It’s been nearly three years since the Brexit vote. Despite that, there’s still an incredible amount of confusion circulating around the issue.
Brexit news often focuses on “big picture” concepts like how Britain’s departure from the European Union (EU) will impact international trade and markets…if it ever happens at all. However, when we take such a broad view, it can be easy to overlook the day-to-day impacts of the matter. It’s even easier to ignore the cost Brexit is already exerting from businesses here on our side of the Atlantic.
Let’s examine the situation and try to get a picture of what U.S. businesses can expect from a post-Brexit scenario.
Uncertainty is a Prime Concern
Britain was originally scheduled to leave the EU on March 29, 2019. That’s since been pushed back to October 31, at least for now. But as alluded to earlier, it’s not yet settled when—or even if—Brexit will ever happen. As of this writing, the odds of the UK government withdrawing Article 50 and essentially canceling Brexit stand at 2-1.
Opinions differ about the viability of a post-Brexit UK consumer market. From a business standpoint, though, an uncertain forecast is even worse than a bad one. At least one can plan for a bad outlook.
We could see massive regulatory changes and upheaval in cross-border trade–or changes may be barely noticeable. We can’t be sure, meaning that any long-term investment in the UK market is a risky prospect.
Brexit isn’t so much one massive change as it is thousands of small ones happening simultaneously. Since any seemingly minor adjustment in the payments space can have a major long-term impact on individual businesses, it’s impossible for merchants to isolate prospective issues.
However, given the UK is the third-largest e-commerce market in the world, simply ignoring the matter isn’t an option. U.S. merchants must operate there despite the day-to-day nature of the current situation. They can’t make informed mid- or long-term plans, but they can’t afford to give up ground in such a lucrative market.
Merchants Will Pay More
Despite the ambiguity and confusion, one thing is certain: the cost of doing business with UK consumers will increase. The Brexit vote could make operations more difficult for e-commerce merchants in multiple ways. For example:
- Shipping and fulfillment: Getting products to buyers could be a major obstacle. We’ve already heard warnings of trucks backed up for hours trying to enter or leave the country. If that becomes the new norm, international shipments reaching the country will see significant delays.
- Weak British pound: The British pound lost a substantial amount of value against the U.S. dollar following the Brexit vote in mid-2016. If the pound weakens further, it could make U.S. goods prohibitively expensive for UK consumers.
- High interchange fees: Interchange fees charged by Visa and Mastercard are currently capped by EU policy. However, Dublin-based Bankhawk projects that Visa and Mastercard interchange costs may increase substantially because the UK would no longer be subject to EU rate caps. This could mean millions of dollars a year in added costs depending on the scale of the business.
- Poor customer experience: The combination of longer shipping timeframes and higher prices will have an undeniable impact on the customer experience. This could turn buyers away or even lead them to blame the poor experience on the merchants themselves.
- New costs of compliance: Complying with new standards and practices will always entail added costs…we just can’t plan for them with any detail yet.
It will be interesting to see whether higher interchange fees and other costs will drive the move toward alternative payments like cryptocurrency, but that would only be exchanging one unknown variable for another.
Mitigating Loss is in Sellers’ Hands
The digital marketplace is fast-moving and complex. Procedures need to be agile to keep pace with new technologies, behaviors and threat sources. We’re at a time when we need cooperation between merchants, card schemes and banks more than ever. Of course, Brexit could make it more difficult to coordinate that effort. I’m confident we’ll get to that point of broader cooperation eventually.
But in the meantime, there are some steps that will help insulate businesses from Brexit fallout:
Technology: Merchants should ensure that their technology is up-to-date and capable of providing accurate impressions of shipping times and costs for buyers based on location. If customers have an unrealistic impression of shipping times, they may turn to a chargeback. This will cost the seller revenue, merchandise, and added fees.
Fraud prevention: Sellers should look to minimize preventable losses whenever possible, and fraud prevention is one important component of protecting the bottom line. Even if things go as well as possible, Brexit will still result in a lot of confusion, and the only people who benefit from confusion are bad actors. This calls for adopting a multilayer response to fraud and ensuring compliance with best practices.
Looking even beyond Brexit, merchants must be proactive about potential threats and look for new ways to optimize processes, improve efficiency and protect the bottom line. Procedures need to be agile to keep pace with new technologies, behaviors and threat sources. The key is—and always will be—adaptability.