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Posted 30th August 2019

The Role of Fintech and Brexit

Brexit and business have become reluctant synonyms since 2016. Once the EU referendum was over, thoughts immediately turned to the ways in which a departure from the European Union would affect the economy. Today, three years on, the picture may not be any clearer. However, those in the business world are savvy enough to know that change in some way is on the horizon.

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The Role of Fintech and Brexit
The Role of Fintech and Brexit

Growth During Uncertain Times May be Good for Business – The Role of Fintech and Brexit

Brexit and business have become reluctant synonyms since 2016. Once the EU referendum was over, thoughts immediately turned to the ways in which a departure from the European Union would affect the economy. Today, three years on, the picture may not be any clearer. However, those in the business world are savvy enough to know that change in some way is on the horizon.

Initial fears were that foreign businesses would leave the UK, trade would become more difficult and money would become less readily available. While these things may turn out to be true, the landscape is currently less hostile than some would have predicted. As a recent report by the BBC has shown, the British tech sector was on a high heading into H2 2019.

Citing statistics from the Department of Digital, Culture, Media and Sport, the BBC’s report showed that foreign investment in UK tech start-ups reached £5.5 billion during H1 2019. Helping push investment to record levels is the weaker pound. However, with China and the US pouring just over £3 billion into the pot, it’s possible to argue that a less trade-restricted Britain is an attractive proposition for superpowers outside of the EU.

Business Borrowing Stalls

However, while the tech sector has seen a recent rise in investment, data from the Small Business Finance Markets report paints a less positive picture. According to its 2018/2019 study, 29% of small businesses expect Brexit to have a negative impact. That figure is up 7% from 22% in 2017. In tandem with this drop in confidence, businesses using external finance has dropped from 44% to 36%. Analysing the drop, the report suggests small businesses are willing to “forgo growth” rather than take on external finance.

But in among the uncertainty, raising capital is still an important issue for businesses. Indeed, perhaps the most interesting statistics in the report involve non-bank lending. If you take a look at its history and ask what is fintech, the idea of non-traditional finance has become more significant over the last decade. In 1886, “fintech” referred to the first transatlantic cables used by banks to transmit information over long distances. Between the sixties and nineties, fintech was simply the technology used by banks to make their services more efficient and secure.

However, by the noughties, the advent of the internet changed the game. Today, the common definition of fintech is any technology that offers an alternative to traditional banking.

“Fintech generally slips into places where traditional financial services are failing, or where customers are having a difficult time accessing services”, reads eToro’s guide to fintech.

Fintech May Have the Answer

 

The Role of Fintech and Brexit
"Peer-to-peer Lending Keyboard Button" (CC BY 2.0) by investmentzen

With the uncertainty of Brexit making traditional methods of borrowing less attractive, fintech is stepping into the fray. As outlined in the Small Business Finance Markets report, awareness of non-traditional finance has continued to grow in 2018.

“52% of small businesses are aware of peer to peer lending, 70% are aware of crowdfunding platforms and 69% are aware of Venture Capital (up from 47%, 60% and 62%)”, states the report.

Alongside these statistics, the British Business Bank survey 2018 showed that net lending by banks was down. From £700 million in 2017 to £500 million a year later, banks and, in turn, businesses are lending and borrowing less. When taken in tandem, the data suggests that companies are taking one of two options: stop borrowing or borrow but from alternative sources.

Herein lies the current situation for businesses in the UK. In practice, Brexit could cause interest rates to go up or down. Moreover, the economy could tank. Because we simply don’t know, raising capital via a bank could be seen as risky over the next five years.

What we do know, however, is that some companies are combating this uncertainty by remaining static and riding out the storm by not taking on any extra finance. However, in times like this, major growth is possible. As foreign investors are proving in the tech sector, the weaker pound has created an ideal opportunity to invest.

Stagnation Provides an Opportunity for the Bold

For businesses pondering the impact of Brexit, borrowing may actually be a smart move. While others stagnate, those willing to gamble could gain an edge. That’s where fintech innovations come into play. By offering alternative sources of funding, these platforms could be an ideal solution for businesses. Yes, change is on the horizon but which direction things move may be down to each individual company.

While raising capital and expanding might not necessarily be the answer, the opportunities are there. Indeed, as is often the case in business, it’s those that exploit a gap in the market that thrive. Therefore, if others are sitting still, the ones that keep moving forward may emerge from the political chaos stronger than they were before.

Categories: Finance, Innovation, Strategy


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