Brexit is a done deal, but what does that mean for the remittance sector? February 12, 2021
To say 2020 was a challenging year would be something of an understatement. If the pandemic wasn’t enough, we were then thrown headfirst into a Brexit deal that potentially threatens all UK businesses which trade with the continent. We’re on the other side of a very long, complicated and messy divorce but there are still so many things to unpack and digest, particularly as far as the financial sector is concerned.
Back in 2016, when the referendum result was first announced it was a shell shock to the money transfer and wider financial services industries. But that was almost five years ago now and while London certainly doesn’t look set to be dethroned as a world business capital any time soon, there has certainly been a minor exodus as the UK becomes more of an isolated island.
The immediate ramifications of Brexit
Before the ink could dry on the referendum result, money service businesses across the country began to prepare their backup plans. Of course, those that only served customers in the UK would remain unaffected, as would those operating as SPIs. But those operating under the category of APIs that had a large customer base or agent network in the continent had to apply for new MSB licenses from scratch.
Back in 2017, we posited that it would be the change in banking passporting that would have the most significant impact on money transfer and the wider financial services market. Passporting rights in the years before Brexit helped UK businesses to expand into EU states quickly and at minimal cost and post-Brexit, those privileges would be all but expunged.
Making sense of the Brexit fallout
The immediate fallout of the 31st of December was, as was predicted, that MTOs lost passporting rights. This had a major knock-on effect, with all the MTOs that had accounts within Europe and were safeguarding their funds. A month or so later, we’re now seeing those accounts either being closed or laboured with exorbitantly hiked-up SEPA payment fees.
The UK is also going to find itself fighting for itself as far as regulations are concerned. The European payment regulator that oversees the SEPA payment network will have no interest in fighting for a country that essentially tossed it to one side, after all.
The vast majority of UK-based MTOs will undoubtedly have lost European clients over the last 12 months and most European MTOs will have lost many UK-based clients too. Indeed, all MTOs that rely primarily on inter-European banking will probably lose many more in the ensuing months.
The impact has been compounded by the COVID-19 pandemic and subsequent global lockdowns. One thing this has done, however, is catalyse a deeper digital penetration in the money transfer sector, with estimates that the digital hold on the sector grew from 20% to 30% from 2019 to 2020. That means remittance software and fintechs are going to play a larger role going forward. But that’s not necessarily a bad thing and it might not be the only silver lining.
Is there a plus side for remittance?
While it might have moved on from the EU from a regulatory perspective, the UK is still an important part of the payments network and London will remain well-positioned for money transfers. Indeed, for MTOs with a higher volume of foreign exchange transfers, London is still arguably the best place to do the business thanks to its abundance of high net-worth individuals and the number of major international businesses that call it their home.
We’ve also seen many companies abandon the UK for greener pastures and some European countries (such as Spain and The Netherlands) have greeted these companies with open arms. Other companies, particularly smaller ones, have turned to mergers or partnerships with larger competitors to be able to access their European clients.
Thankfully, as the UK was wise enough to adopt the PSD2 open banking regulations back in 2018, the businesses that could afford to expand into other EU states could do so without being tangled up in miles of expensive bureaucratic red tape. But it’s still an expense that many smaller MTOs could have done without.
Then there are those who have proselytised the idea of pivoting away from Europe entirely. Michael Kent, the Cofounder of Azimo, for example, believes we should be looking towards Africa, where remittance is proving to be a crucial lifeline in the absence of governmental pandemic support.
According to RemitONE CEO Anwar H Saleem, however, there is no need for MTOs to panic as long as they can learn to adapt and lean into the changes. He explains: “London has always been a major financial hub for Europe and this is not going to change any time soon now that we’re no longer a member of the EU. It will, however, push those businesses that remain in London to innovate and lead the way. RemitONE are already committed to charting this new course with confidence.”
Can UK money transfer businesses survive Brexit?
While it didn’t end up being the highly prophesied ‘no-deal Brexit’ for most, for the financial services and remittance sector, it might as well have been. With no agreement on the regulatory equivalence between the EU and the UK, there is still a lot of work to be done.
For those operating in both the UK and the EU, there are certainly some tough choices to be made. But ultimately, it’s going to be up to the UK and the MTOs that have chosen to stay behind to ensure it remains relevant and doesn’t lose its standing on the global remittance stage. Whatever the next few years have in store for us, the best thing any MTO can do is arm themselves with the facts and prepare for every and any eventuality.
If you’re uncertain about the future and are looking for support regarding licensing issues post-Brexit, RemitONE is ready to take your call. Using our industry-leading bespoke and secure money transfer software, we can help any established firm or new entity looking to establish in the UK or Europe to navigate the increasingly complicated logistical and regulatory waters spun up by Brexit.
For more information or to speak to one of our experts please email firstname.lastname@example.org
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