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How Brexit has already impacted digital payments

The continuing uncertainty around the UK’s future membership of or relationship to the EU is impacting everyone from small businesses to large multinationals, in particular carmakers like Honda and Jaguar Land Rover. And the digital payments space is no different.

We’ve talked about the potential impact of Brexit previously, but there have already been a number of moves in the digital payments space that have come about due to the current situation with Brexit.

Here are some of the most notable developments that have taken place against the backdrop of political and economic uncertainty.
 

Google Pay moves to Ireland

Firstly, Google officially moved online payment service operations for its Pay app from the UK to Ireland on 4 April, with the move aimed at ensuring Google Pay services continue to “run smoothly”. Google said in a statement that the decision was made while “the UK’s relationship with the EU evolves”.

Google Pay is the tech giant’s digital wallet and online payment service launched in 2015 as Android Pay, but adopting its current name in 2018 when it merged with its other payment services.

All users of Google Pay in the European Economic Area (EEA) – apart from those in the UK – will now be supported by the operations run by Google Ireland Limited. The Central Bank of Ireland recognised Google as a payment institution late in 2018. Google Pay users in the UK will continue to have their transactions processed in the UK. Previously, the UK-incorporated Google Payment Limited covered the whole of the EEA.
 

Stripe secures Irish e-money licence

In March, payments platform Stripe announced plans to significantly expand its operations in Dublin after securing an e-money licence from the Irish Central Bank.

Stripe, which runs a platform that allows companies and individuals to accept online payments, cited Brexit as a factor in its decision to apply for the licence, but also noted that its plans to expand in Dublin were the main reason for the move.

“Dublin is the heart of Stripe in Europe. It’s our fastest-growing office and our first international engineering hub with over 150 employees,” a company spokesperson told The Irish Times. Stripe set up its first engineering hub outside the US in Dublin in 2018.
 

Other players consider alternative options

A domestic bank licence is currently sufficient for British financial institutions to operate throughout the EU. This is one of the benefits of ‘passporting’ for financial services, which sees a certain level of financial regulatory harmony across the EU.

This will change if Brexit happens – particularly in a no-deal scenario – meaning fintech firms and banks are proactively applying for licences in other EU countries.

London-based digital payments company Revolut obtained a European banking licence in December as its application was approved by the European Central Bank. The company said the licence will initially be tested in Lithuania and that it was working with regulators to have any licence restrictions removed, so it can launch full current accounts, overdrafts and other banking services across Europe.

Elsewhere, London-based money transfer provider TransferWise applied for a money-transfer licence in Brussels in January, citing Brexit as a factor in its decision. The company applied for a licence to become a payment institution with The National Bank of Belgium, with the plan to open a satellite office in Brussels.

Revolut also announced it was applying for a licence to operate in Luxembourg in September 2018, as part of its plans to mitigate any fallout from Brexit.

CEO and cofounder Nikolay Storonsky told the Financial Times the company has no immediate plans to leave London, with the Luxembourg licence application merely a precaution. But Storonsky also predicted London could see its influence in financial services wane if Brexit takes place as more banks are “squeezed by regulation and face competition from fintechs”.
 

Remittance market feels impact

The situation with Brexit has also impacted the remittance market, in which foreign workers transfer money to individuals in their home country, to support family members, for example.

Research by digital cross-border payment provider InstaReM found that 44 per cent of UK migrants are now sending less money home as a result of Brexit chaos and the drop in value of sterling that has accompanied it.

The research also suggested Brexit has had a significant negative impact on the spending power of UK migrants, 36 per cent of whom now sacrifice a greater proportion of their income to continue to provide the same level of support they did for their families before the Brexit decision.
 

Only time will tell

What will ultimately happen with Brexit is far from clear, with Parliament unable to agree a way forward and British Prime Minister Theresa May recently announcing her resignation, meaning the identity of her replacement currently dominates the news agenda.

Whatever happens between now and 31 October (the current departure date of the UK from the EU), there are likely to be many more developments as digital payments players take steps to protect their future success.

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How Brexit has already impacted digital payments
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