Brexit has created a number of issues for the payments sector. As of January 2021, the UK no longer falls under the remit of regulatory limits on cross border transactions. As such, UK-EU commerce is left in an ambiguous no man’s land.
Businesses have been left to devise their own mitigating measures in order to maintain international operations. For instance, Mastercard has increased its fees fivefold for UK online purchases from the EU.
Due to these regulatory changes, some UK businesses have lost their ‘passporting’ rights to carry out cross-border operations throughout the EU. Reciprocally, certain EU businesses are coming up against barriers with regard to their UK operations.
In order to minimise disruption, many companies have set up bases in the EU and EU businesses have established firms in the UK to maintain the seamless digital experience the modern consumer seeks. Certain payment providers who do not need the additional licence for cross-border operations have even chosen to opt for one to safeguard their business operations.
Third-party providers (TPPs) are also able to use an alternative to eIDAS certifications to access customer information from account providers, or to initiate payments according to the FCA, since eIDAS certifications of UK TPPs have been revoked. This provides TPPs with a compliant way to access customer information.
There are many types of payment providers and many ways they can respond to Brexit regulations. Ultimately, companies will need to weigh up the best choice for their particular corporate structure and business strategy.
An opportunity to innovate
However, cross-border European payment methods are not irretrievably bound to becoming a jarred process. In fact, Brexit has created an important opportunity for the sector.
The increased costs associated with Brexit, as exemplified by the case of Mastercard, will incentivise businesses and consumers alike to seek out and adopt alternative payment methods. It is imperative that payment providers capitalise on this chance to disrupt and innovate.
A number of solutions already exist to help facilitate seamless cross-border transactions. For instance, ECOMMPAY’s Gate2Europe payment solution enables transfers between businesses across Europe, supporting trusted household names such as PayPal and Mastercard.
Open Banking also will allow fintechs to offer new products and services based on direct access to consumers’ bank account data. PSD2 is set to be key for the UK’s financial services industry, with the UK expected to comply with EU regulations to ensure its position as a leader in the sector. As such, Open Banking technology will continue to drive forward innovation and give consumers new payment options without the need for debit or credit card transactions, making it a key tool for efficient domestic and cross-border payments, customised by localised requirements.
Digital wallets will also become more popular as consumers seek efficiency and convenience, and providers just need an e-money licence instead of a banking license for this. Consumers can link their bank accounts directly, making it a convenient option for all. Likewise to this, cryptocurrencies and buy-now-pay-later products will also become more popular.
Because transactions, for the most part, will be cheaper if processed locally, merchants should also be looking to offer a local payment method to remain competitive. Using a local acquirer means benefitting from local regulations and incentivised fees, and will also better cater to the consumer, who may be more likely to complete their checkout purchase if they can select their preferred payment method.
The post-transition outlook for payment providers
In keeping the post-Brexit transition smooth, businesses must first and foremost ensure they continue to comply with both UK and EU regulations. Businesses must be aligned with all new barriers, and being both proactive and reactive to changing regulation will guarantee resilience.
The FCA has repeatedly warned that customers must be treated fairly, so transparency of costs, and choice for consumers will be essential. Laying out all their payment options clearly will promote consumer confidence during this period of adjustment and uncertainty.
Importantly, Brexit doesn’t need to lead to the UK’s isolation. Payment providers have been given a significant opportunity to bridge the UK and the EU by implementing compliant and connected solutions.
These measures will be essential to bolstering London, and the rest of the UK, as a global Fintech hub. And, with Rishi Sunak’s recent budget announcement, which unveiled a series of measures to boost tech firms, the sector is better supported than ever before to deliver on this responsibility.
