Brexit brings early changes to UK banking

Regulation and Compliance

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Gareth Priest

Sep 2, 2021

To the rest of the world, Brexit has looked something like a celebrity divorce. There are colourful characters, innocent victims and big financial consequences. However, for the payments and banking businesses in the UK, this is no idle matter or superficial gossip. Brexit is here and the details are all too real. As advertised, it has come with its share of confusion, which was further aggravated by its coexistence with the outbreak of COVID. For UK businesses it has created a new playing field, and a need for steady access to updated information to move forward.

Brexit – as well as the post-pandemic economy – was one of the topics covered in Bottomline’s recently released 2021 Business Payments Barometer and it elicited a variety of real-world observations among a panel of experts assembled to discuss the report. Among the specific topics: cross-border payments, government interventions, the changes Brexit has created in the payments business and the effect it has had on SMBs.

“If you can open the doors it doesn't matter where in the world businesses are trading,” said panel member Daniel Bellis senior policy manager at the UK’s Federation of Small Businesses (FSB). “You just have to open up that opportunity for them to be able to access it and, obviously, when we were in the EU it was an obvious and clear opportunity. But we need to make sure that we bring down those barriers and enable SMBs to continue to do business wherever they want. I hate to use this phrase, but we need to explore “global Britain” and around the world, because that's the only option that they really have going forward.”

Getting that right, means making an international payment as easy as a domestic one.  The barometer report shows that Brexit has had an effect even though the trade agreement and treaty with the European Union went into effect on January 1st of this year. While Enterprise organisations indicated an increase in cross-border transactions against last year’s research, the report projected international payments on a downward trajectory for small businesses, which has been attributed to international trading and operational complexities. The report surveyed more than 800 financial decision-makers in the UK. Across all companies researched, 47 percent of them said they intend to stop processing international payments because they are too complicated, and 40 percent said they found international payments made it difficult to pay suppliers on time. One in five (22 percent) said they intend to stop international payments because their business is downsizing, which is a slight increase compared to last year’s figures (pre-COVID-19). But this is an unnecessary resolve given the strides in innovative technology, such as SWIFT gpi, which helps companies better track and trace their global payments, regardless of company size. On a positive note, more than half of the respondents (61 percent) regularly process international payments.

Unsurprisingly, navigating Brexit is a particularly acute issue for SMBs. Bellis believes part of that difficulty stems from the fact that this class of trade has been too busy trying to survive the pandemic to be concerned with the miasma of new rules and regulations that come with leaving the EU. However, those changes can have an impact. A recent survey from the FSB showed that a third of UK SMBs had lost EU purchases since the beginning of the year and 70 percent struggled with shipment delays. Value-added taxes, rules of origin and customs paperwork have all changed and SMBs are struggling with the confusion.

Then there’s the issue of cross-border trade. With a single market, UK-based companies didn’t have to be concerned with cross-border regulations unless they were trading outside of the EU. Now they are subject to new fees, International Bank Account Number discrimination, and some EU banks are considering SEPA transactions as cross-border resulting in additional fees. According to panel member Gavin Maclean, head of Product - Payments at Lloyds Banking Group, the market will demand less friction in these processes over time. The consensus, across the panel, is that businesses will find a way to continue trading beyond UK borders and that innovators such as the banks and fintech providers must continue exploring ways to simplify the international payments process and remove friction.

“As a payments industry we're going to need to help businesses to reach the markets that they want to reach,” said Maclean. “To that end, I think we'll have a significant focus on making cross-border payments as fast, easy, and transparent as domestic payments. And government and industry bodies will enable and facilitate those changes. But actually, the main driver will be the market and we need to deliver for our clients.”

But as Maclean said during the panel discussion, the global market has been hit by the double shot of COVID and Brexit. The EU as a trading partner has changed as well. It has different interchange fees for card-not-present as well as card-present transactions. It has different settlement processes. All of which adds up to a need for clear information and communication between the UK and EU.  

According to panel member Naresh Aggarwal, Associate Director Policy & Technical at the Association of Corporate Treasurers, the Brexit transition will not only affect trade with the EU, but it will also serve as an opportunity to take the changes in payments seen during the pandemic to a new level.

“What I’m hearing is that the banking industry in the UK needs to go back and look at future payment trends and actually try to make sure that they are properly scaled rather than simply working properly,” he said. “With Brexit, banks are recognizing that there are changes they must make to trade outside of the EU as well.”

The Bottomline: Brexit as well as political tensions in other countries have created new barriers and new regulations for moving goods between countries. This uncertainty, together with the fallout of the pandemic, has placed a strain on most organizations, but every change creates opportunity. Until the dust settles around Brexit and the pandemic, UK businesses may need to play closer to home for now and make sure they have the right partners to avoid being impacted by future disruptions and volatility in world markets. Without doubt, fintechs and banks will continue to develop innovative solutions to simplify global payment processing, enabling all businesses, regardless of size, to reap the benefits of trading beyond the UK.


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Related topics

Brexit UK Banking
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Gareth Priest

Gareth Priest, CPO for Bottomline Technologies, has over 20 years of experience as a product innovator in the world of Financial Technology. With a track record of building products that have helped the Financial Services market address opportunities in Digital Banking, Customer Engagement, Real-Time Payments & Payments Innovation across North America, EMEA and Asia Pacific.
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