Brexit and the pandemic have put increased pressure on UK banks and payment providers to digitise in order to keep payment service standards consistently high. Digitisation is not, however, the sole solution to keeping businesses afloat following these drastic changes as other factors must be taken into account.
The need to set up physical offices abroad to ensure companies are legally complying with the local regulations and limits on cross-border transactions is just one example of a necessity that payment providers must do brought up by Paul Marcantonio, Executive Director at ECOMMPAY. Marcantonio has over 20 years of experience working for representatives of the payments industry, including popular e-Wallets, and tier-1 interactive gaming brands, such as Ubisoft and THQ. He had this to say about survival in the post-Brexit world:
The quality of payment services will always remain at the core of banks’ and payment providers’ offerings to customers, and in a post-Brexit landscape, this rings even more true. The pace at which businesses have had to adapt against the backdrop of the pandemic and Brexit has meant the payments ecosystem has come under intense challenges. On the road ahead, companies will be in a race to innovate payments services to ensure that a seamless experience is available to all.
The barriers of Brexit
Brexit has posed considerable challenges, particularly from a regulatory perspective, which are likely to complicate certain payment services. Since January, UK-EU commerce has been disrupted as a result of the UK now falling under the remit of regulatory limits on cross-border transactions.
This challenge has been exacerbated by the loss of EU passporting rights, where many UK payment providers have had to move quickly to set up secondary branches in EU states in order to maintain operations.
Since leaving the EU, certain UK payment providers have also had to take distinct notice of the changes in interchange fee – the percentage of the purchase price paid by the retailer to the bank when making a transaction via their debit or credit card – legislation. From 2015, interchange fees had been capped across the European Economic Area (EEA). Subsequently, Mastercard took the decision to increase its fees fivefold for online purchases between the UK and EU, from 0.3% to 1.5% for credit cards and from 0.2% to 1.15% for debit cards.
This will be one of many areas where business models will have to adapt to the changing dynamics Brexit has bought. Given the scale of the challenges, there are a number of steps that will have to be taken to capture the opportunities on the other side of adjustment.
Seizing the opportunity
For many business leaders within this space, both the pandemic crisis combined with Brexit has prompted them to not only adapt their payments infrastructure, but to accelerate commitments to a digitised and seamless customer experience. In order to remain competitive in an increasingly automated environment and against the backdrop of rising costs, online merchants will need to differentiate themselves, and a key part of this will be through choice.
In the process of redefining strategy to innovate offerings for all customer segments, payments will be the first in a list of priorities to be accelerated. The biggest prize for the ecosystem rests in the surge of innovations that have taken place this last year. Open banking in particular will continue to cement its position in the market with faster settlements, low risk of fraud and lower chargebacks. PDS2, which the UK is sure to comply with, will also prove to be a key driver of adoption and will continue to allow the UK to position itself as a prominent leader in the open banking sector.
When developing payment solutions, providers with high ambitions in the new climate will look to provide clients with a selection of innovative, data-driven options. Some have brought to market more efficiency to payments within and across borders, tailored to meet local requirements, allowing customers to initiate their transactions without the need for debit or credit card transactions.
There has also been a distinct focus in the last year on the rise of digital wallets – a prepaid account where money can be stored and used for any online transactions. As consumers seek out more convenience in their payment options, providers will prioritise e-money licenses versus banking licenses to meet the skyrocketing demand for alternative payment methods where all bank accounts can be linked directly.
Over the coming year, we’ll also see a greater migration to offering local payment methods, where a local acquirer enables a better process when navigating local regulations and the incentivised fees attached as part of that. A key driver behind these approaches is to cater for consumers who have been shown to go through with their transaction if their preferred payment method is enabled at checkout.
Adapt to survive and thrive
Leaving the EU, combined with the pandemic, has been a leap into uncertain terrain. Yet, businesses have been quick to future-proof and adapt their offerings to cushion the blow. A core part of the journey ahead will be clarity around technology that can bolster better access to a variety of payment method options. To complement this, merchants must push ahead with a transparent approach when keeping consumers aware of shifting prices in accordance with new payment methods, particularly in relation to e-wallets and updated open banking applications.
With consistent attention to changing regulation and the impacts of Brexit in both the short- and long-term, UK business will come out on top, bolstered by payment providers. In order to deliver a truly seamless payment experience for customers, payment providers and merchants will need to ramp up their partnerships and work together to ensure the future is bright.