German digital challenger bank N26 is pulling out of the UK because it cannot to operate after Brexit unless it apples for a UK banking licence.
It blamed the loss of passporting rights, which currently allow European Union (EU) banks to serve customers across the trading block, for its decision. The bank has around 80 people supporting the UK operation from Berlin and London.
The Berlin-headquartered fintech, which was founded in 2013, will close its 200,000 UK accounts by mid-April.
“With the UK having left the EU at the end of January, we will in due course no longer be able to operate in the UK with our European banking licence,” said a statement from the bank. “As such, we can no longer open new N26 accounts and will be closing existing accounts on 15 April 2020.”
Fellow German challenger bank Fidor, which came to the UK in 2015, ended its UK operations in September 2019. “Due to the uncertainties surrounding the UK market, we have decided to withdraw our product and service offering in the UK,” the bank said in a statement.
Although it did not cite Brexit directly, many fintechs are preparing for life after the UK leaves the EU single market, which is vital to financial services firms that want to operate across Europe.
Fidor founder and former CEO Matthias Kröener, who left the bank in April 2019, said that many in the market think Brexit is an excuse for N26. “After all, the Brexit referendum had already happened when N26 entered the UK market. When Fidor was on the UK market, the Brexit referendum had not happened, so it was a surprise,” he said.
He added that continuing uncertainty about what deal the EU and UK will come to is difficult for challenger banks. “If there was a hard Brexit, from day one you would no longer have a licence, which is a horror story for EU banks in the UK, and UK banks in the EU,” he said.
Kröener said another challenge for banks such as N26 is that the UK is an extremely competitive market: “In terms of challenger banks, it is way more competitive than Europe and there are unique complexities in the UK.”
He said all this is negative on core key performance indicators (KPIs) and it is possible that N26 didn’t think it was worth staying to get a UK licence.
Fintechs are small and can make major changes to their operations to cope with challenges such as Brexit. Earlier in February, fintech Revolut said it is creating 50 new jobs in the Republic of Ireland as it moves its European payments operation from London. The company is making the changes due to EU passporting rights ending for UK banks post-Brexit. Revolut will hire up to 50 staff in Ireland this year to serve its Western Europe business customers.
But not all fintechs are this prepared. According to a survey from fintech industry organisation Innovate Finance, published in September 2019, more than three-quarters (78%) of UK fintechs are inadequately prepared for the ramifications of a no-deal Brexit, and 45% don’t feel prepared if there is a transition period, which is where we are now.
The findings from the survey also revealed that 17% of respondents are considering moving to a different jurisdiction as a result of Brexit, with the main concerns being around the loss of passporting rights and reduced access to talent.
In November, UK fintech Azimo launched its Dutch subsidiary, which was inspired to shield the money transfer company from the damaging effects of Brexit.
The cross-border money transfer fintech started looking for a location for its European operation after the UK referendum result in June 2016. All cross-border transfers made from outside the UK will now go through Azimo’s Amsterdam-based operation.