'We had a gem here and I think we've just smashed it up': Here are fintech's biggest fears about Brexit

Like every industry, London's booming financial technology - a.k.a. fintech - sector is having to adjust to life after Brexit.

"From our perspective, really it's business as usual," Samir Desai, CEO of peer-to-peer small business lender Funding Circle, told BI.

"Clearly, we were supporters of the Remain campaign and we believed that it would be better for the UK to remain part of the European Union. But the democratic process has taken its course and it's clear that the majority of the UK wanted to leave and that should happen now."

I've been talking to CEOs and employees of fintech businesses in the capital since the vote to leave the EU and this is the overwhelming attitude among them: they supported the EU but nothing seriously has changed, let's just get on with it.

But Brexit is a hassle fintech didn't need. As Christoph Rieche, cofounder and CEO of online lender iwoca, put it to me at an event this week: "Nothing is impossible, but it just costs more now."

While day-to-day business may not have changed yet, there are concerns that changes could come as a result of Brexit negotiations that could stunt the booming sector's growth by adding costs.

Here are the big topics people are worrying about:

PASSPORTING: 'This banking licence could be valid across 500 million people or 60 million people. We don't know.'

The major concern for finance firms is maintaining access to the European Union's single market, which allows them to trade and do business across the continent from their British base.

Lawrence Wintermeyer, CEO of fintech trade body Innovate Finance, tells BI: "The big message from across the community, from startups and institutions, is make sure that access to the single market is part of the Brexit roadmap negotiations. Preserve our financial services passporting." (Passporting is the process that allows UK-based companies to use their British financial licences to allow them to do business in the EU.)

Wintermeyer's claim is not just an assertion but backed up by a recent survey of Innovate Finance's members on their post-Brexit priorities. 50% of members benefit from passporting.

Tom Blomfield, cofounder and CEO of startup bank Mondo, told BI: "This banking licence could be valid across 500 million people if we can passport it or 60 million people if we can't. We don't know. The rules have not changed yet and they probably won't for a year or two."

But Desai says: "We operate across 5 countries. Our industry [peer-to-peer lending] is relatively new so it's typically regulated by every single country - in the US we're regulated in every single state as well. We didn't benefit from any sort of passporting rights."

Wintermeyer says: "You need to look at it on a segment by segment basis. Peer to peer lending, things like challenger banks, crowdfunding, anything that's domestic, they're not affected by Europe or Brexit at all, they don't rely on passporting. The benefit of passporting is quite often for foreign institutions or fintechs looking to scale into European markets."

INVESTMENT: 'We need to ask is how much new money will be coming in'

Something that does affect all fintech companies is investment. Another big worry is that the funding that has flowed so freely into London could begin to dry up post-Brexit vote.

Wintermeyer says: "Uncertainty always affects investment. We're trying to work out where the lead indicators are.

"The venture capital community we've spoken to, they are committed to their portfolio companies. I think the question we need to ask is how much new money will be coming in, particularly in early stage rounds. We're following that closely."

When researching this article, I found smaller companies were more worried about Brexit. A lot of that is down to fears about raising money - the younger the business, the more reliant on VC cash it is.

Blomfield says: "Technology investors are pretty happy with technology risk and market risk. They're not super happy with regulatory risk and political risk. The whole Brexit thing just makes investors more cautious and so will reduce the supply of capital and makes the terms of it more onerous."

A startup that might have been worth £50 million pre-Brexit might now be valued at £30 million, for example, as investors apply an uncertainty discount.

Blomfield adds: "Anecdotally I've heard of a few funding deals falling through or being delayed." (It should be noted that investment in UK fintech was on a serious slide before the EU referendum.)

Mondo is in the process of sealing a restricted banking licence in the UK. Once it has that, the app-only bank has to raise between £15 million and £20 million in capital to get the restrictions lifted. Blomfield says: "I expect there will be fewer investors interested" post-Brexit.

But Michael Jackson, a partner at European VC firm Mangrove Capital Partners and Skype's former COO, says many fintech startups are overestimating the impact it will have. Jackson says: "We are entirely undeterred by the outcome. We're encouraging entrepreneurs to ignore the noise and carry on building products that people will enjoy."

"Regulation is just one of the many challenges that any fintech startup will have to solve - entrepreneurs should always assume any regulatory hurdles can be overcome."

TALENT: 'It's a slap in the face'

Fintech companies of all sizes are also worried about luring talent to London. Many of the jobs that need filling require technology experts and other skilled grads. Often startups have to look to the EU to fill these roles as the UK is facing a skills gap.

Innovate Finance estimates that 30% of people employed in fintech in the UK are from overseas and Wintermeyer says: "We're looking for STEM [science, technology, engineering, and maths] graduates and before the referendum came along we were focusing on getting the government to accelerate or even extend the tier 1 visa scheme which attracts skilled workers to institutions and startup businesses."

Blomfield says: "We probably have 25% of our team here from continental Europe. We've got real specialist skills that we've managed to bring in."

Will these people be so keen to come now that their future here is uncertain?

Blomfield says: "I was talking to one of our guys from Spain. He was looking at getting citizenship. It felt like home. Now it feels like rejection. It's a slap in the face. You're walking down the street and it feels likes one in every four people don't want you here."

He adds: "I think it would be absolute insanity to pull the millions of Europeans who are contributing to the UK economy out of jobs."

Funding Circle's Desai is confident that there are ways round whatever happens, saying: "I think depending on the way we go with free movement of people and access to the EU talent pool, businesses may have offices in other countries and recruit EU talent that way. We have office in London, Berlin, Madrid, and Amsterdam so we can pretty much recruit talent anywhere across the EU."

But the above solution means that jobs that may have been created in London are based elsewhere in the EU, to the city's loss.

LONDON AS A HUB: 'We had a gem here and I think we've just smashed it up'

All of the above coalesce into a fear that London could lose its crown as the fintech capital of Europe. Wintermeyer says: "The big message from the startup community is let's make sure we do everything we can to remain the number one fintech hub on the planet."

Already cities like Berlin are making overt appeals for businesses to move there and TransferWise, one of two fintech unicorns in Britain, has been approached by Ireland and Switzerland about moving its headquarters.

TransferWise's cofounder Taavet Hinrikus wrote in a blog post recently:

"Five years ago, we chose to base TransferWise here in the UK - and we'll continue that plan. I don't know if it's going to be possible long-term. No-one knows what comes next. But if we can, we'll make it happen. And if we can help to grow the UK economy and help it stay competitive at a time when it needs it most, we will."

At an event in London this week I chatted to Marcus Gruenwald, a German who is head of product at business finance platform Finpoint. Before the Brexit, he said, it was a no-brainer to set up in London. If he was setting up now, he would have to think seriously about alternatives.

Europe's biggest venture capital firm Index Ventures is saying as much to startups. Here's the VC's advice for overseas firms looking to set up in London post-Brexit:

Blomfield says: "We had a gem here and I think we've just smashed it up," but he adds: "Its too early to tell for sure."

Others are more optimistic. Desai says: "London was always a very good place to start a fintech business. There's a lot of financial institutions here there's a lot of talent, the city itself is very vibrant and would attract a lot of people to live here. A lot of those things won't really change to be honest."

Mangrove Capital's Jackson says: "The UK has for some time now been positioning itself as a regulation-light environment for fintech companies and this can only be strengthened by the Brexit."

Wintermeyer agrees: "We've spoken to all the hubs. The reality is that the UK fintech hub on the back of the UK financial infrastructure, that's taken years to build. It's pretty difficult to see a European hub popping up that's going to replace London in a short period of time. I'm sure they'll try."