The United Kingdom’s departure from the European Union has significantly changed cross-border payments. A complex set of regulations and requirements have been introduced for businesses engaging in trade between the UK and the EU.

Despite the continued collaboration between the UK and EU payments industries, businesses must adapt to the evolving dynamics influenced by Brexit and the broader shifts in the global payments sector.

SEPA Transactions: Navigating Extra Charges

The UK’s participation in the Single Euro Payments Area (SEPA) facilitates efficient electronic Euro payments across 36 EU and non-EU countries. However, due to Brexit, some SEPA transactions now incur additional charges.

They also experience slower transfer times, as UK to EEA/EU payments are not exempted from fee reductions. Certain European banks consider these transactions as cross-border, subjecting them to fees not applicable to intra-EEA payments under PSD2.

IBAN Discrimination: Challenges Post-Brexit

Post-Brexit, some companies reject SEPA payments from GB IBANs, a practice violating EPC SEPA regulations. Termed IBAN discrimination, this issue demands businesses to report breaches to relevant authorities, with perpetrators facing substantial fines. Overcoming IBAN discrimination is crucial for maintaining smooth cross-border transactions.

FTR Compliance: Additional Data Requirements

The EU’s Funds Transfer Regulation (FTR) mandates additional data for wire payments, including SEPA transactions between the UK and EU. Failure to provide essential details, such as full addresses, personal document numbers, or unique transaction identification numbers, may lead to payment rejection or delays by payment service providers (PSPs).

Currency Fluctuations: Mitigating Risks

The uncertainty surrounding Brexit and external factors like the COVID-19 pandemic have made the British Pound more unpredictable. Businesses engaged in UK-EU trade should closely monitor currency fluctuations. The value of the Pound can swing, impacting profits. Staying informed about these shifts allows businesses to make informed decisions and mitigate the risks associated with currency volatility.

SSI Changes: Adapting to Euro Clearing Challenges

Changes in the Euro clearing system mean that UK banks may have to use correspondent banks to access Euro clearing. This adjustment results in modifications to Standard Settlement Instructions (SSI), the payment details used for future transfers or recurring payments. Businesses must update their payment details to ensure a smooth flow of Euro payments into the UK.

Interchange Fee Dynamics: Adjusting to “Card Not Present” Transactions

Brexit has led to higher “Card not present” interchange fees for transactions involving EEA merchants and UK consumers. Merchants now face increased interchange rates, impacting the cost of processing card payments. Adapting to these changes requires businesses to reassess their financial strategies and negotiate favourable terms with payment processors.

Deposit Protection Scheme: Understanding Changes

While the Financial Services Compensation Scheme (FSCS) continues to protect UK customers, those with deposits in EEA branches of UK banks are now covered by EEA deposit guarantee schemes, subject to variations in rules across EEA jurisdictions. Businesses and individuals should familiarise themselves with the specific regulations applicable to their circumstances.

Payment Processing Challenges: Seeking Cost-Effective Solutions

Brexit has reintroduced friction in payment processing, affecting the benefits gained under the second Payment Services Directive (PSD2). UK-based financial firms face higher fees and increased administrative burdens for cross-border payments. To address these challenges, businesses are exploring alternative payment channels, negotiating favourable exchange rates and investing in innovative technologies.

Final Thoughts

Businesses must take a proactive approach to address the impact of Brexit on cash movement across UK borders. This means understanding SEPA transactions, managing IBAN discrimination, ensuring FTR compliance, handling currency fluctuations, making SSI adjustments, staying informed about interchange fees, and being aware of deposit protection schemes.

To succeed in this evolving landscape, businesses should stay informed and make strategic adjustments, positioning themselves to thrive despite the challenges posed by Brexit.