Europe's fintech companies are getting serious about the possibility of a no-deal Brexit.
As uncertainty looms over the U.K.'s split from the EU, the industry gathered this week at the Paris Fintech Forum. Payments providers, cryptocurrency exchanges and digital banks all said they were taking steps to prepare for the worst-case scenario.
But navigating the uncertainties of Brexit is proving to be a tough task for newcomers in the financial services sector who are luring in users with borderless, frictionless payment and banking solutions.
"It is obvious the bigger the market is, the better it is for fintechs, the faster it is they can start, the more opportunities they have," Wim Mijs, CEO of the European Banking Federation, told CNBC on Wednesday. "If you cut off that market, you're hurting yourself, which is Brexit in one word."
N26 is a Berlin-based digital bank that was recently named one of Europe's largest fintech start-ups. Co-founder and CFO Maximilian Tayenthal told CNBC on Tuesday the company is taking precautions to prepare for a no-deal Brexit.
"Unfortunately no one knows how hard Brexit will be when it comes to banks licenses," Tayenthal said. "One of the options is we need bank license quite soon, so we have a team working on that."
Under current EU rules, British financial institutions can operate throughout the bloc with a domestic banking license. That is likely to change once the U.K. leaves the EU.
The result: fintech firms and banks are proactively applying for licenses in EU countries ahead of the deadline. That will allow them to continue to operate across all markets even if the U.K. fails to reach a deal with the EU.
"We have to have some options, and we have to think about our future," said Serkan Zubari, director of London-based cryptocurrency exchange Gobaba that applied for an Estonian license two months ago.
Earlier this month, London-based tech unicorn TransferWise applied for a money-transfer license in Brussels, while fintech firm Revolut obtained a European banking license in December. Both companies cited Brexit as a factor affecting their decisions.
Meanwhile more traditional banks like RBS and Lloyd's have already secured licenses in various EU countries.
Some financial services companies are banking on a so-called transition period between the Brexit deadline and the official departure from the EU to iron out their operations. But that transition period might not happen if U.K. and EU regulators don't reach a deal, a scenario that worries bank regulators.
"The ECB and national supervisors, therefore, expect banks to continue to prepare for all possible contingencies, including a no-deal scenario leading to a hard Brexit with no transition," the European Central Bank (ECB) says on its website.
So far Brexit uncertainty hasn't dented investment into London's thriving fintech market. Consultancy KPMG estimated $16 billion was invested in fintech companies in the U.K. in the first half of 2018, the highest of any region in the world.
That could change if more fintech companies start to move operations out of the city.
"We were surprised at how many fintech companies were interested in coming to set up in Luxembourg, to have a presence in Luxembourg, because they need access to the EU single market," Luxembourg finance minister Pierre Gramegna told CNBC.
Marc Rennard, CEO of Orange Digital Ventures, said it's too early to predict a fintech exodus from London. Monzo, a London-based fintech valued at $1.3 billion is a member of the firm's portfolio.
"We hope, as a French guy, thousands of jobs will be transferred from London to Paris," Rennard said.