Brexit effect on UK Economy
The deadline of March 29th has long approached, but the strategy for Brexit wasn’t decided upon. Apart from the consequences that first come to mind, payment industry will definitely be impacted by whatever decision takes place.
Without certainly knowing how Brexit will turn out, some UK-based financial institutions are already leaning towards applying the strategy of “hard” Brexit and therefore location, hiring and technology changes.
Here are some of the most important numbers of Brexit:
Impact of Brexit on EU economy
Apart from the disadvantages of Brexit for UK, other parts of the world and the 27 remaining member states of the EU will also start seeing changes. How vulnerable each region is to economic disruptions from Brexit? The top 10 countries where exports could fail are:
In Germany, particularly, the manufacturing hub in Stuttgart, could face steep tariffs on its exports to Britain. Germany exports a wide variety of industrial products to Britain, including almost 800,000 cars a year – or about 14% of all the cars it makes domestically.
What could Brexit mean for digital payments?
As well as implications for businesses, Brexit also has implications for digital payments. Even though these systems are extremely flexible, they still rely on the systems and standards that govern the wider economy.
The UK government said 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.
Post the transition period, the UK might also lose direct access to Euro Clearing & Settlement Mechanisms (CSMs). UK banks may need to build Euro-clearing propositions in Europe to handle affiliates and third party/correspondent bank high-value clearing. Acquiring players may have to move their headquarters to other European markets and take new contracts to operate in the EU. (Accenture)
The indications are that Brexit wouldn’t prevent UK payment service providers (PSPs) from accessing Single European Payments Area (SEPA). The European Payments Council (EPC) published a position 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 (epayments).
And finally, regarding the new PSD2, 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. However, banks have already spent more than 750 million pounds in preparation for the regulation, but once UK has officially left the EU, the UK Open Banking initiative is more likely to replace PSD2 and potentially have limited impact on a practical level.