Although it has been three months since the UK population voted to leave the European Union, there is very little additional clarity on the impact that Brexit may have on consumer payments. Below we have focussed on two specific areas where the impacts are
likely to be highest.
In terms of the impact of Brexit on the regulatory and passport regimes, we are starting to get more clarity around the number of institutions affected. The UK Treasury Select Committee has published some analysis which
indicates that c.5,500 UK authorised firms use passports to provide business in other EEA Member States, with a further 8,000 EEA firms passporting into the UK. These appear very substantial numbers, however when looking specifically at the payments market,
the impact appears much more modest:
- Payment Services Directive: Outbound 284; Inbound 115
- Electronic Money Directive: Outbound 66; Inbound 27
The latest analysis from Moodys also supports the view that the impact of changes to the passporting regime will be noticeable, but short term.
Our current view is that the passporting of payment organisation will affect a relatively small numbers of players, but this is unlikely to lead them to radically changing the shape or location of their businesses.
For those who may have to passport, the next biggest question will be: where do I go? It could be a range of markets such as: Malta, Cyprus, Netherlands or Ireland. While there will be a preference for English speaking countries with UK-like regulatory regimes,
each has downsides which need to be carefully considered. For example, in Ireland pricing of payment services (cardholder issuing or merchant acquiring contracts) needs to be pre-approved by the local regulator
Data processing remains a much more complex issue, and one with wider impacts than payments or financial services. Many large institutions be they retailers, energy companies or banks, pass confidential customer data between the UK and continental Europe.
There are a number of pieces of regulation which are likely to become part of the UK rule book before we leave the European Union which will set the context for this issue:
Here the impact of the Brexit negotiations is much less clear. We would hope that level-headed negotiations between the UK and the EU would result in mutual recognition of respective data protection environments. If not, there is the possibility of institutions
having to run two data processing centres, one in the UK, and one in continental Europe. Given a large proportion of card payments (all Visa and MasterCard transactions for example) move cross border either to the UK or the US, this would be a very expensive
and painful outcome.
We will continue to monitor developments in Westminster in an attempt to anticipate these changes, meanwhile, most institutions are adopting a "wait and see" approach because the breadth of outcomes is still so large.
In the mean time, we have created a simple
presentation which summarises our latest views on the possible impact of Brexit on UK consumer payments, and provides an update to the analysis originally published in June.