Payments: How Providers Can Ensure a Seamless Transition in the Face of Brexit
Paul Marcantonio, Executive Director UK & Western Europe at ECOMMPAY explains how in the area like payments, providers can ensure a seamless transition in the face of Brexit.
The UK is embarking on a new financial era. Having officially left the European Union at the outset of the year, the country is seeking to exercise its newly found independence. The nation is redefining its regulatory approach, looking to promote flexibility and innovation within the sector.
For most businesses, such upheaval can be disruptive. It makes it difficult to plan over the long term and often results in many organisations delaying planned investments. As such, regulators are also keen to ensure that the move to the post-Brexit era is as smooth as possible. However, after 48 years of integration, disentangling the UK is easier said than done.
One such area of note is payments. Billions move between the UK and the EU each year, and much of this was regulated by EU legislation such as the Payment Services Directive 2 (PSD2) and the Single Euro Payments Area (SEPA). But with the new framework still in a state of flux, what can providers do to create a seamless transition?
What challenges have been created by Brexit?
The UK is no longer covered by EU regulation which limited interchange fees on intra-EU card-based transactions. Fees were previously limited to 0.3% of the value of the transaction for credit cards, and 0.2% of the value of the transaction for debit cards. With these limits now being removed, companies have been free to increase the fees that EU merchants must pay when receiving orders from the UK. This is action that has been taken by Mastercard, who increased the fees to 1.5% of the purchase for credit cards, and 1.15% for debit cards. This could impact the end consumer, who may be faced with significant price rises if merchants decide to pass on these costs to their customers.
UK-based payment providers have also lost their automatic EU passporting rights. This means that they cannot provide services in EU member states without confirming that they’re compliant under the new regulations. For some, this will mean establishing a legally separate, EU-based sister entity or subsidiary. Others have responded by acquiring an additional license to operate in the EU. There are even companies that don’t need another license, but have sought one out in order to improve security and stability On the UK side, the Financial Conduct Authority (FCA) has created a Temporary Permissions Regime (TPR), which lets registered European Payment providers continue their operations without having to go through the process of relicensing until 2024, the European Central Bank (ECB) is requiring that UK companies be licensed in the EU and possess passports for every market they intend to operate in.
What opportunities have been created by Brexit?
With certain payment methods becoming prohibitively expensive, merchants and consumers will be on the lookout for alternatives. Clients who may have previously sought to stick with a single payment method will now be open to new choices. As such, payment service providers have been given the opportunity to provide more choice to their customers. This doesn’t just pertain to card payment networks either, we could begin to see companies migrate toward new entrants to the marketplace such as Telegram payments.
Open Banking has continued to drive innovation within the payments sphere. Bank-based payments are more convenient and are less expensive to use, but they were often slower and carried a higher risk of fraud. Open Banking has mitigated these risks, and payment providers have moved to take advantage. Many organisations have begun to incorporate Open Banking technology to allow consumers to make payments to merchants without needing to go through an expensive intermediary. This has made it an attractive option for those interested in facilitating efficient payments within and across borders, without expensive post-Brexit fees!
Brexit will also increase the popularity of digital wallets – a type of pre-paid account where consumers can store money digitally for future transactions. Given that providers of wallets only need an e-money license – which is simpler to acquire than a full banking license – many will be attracted to the increased efficiency and convenience, as consumers are able to link their bank accounts directly.
Thriving in a post-Brexit world
Companies should give clients the maximum possible choice of payment methods. They must also provide clear guidance as to the benefits and drawbacks of each of the choices, ensuring that clients will be best placed to take advantage. This should also reflect local intricacies, as most transactions are cheaper and simpler when processed locally. Using local options could also reduce friction among the end consumer, who will be more likely to purchase items if they can use a recognisable payment method.
Merchants that are interested in continuing cross-border commerce should continually monitor new technologies such as e-wallets, open banking, and messenger app-based payments to ensure that they’re providing their customers with the best payment experience.
We’re unlikely to see the full effects of Brexit for a while, but the UK payments sector will be key in driving any future economic success. Establishing relationships with the correct payment providers will be integral to any post-Brexit success. Businesses must also invest in their payments infrastructure to ensure a prosperous future.