Brexit Postponement Gives Merchants Slight Boost, but Prolongs Uncertainty
Brexit, which had been scheduled for Friday, 29th March, has been postponed to give the UK more time to either approve the Prime Minister’s deal or decide its next steps. For UK and EU merchants, this has important implications for potential cost increases from a reclassification of card scheme regions.
In our latest edition of Payments Intelligence, we discussed the implications of the UK leaving the EU for merchants throughout Europe, suggesting that the UK could fall outside of the card schemes’ ‘intra-regional’ classification once it leaves the European Economic Area (EEA). This would subject European merchants with UK customers to both higher scheme fees and interchange fees, and similarly for UK merchants with customers from elsewhere in the EEA.
The UK and EU have agreed to push back the exit date depending on whether a deal is agreed or not:
- If MPs approve a deal, then the UK will leave the EU on 22nd May 2019 and enter a transition period.
- If a deal is not approved, the UK needs to tell the EU what it wants to do by 12th April 2019, which could be another extension or leaving without a deal.
Previously, we suggested that this reclassification could take place as early as 29th March – the planned exit date – if the card schemes decided to follow through and announced any changes immediately. With these new postponements, it has been written into law that the UK will be leaving either on 22nd May or 12th April. With a deal agreed between the UK and the EU, a transition period could maintain intra-regional rates on UK-EU transactions until December 2020 at a minimum. Leaving on 12th April without a deal could trigger a reclassification of regions on that date, however the card schemes – should they decide to reclassify the regions at all – could give merchants a period of notice before the change.
Again, it is important to stress that the card scheme rules are clear and transparent with regards to regional classifications, and that they have no legal obligation to maintain the UK’s current intra-regional status. It is up to the UK regulatory bodies – particularly the Payment Systems Regulator – to address this potential issue before it saddles merchants across Europe with unjustified higher fees.