One of the most unanticipated developments in political and financial history this decade is likely to be Britain’s exit from the European Union, more popularly known as “Brexit.” It was a move that not even the government calling the vote actually foresaw, and in its wake, it leaves a lot of questions and much lingering uncertainty about the geopolitical landscape and how this will affect economies, finances and nearly every aspect of the interconnected world we now live in.
One of the big questions for automated payment processing is, “Can Brexit possibly have an effect on even this sector?” And the answer is likely to be “Yes,” but in ways that people are still trying to understand as the entire world moves forward. Here are some of the more obvious ways that we might be seeing early effects even now.
For people that do business with the UK, or have extensive transactions that involve a lot of debt, one of the most obvious repercussions of Brexit will be the British banks—and government—attempting to keep debt under control. In the same way that you don’t want people taking on even more debt, or conducting risky loans or financial transactions in bad times, the same holds true in uncertain times.
British banks and financial centers are likely to come down more harshly on credit debt. This is especially true since credit debt in the UK has actually gone up in the last two years. With employment likely to be in a downturn as some EU businesses close operations and move back to Europe, and the government itself tinkering with the idea of raising interest rates, credit debt and credit payment from the UK is likely to come under fire.
The financial solidarity of the EU means that for most people doing business with EU customers, it’s likely to be business as usual. For people that do a lot of transactions with British customers, now may actually be the time to consider pulling back.
Research firms such as Bernstein have indicated that all British banks are now in considerably weaker positions thanks to Brexit, and this carries over to their credit card carrying customers. While the banks themselves struggle with how to operate in a post-EU world, they have already experienced downgrades in their credit rating.
When the UK was part of the European Union, it was part of a solidified agreement on interchange fees of no more than 0.3%, which was the agreed rate for all Union nations. Now that the UK is no longer a part of that Union, they are under no obligation to maintain this rate.
It’s unclear at this stage how the UK will approach its interchange fee policy, but with all the transitions they will be making, and the economic uncertainty following Brexit, vendors should be prepared to deal with additional transaction complications when it comes to dealing with UK payment processing.
Posted in Payment Processing on Jul 26, 2016