Fintech Firms Start Hedging for No-Deal Brexit, Revolut Moves Business Customers to Lithuania  

Summary

• Fintech firms are finetuning their existing business models to protect their revenue streams from yet another shockwave
• Revolut is shifting its business customers in Central and Eastern Europe to Lithuania
• The Fintech sector in the UK has continued to evolve despite several headwinds and post-Brexit, is also expected to continue their growth trajectory

The coronavirus pandemic has resulted in severe loss across the sectors. The UK witnessed a huge surge in job redundancies due to lockdown induced by the unprecedented crisis. Since July, the businesses across the sectors have reopened with support from the British government, and they strive to return towards normalcy. However, they are up for another roadblock in their recovery, which is Brexit (UK’s separation with the European Union).

As uncertainties with Brexit looms over, London’s reputation as a global hub of financial services is under threat. Fintech (financial technology) is one of the fastest-growing sectors in the UK’s economy.

The Fintech businesses are also keeping their fingers crossed for a hard Brexit, which implies that the UK will leave the European Union without a deal. Therefore, they are fine-tuning their existing business models to protect their revenue streams from yet another shockwave arising out of Brexit.

Also read: Are the Prospects of a No-Deal Brexit Increasing?

Fintech start-up Revolut start moving its Business Customers to Lithuania-based entity

Revolut, a fintech start-up has been preparing for UK’s exit from the European Union as it is shifting its business customers in Central and Eastern Europe to Lithuania (a country in Europe) from its London-based entity. In order to safeguard the interest of its European customers, the London based challenger bank has acquired a banking license in Lithuania.

The London headquartered challenger bank is likely to shift the control centre of its European payments to Ireland and Lithuania post Brexit. Customer deposits in Lithuania based entity would be backed by the Lithuanian state company Deposit and Investment Insurance.

In 2018, the challenger bank proactively acquired a banking license from the European Central Bank (ECB) and the Bank of Lithuania. Revolut has been gaining popularity by ensuring excellent customer service quality, along with focusing on financial innovation.

Most of the services are live on its proprietary banking application, which also allows to deposit salaries and other funds in the new banking entity in Lithuania. The company might also foray into lending services through consumer loans and credit cards in the future.

Notably, Revolut managed to raise $500 million and became the most valued fintech start-up in the UK, earlier this year. The challenger bank aims to bolster its finances to hedge against a Hard Brexit and ensure its service quality for its European clientele.

From the Bank of Lithuania, the challenger bank has already obtained a special Banking License which allows it to offer a wide array of banking solutions to customers in Europe. Revolut customers can now upgrade their e-money accounts to a conventional bank account in Lithuania.

Funding Circle fears decline in asset quality amid Hard Brexit

Peer-to-peer (P2P) lender, Funding Circle Holdings Plc (LON:FCH) has been filling the gap between small and medium-sized businesses seeking access to credit and investors who are willing to lend for a return through its online platform.

The uncertain economic environment has already dampened the demand for loans. A hard Brexit could reduce the control of the P2P lender on the borrowers and could also dent the revenue streams of the company. However, the company invests heavily in technology and innovation; it is expected to launch its services in Canada.

Despite the outbreak of Covid-19, the fintech lender witnessed an acceleration in the adoption of online small business lending. During the first half of 2020, the company’s total income was up by 24 per cent to £101.2 million (H1 2019: £81.7 million).

The P2P lending is in a nascent stage and has been offering support to vulnerable businesses during the Covid-19 lockdown. Geopolitical changes such as a hard Brexit can really turn the tables for the emerging sector.

Brexit and Fintech

The Fintech sector in the UK has continued to evolve despite several headwinds. For instance, P2P lending segment has grown substantially in recent times and has forced the conventional banks to foray into this landscape. For instance, Metro Bank Plc (LON:MTRO) has recently acquired RateSetter, a prominent P2P lender.

Also read: Metro Bank Gives Wings to Its Unsecured Lending Ambition by Acquiring Ratesetter, The Move Could Strengthen Bank’s Footing in The Market

UK based Fintech firms seem to be in a spot, given the uncertainties prevailing due to hard Brexit.

Challenges faced by Fintech entities due to Brexit

Most of the sectors would be impacted due to hard Brexit like Automobiles, Housebuilders, Pharmaceuticals, Financial Institutions, and many other sectors who are well integrated with the European Union. A lot of confusion is likely to be in the transaction while trading in the new environment. It might take some time for the businesses to adapt to the new trading environment as there is still no clarity on the Brexit.

Another potential challenge that the UK based Fintech’s might come across is the attrition rate of employees. A lot of talent comes from the European Union with the Fintech sector providing a big chunk of job opportunities. UK and EU are not used to trade in different currencies. Post-Brexit, Currency fluctuations might also cause a significant impact on the earnings of the Fintech companies.

The United Kingdom has always received a lot of investments from not only local investors but also from international investors to boost technological advancements across sectors. Brexit might cause investors to refrain from investing in the hub of financial services. Notably, Fintech sector has been an important resource for the UK in respect to FDI’s (Foreign direct investments).

According to industry experts, a lot of financial firms are moving out their assets to the European Union from the UK in anticipation of hard Brexit. Most of the businesses are transforming their business models for the digital age, and therefore, fintech companies could continue to attract investors from across the globe. The UK is home to some prestigious academic institutions across the country, and therefore the crunch for skilled professionals might not take place, and London could remain the financial hub of Europe.