To be or Not to be in? That’s the Question for Cross-Border Payments with the UK

On June 23rd, 2016, the people in the UK answered this question and chose not to be in. This referendum started a Shakespearean drama like we had never witnessed before within the EU since the European Coal and Steel Community was founded. At the start of this year, the vote was finally effectuated, and Brexit was a fact.

After four years of headlines, everybody in Europe knows that the question in the title refers to in or out of the European Union. However, present-day Europe is much like a multi-layered jigsaw puzzle with different concepts and agreements referring to different combinations of countries. Obviously, this can cause a lot of confusion and exactly this confusion now gives rise to an unanticipated post-Brexit effect. So, let’s have a second look at the snowclone from Hamlet in the title: ‘To be or not to be in?’

Everybody knows that the UK never was and still is not in the European Monetary Union or the Eurozone.

Everybody knows that the UK was, but is not anymore, in the European Union.

But does everybody know that the UK was and still is in the Single Euro Payments Area (SEPA)?

Since the UK would remain part of the SEPA scheme, some banks and corporates were not too worried about Brexit from a payments’ perspective as the cheap and efficient handling of payments seemed guaranteed. Only some adjustments needed to be made in payment files as there are a couple of additional requirements on data fields. Some corporates therefore decided to keep their (Euro) bank account structure in the UK.

Although we do see that UK banks are indeed still able to deliver payment services as before, continental European banks seized the opportunity to increase fees for payments to and from the UK. The fees are not applied by all banks and it's therefore not a universal practice, but we see that some banks are charging lifting fees (i.e. fee deductions by correspondent banks from the transferring amount) for both sending SEPA Credit Transfers to the UK from the European Economic Area (EEA) and the other way around. Unfortunately, the charges can be quite significant in relation to the payment amount (ranging from 5 to 20 EUR).

So far, evidence mainly came from banks in countries such as Spain, Italy, France, and Austria. Whereas not expected by the end user, the banks that charge these costs seem permitted to do so following the UK-exit from the EEA. UK-EEA and EEA-UK payments are no longer treated as intra-EEA and this means that these payments will not be protected by the full amount and sharing charging principles as set out in PSD2.

In one of the other masterpieces of Britain’s greatest poet, Juliet said: “Parting is such sweet sorrow, ...”. The opportunistic behaviour of some continental European banks is further increasing the Brexit sorrow and therefore the real question is: When do we get the sweet of Britain’s parting? Let’s say that continued fast and cheap payment processing would be a good start.

Erwin Bastianen
Treasury Manager, NIKE