– Christoph Tutsch, CEO at ONPEX
With hard Brexiteer, Boris Johnson elected as the new Conservative Party leader, no-one really knows which direction the UK is heading in when it comes to its post-Brexit future. Christoph Tutsch, CEO at ONPEX, discusses what impact this new leadership could have on the UK’s payments and banking landscape and for businesses on both sides of the Channel, whatever the outcome.
The shape of the UK’s post-Withdrawal relationship with the European Union (EU) is still uncertain. The new date for the country’s departure has been set for the 31st October 2019 but, with a new leader and Prime Minister, MPs in Westminster are no closer to agreeing a deal than they were two years ago. More worryingly, the possibility that the UK will walk away from the EU without a deal is still very real and becoming increasingly more plausible, with Johnson stating the UK will leave on the set date, “with or without a deal”. So, how could this affect the banking and payments landscape, and businesses currently providing financial solutions for customers operating within and outside of the UK?
As Europe patiently awaits the next steps from the new British government, both businesses and consumers are becoming increasingly agitated with this growing uncertainty.
Brexit and the payments ecosystem
The banking and payments landscape within the UK stands to change substantially – not just in the event of a No Deal Brexit, but even under the Withdrawal Agreement brokered by former PM, Theresa May, and the Labour Party’s proposed customs union. Not only this, but the UK’s new PM has stated his determination to negotiate his own deal with Michel Barnier, causing all manner of uncertainty. This may have significant ramifications for payment providers and their partners inside the UK, when it comes to cross-border commerce.
The UK government warned the cost of card payments between the UK and EU will likely increase in a No Deal scenario, and these cross-border payments will no longer be covered by the European surcharging ban – which prevents businesses from being able to charge customers for using a specific payment method. Customers of financial service providers may see these charges come into force immediately, with American Express being a key example of an issuer already not covered by these regulations.
What’s more, the cost of processing international Euro transactions could also increase in the event of a No Deal Brexit, due to UK financial service firms losing access to existing passporting facilities to the EU market under this scenario. However, to mitigate this threat many are establishing EU-based subsidiaries. This will ensure these institutions can continue offering services following the UK’s exit from the EU from its dedicated EEA subsidiary.
What about cross-border payments and the Single Euro Payments Area (SEPA) schemes?
The UK’s participation in SEPA could be impacted by Brexit. This scheme is essential to cashless Euro payments made across Europe, as it ensures making a payment internationally is as easy as making a payment at home with BACS, CHAPS and Faster Payments. Payment providers and their UK partners will no longer benefit from the scheme, when processing payments between the UK and the EU, if the UK is no longer part of it.
However, according to the Cash and Treasury Management file, there are three possible post-Brexit scenarios that will impact the UK’s inclusion in SEPA. These are: remaining in the European Economic Area (EEA); leaving the EEA but having a free trade agreement (FTA) between the EU and UK with a “functional equivalence”; and finally, having no legal alignment.
If the UK remains in the EEA following Brexit, it can continue to participate in SEPA schemes. However, if the UK leaves the EEA or doesn’t agree on an alignment of the relevant legal framework, the European Payments Council (EPC) will have to assess the UK’s eligibility for being part of SEPA, following an application from the UK PSP community.
Alternatively, if the UK leaves the EEA and puts in place an FTA with the EU, thus establishing a ‘functional equivalence’ of the EU legal framework, UK scheme participants will be able to continue trading as normal using SEPA. This is because the UK will then meet the required criteria to participate in SEPA schemes. Still, in this situation, the EPC may have to assess any functional equivalence of the UK’s legal framework with EU law.
Regardless of the outcome, banks and businesses need to ensure they have the financial infrastructure in place to enable customers to pay for goods and services quickly, effectively and securely, from anywhere in the world. Many of the UK’s banks are already striving to find payment solutions which can support them in continuing to operate across borders.
At ONPEX, we’re already prepared for any outcome between the UK and the EU. Thanks to our flexible Banking*-as-a-Service (BaaS) platform, we can offer multi-currency banking* and cross-border payments regardless of the Brexit result. All of this is possible due to our platform being asset and payment channel agnostic and our Application-Programming-Interface (API)-first philosophy.
How can businesses navigate Brexit?
This year, EY found 56 per cent of banks, investment banks, and brokerages are relocating operations to Europe following Brexit turmoil – with £800bn of assets being moved with it. With the uncertainty surrounding UK PSPs’ status in the European market, businesses are turning towards their continental counterparts to facilitate payments in this transitional period.
However, APIs could be the key to ensuring that business continues as usual within both the UK and Europe. This is because APIs can provide UK-based financial institutions with the facilities needed to make cross-border payments seamlessly, by connecting different payment schemes (e.g. SWIFT and SEPA) offered from a European-based regulated financial institution, like ONPEX. Therefore, with cross-border payments and APIs becoming a must to maintain continuity of service, PSPs with these facilities will have the upper hand.
Additionally, API-driven technology provides greater levels of simplicity, transparency and automation. These qualities are particularly important for cross-border payments from the UK to the European mainland and will be key to success. This is due to the fact that customers are facing an unprecedented level of uncertainty in regards to Brexit, and are striving for new levels of knowledge to offer peace of mind going forward.
With ONPEX’ innovative BaaS solution, organisations can create payment services which fit their exact needs, by building financial solutions using API-based technology. These transparent, automated and simple to use solutions easily plug into the organisation’s existing infrastructure. They can manage and exchange a number of different currencies, issue multi-currency IBANs and many more innovative payments and banking* features.
Additionally, our clients are able to track a payment from either end of the process, from the moment it is made, to when it is received. This provides our clients’ customers with the transparency needed to operate in uncertain times.
What happens next?
No one quite knows what the future will hold if the UK leaves the European Union. Businesses need to futureproof themselves now and cross-border payments need to be a key strategic pillar of any business model. Without this, financial institutions will certainly be left behind, particularly those in the UK.
Therefore, organisations need support with payment solutions that can easily facilitate cross-border payments seamlessly and with complete transparency. This is something that is made easy with ONPEX and is enabled via our flexible technology.
Regardless of what lies ahead in terms of payments regulation, technology and methods, ONPEX will continue to provide simplicity, automation and transparency to the payment and banking* industry for years to come.
For more information on how ONPEX’ flexible and automated technology can support your business, visit www.onpex.com.
*ONPEX S.A. is a Payment Institution supervised by the CSSF in Luxembourg.