Brexit and the potential impact of it on UK merchants has been a focus of speculation since the referendum in 2016. Here we are in 2021 and Brexit is a done deal, but just what does it mean for UK merchants?
In a study by Arlington Research in November 2020, only around 54% of UK merchants said they were fully prepared for Brexit, leaving a large number unprepared. This lack of preparation was likely held back by the COVID-19 pandemic.
In 2019 the UK made up for around 34% of online shopping in Western Europe and around 19% of the global e-commerce market, therefore any changes that impact UK merchants will be substantial to the payments market as a whole.
Across the payments industry the impact is mostly speculative, although there are already indications that big shifts are coming. MasterCard for example, have announced that interchange fees from EU merchants to UK consumers will increase from 0.2% to 1.15%. This choice by MasterCard has been criticised as a move of opportunism as a way to charge unjustifiable fees. Whilst this impacts EU merchants more than UK, it does give an idea of what is likely to come.
When arranging payments options for UK merchants, many are now pushed to look at alternative payment gateways, often those localised to the country that customers are purchasing from. This allows customers from outside the UK to pay using their own currency, further benefiting UK merchants in the early stages of Brexit as it has been suggested that the pound has decreased in value meaning products sold abroad will be cheaper when they pay in their own currency. This will ultimately make buying from the UK more attractive to foreign businesses. This has become particularly important over recent years.
In 2019, 66% of ecommerce businesses made cross-border sales accounting for nearly one third of online revenue. According to Visa, around 50% of shoppers globally make purchases cross–border which only further emphasizes the need for ensuring that UK merchants are able to prosper in such a busy cross border market. The USA alone accounted for 14.5% of UK exports in 2019 with a total value of over 46 billion pounds.
However, suggestions shouldn’t be ignored that many UK merchants may benefit from business closer to home. Numerous individuals have reported anger at extra costs ordering products to the UK from abroad post-Brexit, which only encourages some to stay local.
Before UK merchants can worry about processing payments there are the tariffs involved in acquiring the goods they sell. The UK leaving the EU has unfortunately meant that there are more complicated VAT and tariff rules on goods imported from the EU. This will likely mean that UK merchants will have to pay more for imported goods and charge more for them in return when selling. There is an average 5.3% tariff on goods imported outside the EU. When you consider the quantities of manufactured goods (roughly 60%) and foodstuffs (roughly 46%) that come in to the UK currently without a tariff, the impact of a tariff could be huge for many UK merchants.
UK merchants need to be prepared for the eventuality that the cost of importing goods could be bigger than it was prior to Brexit. The big shift in transaction fees for cross-border payments is something that businesses need to look at, in order to make sure they’re not too heavily impacted by such a shift. It has been encouraged for many businesses to start expanding their market reach to as many countries as possible, utilizing local payment methods to increase business to counter possible losses that may occur from Brexit.
The acquisition of knowledge from payment professionals to understand the best approaches for UK merchants to make in foreign markets could be vital for increasing business and getting to grips with a very complicated world of payment fees rumbled by Brexit.
Article written by Kieran Green, Research Consultant HAL Payments Ltd.