London financial technology companies are looking to the European mainland for solutions to a skills shortage exacerbated by uncertainty around the terms of the U.K.'s departure from the European Union.
The sector is highly dependent on international talent as some 42% of employees working in U.K. fintech are from outside the country, with 28% coming from the European Economic Area, according to Innovate Finance research published April 2018. If the U.K. leaves the EU without a flexible immigration policy, fintech firms could struggle to recruit staff, warned Innovate Finance, an independent membership organization for the fintech industry.
This could threaten the U.K.'s role as a pivotal player in the global fintech industry. The U.K. attracted the highest fintech investment of any country in the first half of 2018, at $16 billion, according to KPMG research. This compares with $14 billion in the U.S.
For some British fintechs, the solution is setting up shop in European countries to continue to attract the best people.
At present, EU nationals can work freely in the U.K. without a visa, but that is expected to change after Brexit. The British Home Office, which oversees immigration, posted a controversial video on Twitter on Dec. 27, 2018, outlining the process by which EU citizens already in the country can apply to remain in it. In future, EU citizens wishing to work in the U.K. will have to apply for a visa via a new points-based system, though there is little clarity on the details as Theresa May's government has yet to finalize its post-Brexit arrangements with the EU despite the fast-approaching March 29, 2019, departure date.
"Brexit is an absolute pain. We have no visibility about what is going to be agreed," Nigel Verdon, CEO and co-founder of London-headquartered Railsbank Technologies Ltd., told S&P Global Market Intelligence.
Political uncertainty will not stop Railsbank, which provides banking infrastructure for third parties to build products and services on, from pushing ahead with its growth plans, Verdon said.
It is already becoming difficult to recruit data scientists in London and Brexit and tech talent is becoming increasingly expensive, he said, adding that Brexit is likely to make the situation worse.
Looking to Europe
But Railsbank is one of a growing number of fintechs that are getting around the recruitment issue by setting up hubs in European countries where talent is plentiful — and that are still in the EU.
Railsbank announced in November 2018 that it had opened a new office in Vilnius, Lithuania. Verdon, having worked extensively with Lithuanian development teams in the past, saw the country as a natural choice for a Railsbank office.
The company views the Lithuanian government as being highly supportive of the fintech industry, Verdon said.
Lithuanian Economy Minister Virginijus Sinkevičius said in November that it was unsurprising that British fintechs might look to set up in the country, given the size of the Lithuanian diaspora working in tech in London.
"When we're talking about bringing foreign direct investment in the context of Brexit, we oftentimes forget one key piece to the puzzle — Lithuanians working in cutting-edge U.K. companies who often become one of the main reasons for said companies to choose Lithuania," he said in a statement to mark the opening of the Railsbank office in Lithuania.
Railsbank also has an office in Luxembourg, a jurisdiction that supports fintechs and provides a useful gateway to the European market, Verdon said.
"If we have a Brexit deal that involves free movement of people, great. But if not, we'll also be fine," he said.
Norris Koppel, CEO of London-based Monese Ltd., is similarly confident that his company's offices in Tallinn in Estonia, Lisbon and Berlin will help recruit talent post-Brexit. Monese, which specializes in mobile bank accounts for immigrants and expatriates, opened its most recent office in Lisbon in October 2018.
"Whilst we believe recruiting in the U.K. will become more competitive and challenging, in the event of the U.K. leaving the EU, we will still be able to recruit at a European level across these three offices, so we don't see access to European talent as an issue overall," Koppel said in an email.
Evgeny Likhoded, CEO of London-based regtech company ClauseMatch Ltd., said Brexit will inevitably create challenges for recruitment.
"ClauseMatch will have issues with recruiting staff from the EU and it's not just due to the likely new visa requirements. The perception of Britain has changed more towards a less welcoming nation unwilling to share jobs with Europeans, even though developers, designers and data scientists are on the Home Office's shortage list, making it easier to bring people to fill jobs from overseas," he said in an email.
Companies can hire staff in professions that are on the Home Office's shortage list without having to prove they were unable to fill the role with an applicant from the European Economic Area.
ClauseMatch has a license to hire staff on Tier 2 visas, which is the main entry route for skilled workers coming to the U.K. from outside Europe.
"It's a cumbersome and costly process to get certified but for our company it has been worth it as the pool of talent that we can tap into became much wider," Likhoded said. "Developers, designers and data scientists are in extreme shortage in the U.K. and EU has a lot of skills in these areas. It will be difficult for tech companies to maintain growth if their development is based solely in the U.K."
Likhoded said that while he hoped that visa requirements will not be overly stringent for EU nationals after Brexit, ClauseMatch would "have to adapt to whatever rules are in place" to keep hiring staff, even if that means increased costs and bureaucracy to negotiate.