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London is among the world’s financial services capitals, but it is one facing many questions as the UK prepares to break away from the European Union (EU).
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For some countries this represents an opportunity, and the Swedish financial technology (fintech) sector is ready to seize any opportunities.
In the past five years, Sweden has attracted the highest number of fintech investments per capita in Europe and its capital Stockholm has branded itself as a fintech hotspot.
This follows the success of companies such as Klarna and iZettle. Many in the Nordic country believe Brexit could help to boost this development further, at least in the short term.
“The UK leaving the union, hence creating uncertainty, might fuel further investments in Sweden,” said André Kerkorian, financial manager at the Swedish fintech company Northmill. “Brexit is widely seen as a chance for Stockholm to increase its momentum and further establish itself as the European centre for fintech.”
Signs of this are already visible. Sofie Blakstad, founder of Danish-Swedish fintech startup Hiveonline, has seen the impact of the Brexit vote materialise in the attitudes of professionals wanting to relocate to Sweden.
“People who I contacted before Brexit happened were saying ‘no, no, we are going to say in the UK’, and now they have moved to Sweden,” she said.
A key question for UK’s financial sector is whether it will be able to keep at least some “passporting” rights. This refers to the right of financial services companies registered in the European Economic Area (EEA) to do business across other EEA states without the need for separate authorisation from each country.
Losing this advantage could raise the appeal of relocation – particularly for fintech startups in need of licensing in mainland Europe – to countries still in the EEA, including Sweden.
The Nordic appeal
Claire Ingram, PhD candidate at Stockholm School of Economics and co-author of the Stockholm Fintech report, said the increased decentralisation of finance sector activities means startup companies can operate from anywhere. The benefits of being in a city such as Stockholm could soon outweigh the benefits of being in London.
“There is more incentive for startups to go to [Stockholm] and piggyback to the rest of Europe, instead of trying to start in a big economy and spread out from there,” said Ingram.
In Sweden’s favour is its reputation as a technologically advanced and economically stable country with a good work-life balance, but it also offers another potential advantage for fintech companies: relatively easy access to government bodies.
During her research, Ingram noticed that in Sweden fintech startups can easily get in contact with authorities to, for example, ask about how financial regulations apply to them.
“In terms of startups, there is a very nice ecosystem,” said Ingram. “I suspect we will see quite a lot of startups choose Stockholm, given regulators are interested [in fintech] and make it relatively straightforward to operate fintech business here.”
Blakstad also notes Sweden as a nation is accepting and open to high technology and digital behaviour, which makes it a good place to test new technologies.
But there is a flipside. In 2016, the founders of music streaming service Spotify publicly criticised Stockholm’s housing situation, stating it hinders their ability to attract foreign talent.
Rising house prices and an on average nine-year wait for rent-controlled property could be enough to dampen the mood for British professionals and companies considering relocation.
Blakstad, who herself emigrated to Sweden from the UK, also pointed out the right of UK citizens to stay in Sweden and other EU countries is still unknown and a concern not least for entrepreneurs who have or are planning to base their business in the Nordics.
“At the moment EU citizens have an automatic right to stay, but that will change and given the UK government’s [inconclusive] stance on the right to stay for EU citizens, people are concerned that their rights may be removed once Britain leaves,” said Blakstad.
“Governments need to explicitly state that British citizens will not face immigration challenges. What would really boost hi-tech immigration from all countries would be a lowering of the citizenship timescales,” she added.
Another question mark is Brexit’s impact on funding. London houses significant amounts of venture capital and many Swedish fintech startups turn there for investment, but the current uncertainties and weakened pound could lead to more cautious investors.
“What I’m seeing on a daily basis is that the original reaction from the venture capital community in London post-Brexit was basically to halt and wait to see what happens,” said Matthew Argent, co-founder of Stockholm Fintech Hub.
“The first thing this, of course, affects is the ability to invest in non-pound currencies. As the pound took a hit, it cost more to invest outside the UK.”
While Argent said this has been largely balanced by American venture capitalists whose interest in the UK and Europe has reactivated UK investors, it is one more sign of the nervousness following the Brexit vote.
Not only for startups
Although Stockholm has gained a reputation as a fintech startup hub, it could be an option for more established players as well.
A 2016 survey by recruitment consultant Morgan McKinley found 31% of London-based workers believe there is a strong chance their employer could move operations out of the country following Brexit. This would benefit traditionally big financial centres in Europe, such as Paris and Frankfurt, but Stockholm is also in the running.
Blakstad stressed that multi-national companies have already started to get more of a foothold in Stockholm and elsewhere in the Nordics.
“We see Santander, Citi and all the others are starting to want to have more of a presence [here]. Partly because of the fintech scene, but also because the markets here from a banking perspective are quite conservative,” she said.
“There is an opportunity for new entrants whether or not they are really new [companies]. Global organisations are starting to realise that.”
But, in the meantime, all eyes are on the upcoming negations between the UK and the EU. Kerkorian believes the UK will still remain an attractive country for the financial services industry in the future, but the business climate will largely be determined by the deal struck between the two parties.
“If it [does become] more complicated to run operations in the UK, this trend of companies eyeing other markets will continue,” said Kerkorian. “If the bilateral arrangements instead turn out to be positive, we expect nothing less than seeing Swedish [fintech companies] thriving in London.”
Read more about Nordic fintech
- London has become the undisputed European capital for financial technology, but the Nordic countries have strong ambitions to challenge for the number one spot.
- Copenhagen gets a financial technology startup co-working venue as the city attracts more digital entrepreneurs.
- The Nordic region is a hotspot for IT startups and Sweden is a country punching above its weight in financial technology.