How Brexit will affect your cross-border payments?

Second Payment Services Directive (PSD2 Cross border payments solutions) is one of the crucial benefits of being part of the European Union. Residents of all member states could make free transfers between the countries without any difficulties. Now that the United Kingdom has left and the EU law has stopped being implemented from January 2021, UK SEPA payments after Brexit have made cross border payments to Europe far more complicated. This article will explore the difference in views in banks followed by the impact of Brexit on cross border payouts between the UK and the EU/EEA.

The European Union spent almost a decade harmonising and enabling swift cross border payments for the sake of its residents. They implemented the Second Payment Services Directive (PSD2) to create a unified competitive payments market. All transfers in any currency within the EEA and UK were to be treated as domestic payments by the Payment Service Providers (PSPs). Residents were given the protection for their principal amount, eliminated transfer costs and simplified data requirements. With Brexit, all cross-border payouts to Europe and operations with the continent were withdrawn. Many payment service providers had to restructure their business model and transaction schemes. Existing cross border payments regulation UK required new complex measures to operate alongside the current European payment scheme.

Below are some aspects this article will evaluate on cross border payment and its effect on the payment processing:

How Brexit affected payment processing

January 31st, 2022 marked the anniversary of the end of the Brexit withdrawal period and the UK's exit from the EU. This resulted in some significant upheaval. In recent months, several reforms on cross border payments regulation Brexit have dominated the payments scene in the UK.

The majority of the adjustments had to be made on a large scale by firms in their payment management, acceptance, processing, and reconciliation systems because they are all linked to income. Customers have diverse payment preferences, which must be seamless and secure in their native currency. Not to mention the fact that firms must maintain customer happiness while adhering to new cross-border payment restrictions. Not all businesses could keep up with such changes, as payment preferences differ by state, and firms must be equipped with the appropriate technical tools and tactics to increase authorization rates, customer happiness, and income.

Changes on cross-border transactions after Brexit

The financial sector went into preparedness mode as the reality of Brexit became apparent at the start of the departure process, in order to manage the eventual European Banking Authority position. Financial institutions situated in the United Kingdom could no longer passport their regulatory licenses and authorizations, thereby cutting off cross-border business with the European Economic Area. As treasury and payments professionals came to terms with the reality of Brexit, they were faced with new legislations and a more complex European payments environment. Simultaneously, they had to continue to manage liquidity, ensure business continuity, and optimize working capital.

The European Banking Authority clarified some of the changes on how cross border payments work as as a result of Brexit:

Providing additional data

Anyone making a cross-border payment or setting a direct debit between EU and UK will need to provide additional data. Under the Funds Transfer Regulation, transactions between EU and UK now requires the account holder to provide the payer's address, personal document number, customer ID number, date and place of birth. The payment service provider may reject the transaction if the information is not provided.

Paying additional charges

Since payments between the UK and EEA/EU are no longer considered as intra-EEA payments under PSD2, cross-border transactions are not protected from fee deductions or chargebacks. As of January 2021, UK will be participating in the SEPA scheme as a "non-EEA SEPA" country. However, the view is varied amongst banks as the payment will be treated at transactions made between EEA and non-EEA jurisdictions.

Some European banks have been imposing additional charges on payments between the UK and Europe. Some banks in Spain particularly are charging account holders exorbitant fees (as high as 18 GBP) for transactions between Spain and UK and some are rejecting direct debits from UK. While the EPC urges account holders to contact submit a complaint to the relevant authority in the member state, it does not offer much of a solution. Because according to section 4 of the SCT (Inst) and SDD (B2B) Rulebook, the level of charges levied against an account holder is entirely a matter between them and the banks and that the EPC are not in the position to evaluate the legality of the transactions.

Meaning many transactions will keep being charged until the state takes a massive action against the institutions.

IBAN discrimination

IBANs or International Bank Account Number is a system of identifying bank accounts globally around the world to make cross-border payments secure and easier. Even though the European Payment Council has confirmed that the UK will continue to participate in the SEPA scheme, some companies are refusing SEPA payments and direct debits from GB IBAN. Known as IBAN discrimination, it is illegal and account holders should submit a complaint to relevant authorities should they face such a barrier. Read our article on avoiding IBAN discrimination to learn more about it.

Deposit protection scheme

EU/EEA residents are not prevented from having a bank account in the UK and vice versa. Accounts held with UK banks will be subject to UK laws and will be protected by their deposit protection scheme. However, if the bank account is held in an EU branch, then the UK deposit protection scheme will not apply to that account. If you hold a UK bank account in an EU branch, you should get in touch with the branch authority or the national supervisory authorities of the member state to find more about your deposit protection scheme.

On the other hand, if you hold an EU bank account in a UK branch, it will be covered by the UK deposit scheme.

How to mitigate post-Brexit impact on cross-border payments

The European Payments Council is in the midst of an Open Banking revolution, fueled by the second Payments Services Directive's obligations. The implementation of ISO 20022 (ISO standard for financial institutions' electronic data transmission) is expected to generate a step change in infrastructure through the continuous development of the New Payments Architecture (UK's new interbank payment system) and the renewal of the Bank of England's Real Time Gross Settlement service. With the launch of services like SWIFT's Global Payments Innovation Initiative, the ongoing migration of international payment networks to ISO 20022 and enhancing cross-border payments, the Bank of England's work on potential options for international innovation continues to pick up speed.

While the regulators attempt to mitigate post-Brexit impact on cross border payments on a state level, companies can take some steps to mitigate the impact on a business level. For instance, EU merchants can avoid fees by forming a legal entity in the UK (but this may be prohibitively expensive for smaller businesses). Another alternative is to appoint a VAT intermediary or agent who is based in the EU to simplify VAT declaration. They may also opt for alternative payments, like Paypal or Buy-Now-Pay_later schemes, that are relatively cheaper and more efficient than card payments. Also businesses can prevent unnecessary chargebacks by informing consumers about Brexit-related changes, providing tracking information and delivery updates, and responding immediately to purchase inquiries.

With so much change, it's critical that businesses keep track of forthcoming rules and deadlines.


One of the most important advantages of being a member of the European Union is the availability of cross-border payment solutions. Many account holders are concerned about Brexit's impact on their cross-border transactions. All cross-border payouts to Europe were halted, as were all dealings with the continent. Many payment service providers were forced to rethink their business models and transaction patterns. Firms in their payment systems have to make most of the changes on a broad scale. Financial institutions in the United Kingdom were forced to stop transacting with the European Economic Area. Customers had to comply with additional data requirements, pay more transfer fees, have their transaction denied owing to IBAN discrimination, and lose their deposit protection program due to their location. Although some efforts have been made to lessen the impact on both the regulatory and individual business levels, firms must stay on top of upcoming laws and deadlines.

One of the most important things about being part of the European Union is that you can make payments across borders. After the United Kingdom left the EU, the law was not implemented until January 2021, so UK SEPA payments after Brexit have made cross-border payments to Europe a lot harder. Even though some people have tried to lessen the effect, many banks and other businesses haven't followed the rules.

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