As mentioned in our previous post on
the Digital Finance Package (see here) on the September 24 the EU Commission also published a renewed Retail Payments Strategy as part of the
Digital Finance Package.
The logic behind the need for a renewed strategy
is the ever-increasing importance of payments for EU financial markets.
Payments are the lifeblood of European economy. This is a very dynamic market,
highly innovative and fast changing raising new opportunities and risks that
needs to be dully mitigated. As the Commission notes:
"Innovation and
digitalisation will continue to change how payments work. Increasingly payment
service providers will abandon old channels and traditional payment instruments
and develop new ways to initiate payments, such as ‘wearables’ (watches,
glasses, belts etc.) or parts of the body, sometimes even eliminating the need
to carry a payment device, building on advanced authentication technologies
such as those relying on biometrics. As the internet of things further evolves,
devices such as fridges, cars and industrial machinery will increasingly
connect to the internet and become conduits for economic transactions".
The renewed strategy sets out the EU
Commission's vision of payments market:
- Citizens
and businesses in Europe benefit from a broad and diverse range of
high-quality payment solutions, supported by a competitive and innovative
payments market and based on safe, efficient and accessible
infrastructures;
- Competitive home-grown and pan–European payment solutions are available, supporting Europe’s economic and financial sovereignty; and
- The EU makes a significant contribution to improving cross-border
payments with non-EU jurisdictions, including remittances, thereby
supporting the international role of the euro and the EU’s ‘open strategic
autonomy’.
The vision will be achieved by following four strategic aims set out in detail; some of the key points would be the following:
1) Increasingly
digital and instant payment solutions with pan-European reach
The development of instant payment systems is the top priority or is envisaged as the 'new normal'. Instant payments make payment immediately available- the framework should result in payment solutions that are efficient and work cross-border. Consumer trust is also of key importance here, and instant payments can create instant fraud. It is therefore crucial that payment service providers have in place appropriate and real-time fraud and money laundering/terrorist financing prevention tools.
Further in this context and within the upcoming revision of PSD2 the Commission will assess the extent to which the EU’s existing consumer protection measures (e.g. rights to refunds) can provide consumers with the high level of protection offered by other payment instruments. The Commission will assess the impact of charges levied on consumers for instant payments and, if relevant, require that they are no higher than those levied for regular credit transfers.
Finally, the Commission is keen on supporting European or home-grown payment solutions that will withstand competition from foreign big-tech companies that increasingly penetrate the payments market. Payments is a network industry yet at EU level there is no trend of fintech companies scaling up in the internal market to become global players.
2) Innovative and competitive retail payments market
Within this strategic aim the Commission is strongly in favour of fully supporting open banking. Again, open banking will come under scrutiny within the review of PSD2 and interestingly the Commission also plans to present a legislative proposal for open finance that would include a broader range of providers in data sharing than only banks.
Further, within this strategic pillar the Commission needs to make sure the regulatory parameter is working well and that it is coupled with efficient supervision. As the Strategy notes, "big payments conglomerates may include both regulated and unregulated entities. Problems encountered by unregulated entities providing technical services to support some of the Group’s affiliates could potentially have a spill-over effect."
The payments market should also secure a fair level playing field, as "the world increasingly dominated by digital platforms, large technology providers are taking advantage of their vast customer base to offer front-end solutions to end-users."
3) Efficient and interoperable retail payment systems and other support infrastructures
For a retail payment market to fully function it is necessary that there is efficient interoperability between clearing and settlement mechanisms. Payment service providers now must connect to several (national and/or European) clearing and settlement mechanisms.
In addition, it is also crucial to secure access for all payment service providers for necessary technical infrastructure, hardware and software for developing and offering innovative payment solutions.
Developing this pillar will require a cooperative approach of DG FISMA with at least the European Central Bank, DG Competition and DG Connect
4) Efficient international payments, including remittance
The EU being not just a regional market but also an important global market player and to this effect, the Commission highlights the importance of supporting the development of payment solutions with third countries. Payments across the EU’s external borders are slower, costly, opaque and complex. The objective therefore is to have faster and more efficient payments systems set up with third countries. The Commission aims to help this by supporting the use of payment standards such as ISO 20022 and SEPA-like initiatives across the globe.
