As Brexit nears, uncertainty swarms cross-border payments
Processors that rely on cross-border payments to reach new territories are feeling the economic squeeze of the looming Brexit deadline.
The problem with Brexit is less about politics and regulation, and more about how these factors will impact processing infrastructure. The lack of a deal ahead of the Oct. 31 Brexit deadline makes it harder to forge a road map for payment processing and merchant service expansion.
"This uncertainty is causing the pound to drop, and that impacts decisions on investments in other countries because of the uncertain value," said Ross Williams, chairman of Venntro, a London-based technology company the operates White Label Dating, a SaaS business that supports media brands and marketers that run online dating sites. Venntro provides the software, database, hosting, payment processing, chargeback management, CRM, security and other services.
Venntro is considering how it will expand in markets such as the U.S., Australia and New Zealand. As a SaaS company, Venntro does not source physical goods, so the U.S.-China trade war does not affect its international strategy.
If there's a deal that softens the U.K.'s departure, or if the U.K. does not leave the European Union, Venntro will focus more investment in the U.K. The lack of clarity regarding a Brexit deal creates complications in companies' overall investment strategy, which will change payment processing needs in terms of local partners and marketing.
"It's a ridiculous situation, so we have to prepare for the worst," Williams said.
The extent of Brexit's impact on the U.K.'s technology industry, fintech development and financial services has been debated since the initial vote in June 2016. Some payment companies such as Revolut have deployed workarounds like dual licensing; while others companies, including the R3 blockchain consortium, have moved ahead with expansion plans as fintech investment in the U.K. remains fairly strong. Some banks have decided to move operations to other markets or dilute their U.K. footprint.
The lack of clarity is weighing on companies. While 63% of financial technology company funders agree that the U.K. is the global leader in fintech, only 33% are optimistic this will be the case in five years, according to the Digital Finance Forum. More than 66% of businesses are worried about the impact of their businesses, and more than 25% worry about access to capital.
For cross-border payments, the impact of currency valuations and payment fees is up in the air, so firms don't know how to respond.
"Perhaps, based on the nature of the exit the U.K. would revisit interchange price caps," said Eric Grover, a principal at Intrepid Ventures. "Additionally, if the U.K. is out of the EU network fees for transactions between the U.K. and EU would [be raised] to parity with cross-border fees elsewhere."
The current infrastructure in place to facilitate cross-border payments between the U.K. and the EU is ideal, but the simple, efficient and cheap transactions that companies are accustomed to may be a thing of the past, said Sveta Bulshtein, a vice president at Credorax, a London-based e-commerce merchant acquirer that's also one of Venntro's partners.
Cross-border payments could be hit hard by a no-deal Brexit. RBS recently warned that more than 50 billion euros in cross-border payments could be threatened.
The EU's passporting system enables free trade with minimal added authorization, said Bulshtein. "With a no-deal Brexit, the cost of processing international euro transactions would rise as passporting rights would no longer exist."
Other factors could indirectly impact cross-border payments. The wide variety of payment methods across the EEA that ease customer experience could be subject to retailer bias, Bulshtein said, adding a no-deal Brexit would lift the surcharging ban, allowing retailers to charge customers additional fees for different payment types. Additionally, cashless euro payments between the U.K. and EU would become more difficult because the U.K. would not have access to the Single Euro Payments Area.