London-based online money transfer business Azimo is considering switching its headquarters to mainland Europe because of Brexit, which it says could threaten Britain’s position as a global hub for the financial technology – fintech – industry.
Financial services firms operating out of London rely on the EU’s “passporting” system, which allows them to sell their services across the bloc while being registered and regulated just in Britain, thus saving huge amounts of money by not having to set up shop in each member state.
However Britain has to negotiate new trading terms with Europe after it voted last month to leave the bloc.
Given the uncertainty over whether the country will keep its passporting powers, Azimo is looking at being registered and regulated in another EU country, said its British co-founder and Chief Executive Michael Kent.
The aim is to ensure it can continue to easily offer its services across the bloc, he told Reuters in an interview during a visit to Berlin.
“Whilst we are regulated out of the UK at the moment, we’re talking to regulators in other jurisdictions about changing that, because we have hundreds of thousands of customers in continental Europe and we’re not about to give up on them.”
For regulated financial services businesses, Kent said the obvious alternatives to London were Ireland, Luxembourg and Amsterdam followed by Berlin and Barcelona.
London has worked hard to cultivate its reputation as a top global location for fintech firms by marrying the city’s longstanding strength as one of the world’s top financial capitals with its more recent success as a tech startup hub.
Britain’s fintech sector was the biggest in the world last year, earning 6.6 billion pounds ($8.7 billion) in revenue to beat California and New York, according to a report by accounting firm EY commissioned by the British government.
But Kent said he believed the uncertainty stemming from the shock vote to quit the European Union could hurt the sector.
“To become a fintech hub, you need people, capital and the regulatory environment. Unfortunately, Brexit puts a question mark next to all of those,” he said.
Azimo has already received interest from other European regulators, the CEO said.
“The French have said we’ll roll out the red carpet, we got a thing from (another) one of the regulators recently saying, have you considered this jurisdiction,” he added.
Many other finance firms have said they may have to relocate divisions and staff into another EU country following Brexit, with France, Ireland and Germany in particular making vocal pitches to lure them to their capitals.
‘CAN’T WAIT TWO YEARS’
Founded in 2012, Azimo is backed by Japanese e-commerce group Rakuten which invested $15 million into the firm in May, as well as U.S. venture capital fund Greycroft Partners, Britain’s Frog Capital and Germany’s e.ventures.
Along with fellow UK-based rivals WorldRemit and TransferWise, online providers like Azimo are shaking up the established retail-based money transfer business dominated by Western Union and MoneyGram by delivering money at lower cost to people on their mobile phones.
The remittance firm allows customers to send money to more than 190 countries in over 80 currencies.
One advantage of the UK is that its financial services watchdog is relatively innovative when it comes to adapting regulation for new business models, said Kent. In contrast, Germany’s Bafin tends to be less progressive, he added.
Despite the uncertainty, the Azimo CEO remains bullish about the prospects for the UK market, even if Britain goes into a recession, since remittances tend to be non-discretionary payments. The average transaction size for Azimo is around 500 euros ($554), he said.
The UK accounts for remittance flows of $17 billion a year, according to the International Fund for Agricultural Development (Ifad), making it the second biggest money-sending country in Europe after Russia.
“We will never leave the UK completely; we will always have a presence in London because a lot of our customers are British and we don’t think they’re going anywhere. But we will think about the deployment of our financial and our staff resources,” he said.
“And we’re thinking about it now, because I can’t wait two years to find out what happens.”