Brexit’s Ripple Effect: What It Means for European Payment Gateways

On 31 January 2020, the UK made history by pulling out of the European Union. Commonly known as Brexit, a portmanteau of ‘British exit’, this withdrawal was a controversial one, with the Leave faction only winning by a margin of 3.78%. Indeed, so split was the UK in the wake of the Brexit referendum that today, nearly five years later, it is still an area of contention for many throughout the country.

Regardless of whether one agrees with the UK’s decision to leave, one thing is for certain: this change has left a lasting impression. Indeed, the ripple effect of Brexit can be felt across all social and cultural spheres, extending far beyond the shores of Great Britain and Northern Ireland to Europe and the rest of the world.

The FinTech industry is one area that has been impacted by this seismic political shift. In this article, we consider how Brexit has changed the British and European FinTech industries before moving on to discuss its influence on European payment gateways more specifically.

The Impact of Brexit on the Fintech Industry

Brexit has been the cause of a great deal of uncertainty in the FinTech industry, both in the UK and in Europe. Prior to the UK's exit from the EU, the nation had solidified its status as a significant player in the European FinTech sphere. With London at its helm, the UK had emerged as a powerhouse in the world of financial technology, earning a reputation as one of the foremost hubs for cutting-edge innovation and technological advancements in finance.

The country’s separation from the EU threatened this status. Licensing issues, increased costs, fewer market opportunities, and confusion around new data handling procedures were just a few of the challenges FinTech companies had to contend with during this time. What’s more, some of the UK’s most talented experts in the field had emigrated from EU countries themselves, meaning that a significant part of the workforce could potentially be less eager to relocate there.

Thanks to Brexit, FinTech companies operating within the European Union have experienced positive shifts in their market dynamics. This is because the disruption it caused provided countries like Germany, Lithuania, Malta, and the Netherlands with a golden opportunity to overtake London as Europe’s leading FinTech hub. In the grand scheme of things, it became apparent that these countries were unable to match the UK FinTech industry's superior level of preparedness and proficiency in managing unforeseen challenges. Despite this setback, they did not miss the chance to thrive and exhibit their strengths.

The Implications of Brexit for European Payment Gateways

One of the numerous areas that have felt the effects of Brexit in the FinTech world is the European payment gateway industry. While domestic payment systems remained relatively unaffected by this continent-wide upheaval, cross-border payment gateways — those enabling transactions between different countries — have been forced to make some changes.

For one thing, financial service providers trading between the EU and the UK have had to learn to navigate a complex set of entirely new regulatory requirements. Cross-border payments, in general, have to comply with a long list of laws and guidelines, no matter where the money is from or where it is going. This both delays processing times and racks up further costs for the consumer; the addition of even more rules — as necessary as they may be — only adds further challenges to an already complex process.

Increased fees are another unfortunate side effect of Brexit experienced by European payment gateway operators. This is because companies within the European Economic Area (EEA) incur an additional charge of 1.29% for payments made from the UK and vice versa. To account for this, these firms also charge their customers an additional fee when making payments between the UK and EU countries, demonstrating that the ripple effects of Brexit can be felt not only by FinTech businesses but by individual consumers, as well.

Conclusion

The financial technology industry is just one of many areas that felt the effects of Brexit. All things considered, however, its impact wasn’t catastrophic; in fact, now, more than four years post-Brexit, the UK’s FinTech industry is as strong as it ever was. Currently, the nation is home to over 3,000 FinTech companies, while London remains firmly established as the top global hub for financial technology. The European FinTech market remained largely unharmed, as well, and has continued to grow and flourish in the years since.

With that being said, one can still notice the lingering effects of Brexit in the FinTech industry — namely, in the realm of European payment gateways. Consider, for example, the introduction of new regulatory demands and increased transaction fees placed on cross-border transactions. Even before these changes were implemented, the global payment industry faced challenges regarding operational efficiency and affordability. Added compilations such as those mentioned above may not be devastating to service providers, but they can still increase payment processing times and costs for consumers and thus contribute to a wider issue of inefficiency in cross-border transaction services.