Depending on what you read, the decision on Brexit currently seems a little bit like doing the Hokey Cokey. Whatever the outcome, there is likely to be significant impact on the revised Payment Services Directive (PSD2), so what can merchants expect regarding payments disruption when article 50 is triggered?
Although the people of the UK voted to leave the EU, according to a recent poll, more than a third of people surveyed believe we will remain.
Whilst I feel that staying in is a fairly unlikely scenario, particularly given Theresa May's recent promise to trigger article 50 by March, should it happen, then PSD2 will doubtless proceed as it is designed, and any new UK legislation will dovetail with the EU directive - much as it does today.
Will article 50 be triggered in full by spring, requiring negotiation of trade deals under World Trade Organisation membership rules? If so, PSD2’s fate remains unclear. It is quite likely that as open APIs are already being implemented in UK banking, something similar to PSD2, or even something superseded by the UK open data initiative, will replace it.
Importantly, the UK is already defining its own standards for open application programming interfaces (APIs) - publicly available software which enables different system components to interconnect, for example, enabling applications such as mobile banking to pull in information from multiple sources. As PSD2 does not fundamentally change existing UK rights there is no reason for it to change to accommodate APIs. In fact, a continued push from the UK government on open APIs will be a real benefit for the UK to ensure we remain a Fintech Leader.
Whilst there are uncertainties around how it might work in reality, PSD2 is less of an issue. With so many other Brexit issues to deal with, whilst merchants would have welcomed faster payments and settlements, if PSD2 doesn’t happen then it probably won’t keep too many merchants awake at night.
That said, the Competition and Markets Authority (CMA) has asked the high street banks to look at open APIs to help customers and businesses get more competitive rates and access their accounts in a more streamlined way. So, even without PSD2, the UK banking sector is about to experience a fairly big shake up by 2018.
The biggest issue by far is whether passporting activity into the EU region will continue. As such, many organisations are assessing their options for licensing within the EU as a contingency plan. Acquiring additional licences within the EU will involve administrative costs which may not be insignificant for relatively small Fintech businesses navigating the licence process, namely paying additional fees and potentially opening new offices to service licences in the EU.
For merchants concerned about whether their trade with Europe will be affected - don’t panic. A vote to leave the EU was most likely considered by your payments provider, and they will be doing what they can to appropriately support their clients and partners. However, it may be worth having a conversation with your payments provider, if you have not done so already, in order to understand their contingency planning and how it might affect your business.
In terms of interchange fees, if the UK leaves the EU then there is a possibility that in time, we could legislate for new interchange fees. However, it looks likely that the government has enough on its plate, so current rules are likely to be sufficient and remain in place.
Shake it all about:
One alternative is a middle option where we retain access to the single market via membership of the European Economic Area (EEA). However, this could be the least favourable outcome as we’d still be bound by EU rules, meaning we’d have to implement PSD2 whilst at the same time developing a UK open data initiative and preparing to leave the EU.
There is a fourth option; a deal similar to Switzerland’s, where we stay outside of EU regulatory jurisdiction but specific sectors would be allowed to keep trading with the EU, albeit with restricted access. This option has potential as most countries still want to continue relationships with London. If realised, although the UK would not technically have to introduce PSD2, it would be foolish not to in order to keep apace with the rest of Europe.
Payments is a fast moving industry, particularly for merchants whom organising payments methodology is a just one of a number of tasks required to run an ecommerce operation. The payments industry needs to remember this and keep clients front of mind at all times to ensure we don’t get too caught up in naval gazing. As such we should all be working and communicating with merchants to understand the challenges they face in order to help them navigate and overcome the uncertainties regarding passporting, PSD2, interchange and other issues as they arise on the Brexit journey.
About the Author
Andrea Dunlop is CEO of Card Solutions and Acquiring at Paysafe, a provider of digital payments and transaction-based solutions to businesses and consumers worldwide with a focus on emerging payment technologies, including mobile.