With Brexit no closer to a resolution, financial technology businesses are taking matters into their own hands to prepare for its impact on cross-border trade.
With all the uncertainties surrounding the U.S. and Britain, Veem and Tipalti are the most recent fintechs to look for new ways to entice people to trade with China.
Recently, Veem, which is a mobile payment platform service-based in San Francisco, launched an incentive program which award businesses up to $1,000 annually for tariffs on goods imported from China paid for by using its gateway. Veem, which is used mostly by smaller businesses, implemented its tariff relief program after an internal study showed that average payment amounts fell 57 percent from the U.S. to China between 2017 and 2018, and the amounts fell 50 percent between 2018 and the beginning of 2019.
Eligibility for Veem’s tariff relief program depends on codes that accompany purchases. Codes reveal if a product originates from an international destination and whether it falls under the tariff declarations. Currently, the following categories are subject to tariffs:
- Construction materials
- Electronics
- Cosmetics
- Clothing
More than 800 goods from China qualify under Veem’s tariff incentive. Veem pays the tariff one year after the initial purchase and the customer must remain an active user through at least the end of that year.
Why Companies Have Gotten So Concerned About Tariffs
Companies have been worried about staying competitive since the tariffs started in 2018. Many feel the tariffs threaten cross-border partnerships between fintechs and suppliers.
Companies continue to worry as Brexit and the China-U.S. trade war drags on, both of which have negative impacts on the international payments market.
Last year, the US imposed tariffs on $250 billion worth of Chinese products, after accusing the country of unfair trading practices. Beijing retaliated with placing duties on $110 billion worth of American products.
Tariffs on $200 billion worth of Chinese goods were to more than double at the beginning of 2019, but both struck a truce and agreed not hit each other with more tariffs. As negotiations continue between the countries, businesses are trying to figure out what to do next.
Where Brexit Stands to Date
In April, the UK and the EU27 agreed to a six-month extension, ending Oct. 31, 2019. The extension was necessary since the British government can’t agree to an exit strategy. Many businesses worry about how this will end because Britain’s split from the European Union alters its relationship on security, trade, and migration.
Since it became a member of the union in 1975, Britain has pondered the pluses and minuses of belonging to the bloc. It wasn’t until June 2016 when the country was in the throes of a refugee crisis that migration became a major political issue, resulting in Britons voting in favor of Brexit.
London, Scotland, and Northern Ireland voted to stay in the EU, while England and Wales voted for Brexit.
Many businesses don’t like Brexit because it is Europe’s most important export market and its biggest source of foreign investment. Many businesses have threatened to leave Britain if it moves forward with Brexit. resolves.
Many working-class people like Brexit because May claims it will end free movement, which allows people to move from Britain to other countries in the EU and vice versa. Many believe this migration policy threatens their job market.
May’s Brexit plan keeps customs and trade arrangements with the EU until at least the end of 2020. Ultimately, the UK would sever ties with customs and trade, but May has not offered up a plan for how the country would work with the EU in the future.
In Conclusion
As the uncertainties surround the U.S.-China trade war and Brexit continue, expect fintechs to do whatever they can to remain competitive. Businesses can’t afford to lose suppliers or face exorbitant charges while these governments work out all of the kinks.
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