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Fintech`s impact with No Deal Brexit

Today, Brexit Secretary Dominic Raab discussed his plans for what has been dubbed as a no deal Brexit and suggested that Britons who are visiting the European Union could face extra credit card charges once Article 50 is triggered.

While ministers said that a deal is more than likely to be made, as reported in the BBC, the cost of card payments will “likely increase” and will not be covered by a ban on surcharges. Alongside this, companies that trade with the EU should plan for new customs checks and pay for new software.

Those living in Europe or working in the EEA could also lose access to UK banking and pension services with a ‘no deal Brexit’. However, Raab stated that a deal with the EU was the “overriding priority” and “by far the most likely outcome”.

The UK will stop being part of the European Union on March 29, 2019 and with a staggering 67% of people under the age of 30 opting to not have a credit card, an increase in the cost of UK to EU payments could decrease these numbers even further.

This could also mean that customers would be more likely to turn to fintechs that credit, but only if interest rates are kept at a lower rate than what the banks will offer, of course. But what does a no deal Brexit mean for the future of fintech?

This would impact “many components such as working anywhere in the EEA, foreign resource movements or similar benefits fintechs have enjoyed until now. The primary issues for any fintech dealing in the EEA is the danger of losing their passporting rights.

“Passporting is the right for a fintech registered in the EEA to do business in any other EEA country without needing to register here.” He continued to explore how without a deal, fintechs that work with international customers, foreign contracts would fluctuate.

“While this may not be a problem for larger firms that can withstand the time needed for the waters to calm, this is very difficult for a small firm to ride through. This would then lead to the next issue which is credit lines as we are yet to see what rates would be set at and how does a fintech take on that responsibility with uncertainty looming,” Figueredo said.

He went on to say that without passporting, what other option do fintechs have than to move operations abroad and so many already have, but the CEO also asks, if all fintechs will have the capital at hand in order to relocate.

David Luck, CEO of Capital on Tap, echoed these concerns and stated that Brexit would be an issue for their supply chain and tariffs. In addition to this, a no deal Brexit would end the surcharging ban and would mean that the cost of card payments would also increase.

He said: “While this may not happen very quickly given the ‘cloud of Brexit’, in the long term, I believe you’ll see merchants in low margin industries, such as airlines, taking advantage of this”.

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“FinTechs have thrived largely because of their transparency and honesty with their customers, something banks have a reputation for being bad at. If banks continue to increase fees or hide other fees, I think FinTechs will be waiting with open arms to help those customers in an honest and transparent way.”

Luck is right in saying that transparency is the reason why so many customers decided to bank with challengers after the financial crisis and ten years on, continued lack of trust in the traditional banking sector is why the customer base of startups is still increasing.

“With all the uncertainty surrounding Brexit, communicating openly and clearly with your customers about what might change in the future will be essential. FinTechs can use this as a moment to communicate very clearly and further endear themselves to their customers.

“There is a future for any industry that offers customers what they want quickly and efficiently. If credit cards are the easiest way for customers to get credit and buy things, as they are today, they will be around for a lot longer.”

On the subject of higher credit card fees, Mark Walker, Head of International at Fintech Power 50 added that in “a no-deal Brexit world, higher credit card fees will likely have the most impact on British consumers. Additional fees will be passed directly from the Fintechs to their customers, and all UK based Fintechs will face the same issue.”

However, if financial services providers can absorb these costs for a time, smaller fintechs may be forced out of the market, making a sizeable impact on the industry, as Walker stated. “The biggest concern with Brexit is still the uncertainty, a deal or no deal are both solutions anything in-between is the worst situation for Fintechs and all British businesses.”

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Oliver Smith

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