Brexit: A dead end for Britain’s digital banks?

By Oliver Smith 6 July 2016

Mondo, Tandem and Atom Bank are poised to transform banking as we know it, if they survive.

One of the biggest changes in our lives over the next few years will be the way we manage our money through new digital challenger banks.

These digital banks like Mondo and Tandem are hoping to give you more power and control over your finances by harnessing the latest technology that traditional banks are struggling to adopt, but today that future doesn’t look quite as certain.

Read more: Bank to the future – 4 challenger banks worth watching

In the wake of last month’s Brexit vote, banks on London’s Stock Exchange were some of the businesses hit by the fallout, and smaller challenger banks were hit hardest.

These smaller groups like Metro Bank, Aldermore, Shawbrook and Virgin Money saw their share prices crumble by 30% on average as investors panicked about the impact of Brexit. Shares in these new banks were sold at a fraction of their previous price, triggered by their exposure to mortgage lending and small business lending, both of which could collapse if the economy declines.

But what about the next wave of digital challenger banks that everyone’s excited about? How will Brexit impact groups like Mondo, Tandem, Atom Bank and Starling?

Mondo monitors you finances and alerts you when something isn't right.

Banking’s digital future, derailed?

According to PwC, which is currently advising 20 new banks and financial services groups looking to set up in the UK, it’s business as usual.

“9 in 10 of the PwC‘s Authorisation and Start Up Unit’s clients that were planning to set up a new financial services firm before last Thursday’s referendum are still committed to setting up their businesses in the UK,” PwC said in a statement this month.

The reason for digital bank’s continued optimism?

“A widely held view that the UK is a market which embraces innovation that has a progressive regulatory regime, a well-established and sophisticated financial system allied to a highly skilled and experienced workforce.”

Basically, despite Brexit, Britain is still the best country in the world to build a new bank.

Tandem’s CEO Ricky Knox echoed this sentiment when The Memo asked him about the impact of Brexit.

“While we believe Brexit may have negative consequences for the economy at large, we believe that will make the need for a good bank even more acute.”

Read more: Tandem boss Ricky Knox on flashy apps and building a bank

Mondo’s CEO Tom Blomfield told The Memo that there are three ways the referendum could impact their challenger bank’s development:

“Firstly, Brexit has caused huge uncertainty, meaning that investors in startups are being a lot more cautious. As a startup, of course that could have an impact when we need to fundraise.”

“Secondly, EU financial passporting rules meant we could previously access a market of 500m people. Following the referendum, that’s now potentially been reduced to 65m.”

“Thirdly, about 25% of our staff come from EU countries. Like many early stage businesses, currently we don’t employ anyone from outside the EU, since the visa requirements are too burdensome. A potential outcome after Brexit could be that it becomes similarly difficult to employ EU citizens.”

Read more: Meet Mondo, the app that’s got the banks worried

For now these banks of the future are putting on a brave face, and the numbers from PwC are promising.

We’ll have to wait and see whether Brexit is just a bump in the road for these banks, or a dead end.