© FT

From the moment that Britain voted to leave the EU, financiers across the continent began disagreeing on what it meant for London’s banks. But one German was unequivocal about the consequences for a smaller but growing area of financial services: “London has committed suicide as a leading fintech centre,” tweeted Jochen Siegert, chief operating officer of Traxpay, a Frankfurt-based payments platform.

Germany’s digital entrepreneurs are not only convinced that London is finished, but also believe they are poised to wrest its crown as Europe’s centre of fintech. This confidence is particularly strong in Berlin, the cradle of Germany’s tech industry.

Cornelia Yzer, Berlin’s economics minister, says her department has received “dozens of emails” in the past week from companies based in London considering a relocation to the German capital.

“Berlin will exploit the opportunity provided by Brexit,” she makes clear. “These companies need to be in the heart of Europe, and where is better than the capital of Europe’s strongest economy?”

For financial technology — or fintech — groups, the motivation is simple: if, in post-Brexit negotiations, the UK loses access to the European single market, London shrinks as a global banking centre and investment in their start-ups will stop.

Among the companies dusting off their Berlin Rough Guides are TransferWise, a London-based money transfer company that has raised $117m from backers that include Virgin’s Richard Branson, and Revolut, a global payments app that has attracted $4.8m from venture capitalists.

TransferWise, which has 100 of its 600 staff in London, and Revolut, with 40 staff, are both considering the option of moving to Berlin, according to people familiar with the companies’ plans. Revolut’s chief executive, Nikolay Storonsky, openly accepts that the company may need to open and license a subsidiary on the continent if it wants access to the EU. “The transfer side of our business relies on the single market, specifically directives such as Sepa [the single European payments area],” he acknowledges.

TransferWise co-founder Taavet Hinrikus tweeted on Sunday that “Ireland, Switzerland, others” had been “reaching out and tempting TransferWise to start/move operations there”. “Competition between states is good :)” he added.

TransferWise and Revolut are not alone. Berlin Partner — an agency that promotes investment in the city — says that on the day after the Brexit vote it was contacted by five London-based fintech start-ups. “They said their investors are forcing them to consider relocating,” says Stefan Franzke, the agency’s head. “Capital must go where the returns are higher.”

Berlin has long been in the vanguard of the fintech revolution. It has become home to dozens of small, nimble German companies trying to disrupt the business models of the established banks, through innovations such as peer-to-peer lending, crowd investing and online marketplaces.

chart: tech start-ups

Famously described by a former mayor as “poor but sexy”, Berlin has proved a big draw for web entrepreneurs the world over, with its cheap rents, vibrant nightlife and cosmopolitan vibe. Even before the Brexit vote, it was positioning itself as a rival to London’s Silicon Roundabout.

A recent survey by EY suggests it is succeeding, and names Berlin as Europe’s start-up capital: the city’s tech companies received €2.15bn in venture capital funding last year, more than the €1.77bn attracted by London’s.

Overall, €3.1bn in investment flowed into German start-ups in 2015 — nearly double the total for 2014 — and one-fifth of this went into fintech.

But the sector remains relatively small. Of a total of 12,000 fintechs in the world, only 300 are in Germany, according to PwC’s management consultancy Strategy &. And only one German fintech financing round topped $50m in 2015 — the €82.5m raised by online lender Kreditech. In the US, 38 managed this.

Delivery Hero, Kreditech Holding, Zencap Deutschland, Foodpanda, HelloFresh
The top five recipients of venture capital funding in Germany last year © Companies

“Historically, Berlin’s main advantage has been cost, but that’s not enough,” says Brent Hoberman, founder of and head of Founders Factory. “Also, Berlin doesn’t have the big corporates that London, Frankfurt and Paris have.” In addition, start-ups in the German capital “tend to be less innovative and more risk-averse than those in London”, he claims.

Up until now, London has led the way in fintech — thanks to its challenger banks and a vast array of blockchain, machine-learning and data-mining companies. In 2015, the British fintech sector generated £6.6bn in revenues and attracted £524m in investment, according to EY — figures that Berlin can only dream of. German fintech revenues were only £1.8bn split between Berlin, Frankfurt and Munich, with £388m invested.

chart: tech start-ups

However, one of the main reasons London has thrived is its proximity to the large global banks, which use the UK as a gateway to “passport” their goods and services to Europe’s single market of 500m customers. Many now doubt the banks will be able to retain their European passport if Britain leaves the EU.

“Why would you want to stay in the UK when it’s so insecure?” says Ramin Niroumand, co-founder of Finleap, a Berlin-based fintech company builder. “It doesn’t have the euro, so there’s a currency issue, and now you have this passporting problem.”

Revolut’s plan for a subsidiary represents one way to get around it.

With a post-Brexit Britain likely to seek curbs on immigration, foreign IT staff might also find it easier to work in Berlin than London. “If you have constraints on attracting international talent, you will lose out against cities like Berlin,” notes Marc Bernegger, a Swiss-based fintech investor.

Berlin Partner, for example, prides itself in fixing foreign techies up with work and residence permits within five working days — regardless of where they come from.

Nevertheless, Berlin’s digital entrepreneurs are careful not to express any schadenfreude over Britain’s shock vote to leave. “Personally, we benefit from Brexit, but is it really good for us?” asks Mr Niroumand. “It just fragments the market.”

However, any sense of regret has not stopped Berlin sharpening its sales pitch. Ms Yzer says city envoys will not only target tech start-ups based in Britain, but also international companies with their European headquarters in London. “We will win them for Berlin,” she says, with Teutonic confidence. And the rallying cry, she says, is “You Need To Be In!”.

Some think the authorities should go further. Digital lobbying group cnetz has suggested the German government help cover relocating start-ups’ moving costs.

Ms Yzer says there are enough incentives already. “We offer reliability and the security companies’ need for long-term planning,” she says. “We are in the heart of the EU and we will stay there.”

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