In the aftermath of the Brexit vote in the U.K., some payments professionals were panicked given the huge number of European Union payments regulations at play. A U.K. that went its own way on payments—just as it did with monetary policy when it stuck with the Pound and never embraced the Euro—could cause confusion and other problems with cross-border transactions.
This issue is critical for payment facilitators for two reasons. First, one of the biggest values offered by PFs is that PFs offer a way for merchants to sidestep payments complexities. With all of this uncertainty throughout the European payments world, confusion could easily make merchants far more open to the idea of bringing in a PF, as a guard against having to deal with a wide range of potentially changing payments rules.
Secondly, the other dominant value offered by PFs are services for merchants that go way beyond what is currently offered. Those services include a wide range of offerings, but ways to effortlessly manage cross-border payments in a post-EU payments world would certainly be among them.
But there are some very good reasons to conclude that little will actually change and that the new U.K. officials dealing with payments rules—who could easily look an awful lot like the existing group—may easily choose to continue the EU payments rules. After all, one doesn’t have to be a member of the EU to choose to abide by a cut-and-paste of its rules.
Given that none of the arguments advanced by the campaigns for both sides of the Brexit election mentioned payments rules—and given the sexy nature of those rules, who could blame them?—there’s no political pressure for anyone to abandon the existing rules. In short, no one who matters cares. It’s not as though U.K. payments officials had major problems with existing rules.
Even more to the point, it’s not as though they were pushing any different—or better—versions of those rules. And even if they did, the new rules would have to be mighty attractive to compensate for the pain of offering different rules than the rest of Europe. In payments, consistency and simplicity overrule almost anything else, provided security is not threatened.
Aite Group Senior Analyst Ron van Wezel argues that there’s a lot of precedence for, well, nothing much changing.
“Countries like Norway and Switzerland are also not part of the EU, but have still decided to implement most EU payments laws. The U.K. could take a similar course,” van Wezel said. “And considering that the U.K. has already translated the first PSD and other payment legislation into national law, the country should be expected to continue following EU payments legislation.”
This thinking, though, is the most optimistic outlook. Politics can encourage non-rational thought and the people installed in a post-Brexit U.K. government may see anything and everything from the EU as toxic. In that view prevails, U.K. may go with different payments solely so they can say that they have entirely abandoned the UE, even if there is no particular non-political benefit to doing that.
“There may be an impact on regulation and payments harmonization in Europe. When the U.K. leaves the European Union, the pending EU regulation is officially no longer applicable to it, which will create uncertainty around the legal framework of payments between the U.K. and the EU,” van Wezel said. “This applies to EU regulation that still has to be translated into local law, most notably the revised Payment Services Directive. There is therefore a risk that the U.K. will in the future operate on different payments laws, making it more expensive to do business.”
In that happened, it could mean major disruption. “If the U.K. decides to not follow EU laws any more, (payments firms) would have to provide different products in the U.K. than in the mainland,” van Wezel said.
He added that this kind of disruption would be a lot more painful than when the U.K. opted to avoid the Euro and stick with the Pound. “Providers are very capable of dealing with multiple payment products,” he said.
Getting back to the political arguments, political campaigns in both the U.S. and the U.K. have often attacked so-called big banks, making them the bad guy who is causing lots of economic harm. Whether or not someone buys into that argument, van Wezel argued, it seems offpoint for the payments rules at issue here.
“The EU directives were not to the benefit of the banks. They were giving consumers more protections in the ways they do payments,” such as capping interchange fees and opening traditional bank activities to various third-parties, van Wezel said. That makes a forced changing of those rules unnecessary, even in the eyes of political activists on either side of the argument.
This confusion could also get worse, in that it could impact geographies beyond the U.K., with talk of Ireland potentially leaving the U.K. (so that it can stay in the EU) and Italy, France, Holland and Denmark talking about voting to leave the EU, too.
So, yes, there is an excellent chance that little will change with Brexit, but nothing is certain except uncertainty, which is as good a friend to PFs as any.