now almost on a par with the pound.
With the minimum of promotional effort, UK merchants can attract price-conscious EU consumers. In fact, UK SMEs saw their international sales rise by an incredible 34% in the last six months of 2016, three times the increase in the first half of the year[1], due to the exchange rate. If ever there was a time to feature the Union Jack accompanied by the words (suitably localised) ‘Brexit bargains’, in your promotions, it’s now.
That’s great, as far as it goes. Everyone wants extra trade even if we’re effectively selling at a discount. But it’s not sustainable and the continuation of this trend cannot be relied upon or taken for granted. At some point the pound will rebound or bargain hunters will revert to their previous shopping habits.
So, what to do?
Turn today’s cross-border bargain hunters into loyal repeat shoppers. Invest now in data collection, strategic planning and customer-experience improvements. Use the data you gather on your new customers to engage them and migrate them to localised version of your site. For now, keep them coming back with price-led promotions but over the next year, try to deepen customer relationships, learn their other purchase motivators and give them reasons, other than price, to keep coming back.
There is no sign of the Eurozone recovery slowing down; in fact, it’s quite the opposite, with the Eurozone economy growing twice as fast as the UK in recent months[2]. And there are already signs, particularly from the automotive sector, that this is releasing pent-up demand. In theory, there’s no reason why UK retailers can’t benefit from this. But in the face of uncertainty over customs arrangements after Brexit – among other things — it’s going to take nerve, commitment, and impeccable customer focus.
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Fintech, the City, and a country that has borrowing, spending and investment in its DNA
Brexit threatens a sizable chunk of the UK financial services industry. Much of the business conducted by UK financial services, most obviously the Euro-clearing markets, relies on access to EU markets. That’s a fact and we can’t wish it away.
But neither Brexit nor the EU are deal breakers. To take a couple of examples, London trades nearly twice as much foreign currency as New York[3], its nearest rival. This trade does not depend on EU markets. Around 60% of the world’s Eurobonds are traded in London[4]. Despite the name, these have nothing to do with the EU and the trade is not fundamentally threatened by Brexit. Similarly, the £60 billion-a-year London market for commercial insurance draws a third of its clients from North America, a third from the UK and Ireland, and a third from the rest of the world put together, including the EU[5].
The UK fintech scene has the world’s biggest financial centre at its disposal. If Brexit threatens to erect barriers that will hinder UK firms trading on the continent, the same is true in reverse. UK fintech’s will enjoy privileged access, in geographical and regulatory terms, to the enormous B2B market that the City of London gives them access to.
They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 – £67 billion a year[6]. There are also signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT[7] — not by any means a Brexit cheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.
These facts – combined with the plentiful availability of fintech start up investment in London and the UK having a relatively friendly regulatory environment – clearly signpost a potential pathway for the UK to remain the global B2B and B2C fintech incubator that they are.
However, this won’t happen by itself. As the UK is still currently faced with the threat of a fintech exodus, the government does need to work out a transition deal with the EU27. This will give London-based fintech firms the incentive to keep some of their businesses here long enough for them to see the opportunities presented to them in a post-Brexit UK.
This transition is vital, and as an industry we need to ensure we’re lobbying for it as hard as possible. Even though everyone needs to recognise the multiple and profound risks associated with Brexit, we should still make sure we embrace the opportunities associated with it. And why not? Remember – as long as the world is still turning, there’s business to be done.
