The League of Extraordinary Brexit Projections

When it comes to predicting Brexit’s impact on UK finance, fintech, and London’s status as a hitherto virtually unchallenged European fintech hub, there’s a sense that media and fintech professionals are veering dangerously close to composing Young Adult fiction. Katniss Everdeen would feel right at home among the explosive adjectives that have been attached to the UK and London financial scenes ever since the UK narrowly voted to leave the European Union on June 23rd: “panic,” “fallout,” “kill,” “under threat,” and “huge hit,” to name just a choice few.

These fearsome adjectives are usually paired with conditional words, such as “might,” “could,” “will,” and “probably,” for the simple reason that it’s unclear exactly how, when, and to what extent Brexit will disrupt UK finance as we know it. Nevertheless, if you can forgive the adjective frenzy, you’ll find that a number of journalists and fintech specialists aren’t just reading their tea leaves or gnashing their teeth, and have come up with some compelling post-Brexit scenarios.

It all hinges on … bank passporting?

“So this is the key question…” financial blogger and chair of European networking forum the Financial Services Club, Chris Skinner writes in his blog, “Will Europe choose to ruin London, the British economy and Fintech by using the one card they hold that could possibly do that: removal of bank passporting?” Passporting means that as long as a bank is based in the UK or has a subsidiary there, it can provide services across the EU.

If the EU decides to leave passporting laws as they are, London fintech would remain largely unchanged. However, Skinner argues, if European leaders decide to punish the UK by removing Britain’s right to passporting, most banks will need to relocate to Europe, and the GDP, taxes, and employment in the UK would get pummeled.

Leading law firm, DLA Piper seconds Skinner’s passporting concerns, but is convinced that Brexit is more than a single-trick hat: in the coming months, Britain’s financial industry will have to come to terms with new EU regulations, relations, and legal frameworks, no matter what the EU decides to do about Britain’s passporting rights.

Will the last person to leave Britain please turn out the lights

Like all great epics, Britain’s EU referendum featured a struggle between two distinct forces. Whether or not voters understood just what they were voting on, fintech expert and investor Pascal Bouvier places the vote within the context of an ongoing battle between globalization (Bremain) with its young, educated, urban centers, and those nostalgic for Vera Lynn’s white cliffs of dover and the independent British nation-state (the Brexiters).

Bouvier tackles a wide range of fintech subcategories and explains why so many of them stand to benefit from at least partial relocation outside the UK post-Brexit. Bouvier’s analysis concedes that the ultimate Brexit impact will depend on if and how the EU and the UK are able to create an amicable relationship from the shambles of their marriage.

For Bouvier, it’s clear that Britain’s fintech offspring need the UK to swallow its pride and push collaboration with the EU:

Whatever the rollercoaster of Bremotions, Branger for some, Bregret for others, Brisapointment, Bronliness, Brictory, Bredemption – i am pushing corniness to its limit here I realize –  Fintech Brexistentialism tells me it is easier to influence an integrative movement from the inside than the outside.

Amazing (saving) grace

It would seem that the air of foreboding permeating Britain’s financial industry is far from misguided. Still, the tendency to employ overly ominous adjectives towards Brexit would seem premature. Though roboadvisor Betterment may have suspended all trading till noon the day after the referendum (and seriously angered a lot of their clients), after the Leave vote, UK company directors bought more shares of their own companies than at any time in over a decade.

Finance and fintech experts have also suggested that post-Brexit tax breaks could turn London into even more of a fintech magnet. Additionally, in a move to signal that all was fintech business as usual, London mayor Sadiq Kahn appointed fintech entrepreneur Rajesh Agrawal as the deputy mayor for business and enterprise.

And of course, in the meantime, former UK Prime Minister David Cameron has resigned, leaving someone else to deal with the hassle of invoking Article 50 and getting the Brexit ball rolling.

Before the vote, Dutch bank ING tried to predict the outcome of a Leave vote on the British finance industry. Its conclusion captures the spirit of what most financial experts have written about UK finance and fintech since the referendum: “Quantifying the impact from a possible Brexit is anything but easy.”

Photo credit: Gabriel Villena via Visual hunt / CC BY

Fintech investor, Pascal Bouvier on where there’s big money to be made in fintech

Pascal Bouvier on fintech investing

Pascal Bouvier is an experienced fintech investor and joins Tradestreaming today to talk about his investments in the fintech space, how the market has changed over the past few years, and where this investor thinks the opportunities lie ahead. Follow Pascal on Twitter, LinkedIn, and his blog.

