U.K. election, trade progress give B2B payments welcome visibility

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Payment companies looking for relief from international political chaos got a moment of clarity in the form of a decisive U.K. election and nominal progress in the trade war.

Brexit’s fate plus U.S.-China trade tensions have been headaches for payment processors and fintechs that rely on cross-border payments flows to support international supply chains.

The long-term outcomes remain in play. The Brexit drama will play out over the next few months and there's no final trade deal between the U.S. and China. But this week's developments point to a more predictable range of possibilities.

In the case of the trade war, there's potential relief from painful tariffs on point-of-sale devices affecting all U.S. merchants and bringing some stability to forecasts for small businesses, the Electronic Transactions Association said.

“ETA applauds the Trump Administration for its first step in successful negotiations with China on the first phase of a trade deal,” said Jodie Kelley, ETA’s CEO, in a statement.

Backing away from tariffs that promised to raise costs for U.S. businesses would have had a significant indirect effect on the payments industry, Kelley suggested.

“We encourage the Administration to work on reversing tariffs already in effect, including 15% tariffs on point-of-sale devices,” Kelley added in the statement.

But Trump has not made any deals that are likely to create meaningful domestic payments opportunities for U.S. payment networks and processors, said Eric Grover, a principal with Intrepid Ventures LLC.

China has strictly resisted opening a two-way street for U.S. payments providers in China, though U.S. banks, payments processors and card networks increasingly have deepened partnerships with China-based payments processors operating in the U.S.

More immediately, payments industry providers can stop hedging their bets on whether Brexit will be completed, Grover said.

“Getting out from under Brussels is a decided plus for the payments industry,” Grover said, noting that despite some forecasts, London continues to be an epicenter for fintech developments. As the U.K. pursues its own payment industry regulations that largely parallel PSD2, there have been positives for companies finding new revenue sources assisting merchants with adopting new payments security and privacy requirements.

U.K. payments firms may even be taking the lead in developing and integrating new processes forced by regulations around the world, Grover suggested.

“London is a global financial capital, has one of the most attractive legal and regulatory regimes in the world, is English-speaking and will remain far more attractive for fintechs writ large than any cities in the E.U. If you can build in London, you can build for the world,” Grover said.

U.K.-U.S. partnerships may see a boost from this effect. New York City also may see its fintech opportunities increase, with Hong Kong facing more struggles with China, Grover predicts.

U.S. payments brands are still parsing their next steps in the wake of both the Brexit vote and the possibility of stabilization in U.S.-China trade dealings.

Mastercard CEO A.J. Banga in October flagged Brexit and U.S.-China trade negotiations as uncertainties causing worries in the overall business community.

Labor’s loss to the Conservative party means Jeremy Corbyn, Labor’s leader, cannot follow through on promises to essentially nationalize U.K. ATM withdrawals.

Corbyn had promised to find a way to block more bank branch closures, in response to a sharp decline in reduced access and hours at brick-and-mortar banking locations. U.K. banks have closed more than a third of the country’s total branches since 2015, according to the U.K. consumer group Which?

Access to cash in the U.K. has become a political hot potato. Shortly before the election the U.K.’s Labor party said it planned to ban ATM fees if it won, and discussed creating a publicly owned Post Office bank. Barclays in October reinstated free cash withdrawals after earlier stating it would end the practice.

Ron Delnevo, director of the ATM Industry Association, last week told the Daily Mail that forcibly eliminating ATM fees could lead to the elimination of more ATMs.

About one-fifth of U.K. ATMs charge a fee, while the number of free-to-use ATMs has fallen to 48,000 from 54,600 in the last two years, according to the consumer group Which? One reason is downward pressure on interchange rates, which fell to 20 pence per withdrawal from 25 pence, cutting into ATM operators’ profit margins.

Looking broadly at geopolitical implications of both Brexit and the U.S.-China trade negotiations, editors at Foreign Affairs suggested this week the U.S. should move aggressively to boost R&D spending, expand high-skill visa programs and pour resources into artificial intelligence technology research and development to level the playing field.

Fintech competition is coming from Asia, Africa and Latin America, Britain and the rest of Europe, and the U.S. government should do more to promote the development of blockchain technology and encourage domestic payments technology with supportive regulations and licensing, Foreign Affairs reported.

The recent trade dispute has sent ripples of concern across the payments industry in areas including how supply chain expenses could affect B2B transactions and merchant credit. At one point the U.S. had considered banning Chinese phone maker Huawai, which supports a payments app, from the U.S. financial system.

For more than a year Trump’s tariff moves threatening Chinese imports have cast a shadow over the payments partnerships U.S. companies have established with Chinese companies including WeChat, Ant Financial/Alipay and UnionPay.

U.S. merchants and acquiring partners in recent years have seen steadily increasing transaction volume from processing payments through Chinese companies serving tens of millions of Chinese citizens visiting the U.S.

Any decline in Chinese imports to the U.S. also could affect payments companies handling payments from Chinese suppliers. China’s potential retaliation to the U.S. trade crackdown could be a suppression of adoption of Visa and Mastercard acceptance by Chinese brands forced by Bank of China, Igal Rotem, CEO of the fintech Credorax, said last year.

China has accelerated its plans for a government digital currency to combat Facebook’s Libra project and other global initiatives, with tests happening immediately in Suzhou and Shenzhen. Bank of China, China Construction Bank and China Mobile are among participants in the digital currency project, with use cases that include transport and health care. A larger rollout of the concept is planned for next year.

John Adams contributed to this story.

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Brexit U.S. China B-to-B payments Fintech ATMs