Since Brexit, banks have been charging customers to deposit euros into their euro accounts in London, forcing costs to soar. TMI asks an industry expert why this is happening and what can be done about it.
Businesses have been used to paying low fees for their European banks to transfer euros to their euro accounts in London. Brexit changed that overnight. It has emerged that banks are levying fees that are proving costly for businesses that are not keeping an eye on these outgoings. So says Laurent Descout, CEO of integrated treasury platform provider Neo.
According to Descout, since Brexit on 31 January 2020, normal euro transfers between euro accounts in mainland EU countries and the UK are no longer billed under Single Euro Payments Area (SEPA) rules. Those having euros paid into a UK euro account are now charged under international cross-border tariffs, driving up the marginal costs of each payment significantly. “This is something we are seeing across the entire EU zone, and it’s something most banks have been doing,” he reports.
This potentially affects any euro payment to a UK euro account, whether made by a private individual or a large corporate. “From the banks’ perspective, they are just supplying the contract; they have not changed the terms and conditions,” admits Descout. “However, prior to Brexit, there were conditions applicable to SEPA and to SWIFT transfers; now it all falls under the SWIFT cross-border clause, no matter who you are.” He believes many businesses will not have been prepared for this overnight change.
While Descout accepts the charges are applied to the letter of the law, he says some clients are feeling “a bit of a betrayal”. Those that have never actively negotiated their euro cross-border costs, possibly because it was not a service they often used and so were happy to absorb it, may suddenly find their bank fees have risen dramatically overnight. “This may now be a big problem for them, and many will have to try renegotiating, which many banks will not be too keen to do,” he warns.
The change could even adversely affect some EU companies. “We have seen German companies, which are paid in euros into their global bank account in the UK, that have only just realised that their service costs to their own clients have increased indirectly because there is a new surcharge; that changes the dynamic of their relationship.”
The obvious reaction is to move those UK accounts back into the EU. “It seems like a logical move, but I’m not sure it is entirely feasible,” says Descout. “When you look at this from the perspective of UK businesses that are indirectly affected, looking for a European base account to collect from EU-based clients seems like the best idea,” he notes. “But anyone in treasury who has experienced the bank account opening process knows it is now a total nightmare in Europe; being based in the UK may make opening an account in Europe even more complicated.”
As a longer-term approach, Descout suggests it may be worth considering lobbying the European Banking Authority (EBA). His recommendation for more immediate action for cost-conscious companies is to consider this matter from the affected clients’ perspective – those whose costs are rising as result – and look for banks willing to reduce cross-border costs. If banks are not happy to change their conditions, he suggests exploring what the new challenger bank community can offer, perhaps setting up a specific EU/UK account.
The fintech community specialising in cross-border payments may also prove fruitful, suggests Descout. “Many are able to offer more aggressive and transparent cross-border payment pricing,” he notes. Neo, featured in TMI’s Innovation Lab, is now operating an EU base account which, he reports, is proving popular among UK businesses seeking to help their EU client payments reach them directly, and cheaply, through SEPA.
Ultimately, Descout believes this seemingly “small and practical issue” arising as a consequence of Brexit could cost inattentive EU and UK businesses millions. For the more alert, he feels the time has surely come for old-school passive relationships with banks to be replaced by a more proactive approach by treasurers keen to avoid unnecessary charges.