Who are you and what do you do?

Pascal Bouvier, fintech investor
Pascal Bouvier, fintech investor

I am a fintech investor who brings both operational and investment experience to the table. I have worked with large financial institutions as well as with startups and post-revenue small-sized businesses. I have also worked with technology and non-technology businesses. This uniquely positions me as an investor in early stage companies in the financial services industry.  Further, I do have a global background having worked on several continents, a requirement given the financial services industry is a truly global industry.

What’s your view of fintech and finserv and how has it changed?

I have developed an expansive model where finserv equals fintech, like it or not. By that, I mean all finserv participants will have to behave like technology companies going forward. This means they will have to stop creating products and pushing them in unilateral ways to consumers and users and they will have to start to focus on technology, data and in a broad sense, customer experience.

All participants will have to do so, whether they are startups or incumbents, large or small or service providers. This will have, and is already having, a profound impact on how the industry is organizing itself. Namely, the customer and his needs – be it an individual or a corporation – will need to be front and center as opposed to wha the financial institution thinks the customer needs. This is both a subtle and profound departure from past and current paradigms.

In many ways the industry will have to reorganize itself around customers’ lifetime events via contextually relevant services and move away from a product-centric approach. That is the greatest insight one can have as a fintech investor.

You have a very interesting work history, with experience on the operator side in software and other industries. How has this impacted your worldview of fintech as an investor?

I was a commercial banker which influenced my view on commercial credit. I worked as an operator with various early stage startups, as well as high growth post revenue SMBs, which helped me understand the reality of day to day tactical operations and long term strategic vision in a very material and tangible way.

I also have acted as an investor in the banking world and in the VC world. My fintech investment style has been heavily influenced by my learnings as an operator. Early stage investing is not purely informed by dry analysis and spreadsheets. It is informed by how one relates to individuals and teams and by how one understands how operational complexity grows as a startup grows and experiences traction. I believe this has made me a better investor.

Where’s your sweet spot for making an investment? What does your target investment look like?

Based on how I see the financial services industry evolving, I believe the most effective sweet spot at this point in time is to focus on seed, Series A, and Series B investments where the investment size ranges from $500k to up to $5m. I do like to go above $5m for exceptional investments. I like that flexibility.

From an operational point of view, this means I focus on startups that have a product or platform in use with customers, whether in beta or whether live, and whether pre revenue or post. I shy away from ideas or technology that has yet been productized. I focus on companies that are about to hit product/market fit or already have a strong sense of product/market fit and who are experiencing the first inklings of pipeline growth. Although my view is global in nature, I have lately focused on Europe and the US.

How do you compare consumer fintech opportunities with more B2B ones?

Speaking of the firm I recently left, the portfolio is evenly split between D2C and B2B. some of the D2C are really B2B2C plays.  As for my natural inclination, it really depends on the sector I look at.

The industry is comprised of five sectors: lending, capital markets, insurance, asset management, and payments. Given a particular geography and time for each of these sectors, I would be more attracted to D2C models, whereas this may change to B2B models otherwise. For payments, I prefer B2B by far, as getting traction in D2C payments is extremely difficult. In banking and insurance, I would prefer digitizing distribution channels which may mean D2C or B2B2C. For asset management or capital markets I would favor B2B models.

It really depends. Consumer plays are so much more difficult to hit just right that there is a natural comfort zone around B2B models, in my opinion.

What do you think is the most exciting investable part of fintech right now?

I will give several answers. First, insurance because the industry has barely been touched as of yet by disruption, so the opportunity is immense. Second, anything that has to do with identity management as applied to any of the five sectors comprising the industry. Third, and this is a new trend I am focusing much more on these days, financial wellness, which can be equally applied to the Western world as to emerging markets. Financial wellness is going to be huge in my opinion, as it sits at the intersection of the expectations of customers and a better stewardship of money, in general (not that I expect us to be completely weened from excessive consumerism mind you, but still I do expect changing times ahead).

What’s the most overdone part of fintech? Where are expectations too high in fintech investing?

It is always difficult to answer this question. So much depends on geography and timing. I would tend to answer that retail/consumer payments in the US is overheated and extremely crowded. “Digital” banking also seems to fall in that category. Finally, one particular model past its prime is pure retail roboadvisory in the wealth management space.