The outcome of Brexit is no much clearer than it was two and a half years ago, when the referendum on the UK’s membership of the European Union was held.
The possibility of the UK leaving the EU without a deal is still not officially ruled out while Prime Minister Theresa May tries to work with her party, parliament and the EU to secure a deal that the majority of the different interest groups can live with.
And then there’s the potential of a cross-party amendment to the EU withdrawal bill that would see the negotiated deal approved by parliament in exchange for a second referendum on that deal or continued membership of the EU.
With the UK still due to depart the EU on 29 March, the final outcome is anybody’s guess.
As well as implications for businesses, Brexit also has implications for digital payments, which although more flexible than more traditional payment methods, still rely on the systems and standards that govern the wider economy.
The UK government said in August 2018 that the cost of making some card payments and the time taken to process other transactions could increase in the event of a no-deal Brexit.
Currently, when you make a cross-border payment in euros within the EU, your bank can't charge you more than it would for an equivalent national transaction in euros. Even banks based in EU countries but outside the Eurozone must apply this rule.
In addition, when you pay for something in the EU using a credit or debit card, traders and banks cannot charge an extra fee – or surcharge – for using a particular card. This applies to card purchases in shops and online made in your home country or another EU country.
However, cards issued by three-party schemes – in which the issuer and acquirer is the same entity – such as American Express and Diners Club, as well as business or corporate credit cards, are not covered by these EU rules, so may be open to extra charges.
It’s unclear how these rules would be impacted by the UK leaving the EU with, or without, a deal, but the no-deal scenario is likely to mean more changes for digital payments.
Another area that could be impacted is currency conversion. At the moment, if card users pay in EU currencies that are not euros, they may still be charged a currency conversion fee by their card provider if they use their card in another country. However, virtual banks offer pre-paid cards that get around this by enabling card holders to withdraw local currency without additional charge.
According to an Accenture report published in July 2018, UK banks are looking at how payments solutions – such as instant credit transfer, SEPA Direct Debit, high-value payments and foreign exchange, as well as cash management services such as virtual accounts – can continue to operate across borders.
Many digital payments companies are part of the Single European Payments Area (SEPA), which could be impacted if the UK withdraws from the single market or common market.
SEPA is a system of tools and standards to make cross-border payments in euros as easy as domestic payments. It harmonises the way cashless euro payments are made across Europe, allowing European consumers, businesses and public-sector organisations to make and receive credit.
The indications are that Brexit wouldn’t prevent UK payment service providers (PSPs) from accessing SEPA. The European Payments Council (EPC) published a position paper in May 2018 outlining several post-Brexit scenarios, including the UK leaving the EU but remaining in the European Economic Area (EEA) or leaving with a free-trade agreement with functional equivalence to the EU framework – both of which would allow for continued participation in SEPA.
If the UK left the EEA and had no legal alignment with the EU, the EPC would assess the eligibility of UK PSPs. But, as SEPA already extends to third countries, it’s feasible that UK PSPs could continue to be part of SEPA as long as they meet the same criteria.
There is also the question of how Brexit could impact the second Payments Services Directive (PSD2), which is designed to make it easier for new entrants to join the financial services market by providing third parties more open access to data of customers (with their permission).
Fortunately, it seems likely that the PSD2 rules will remain on the UK statute book if the UK exits the EU, as part of the UK Open Data Initiative, which is seen as a more progressive version of PSD2.
There are a host of things that could change for digital payments if the UK leaves the EU, and how they change depends on the form of departure.
But with it remaining unclear how things will pan out, financial services firms – most of which make use of digital payments in some form – must ensure they are ready to respond and adapt to the regulatory requirements that emerge once the dust settles on Brexit.