Retail Payments Strategy: faster payments for the connected world

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.

CJEU judgment in Salvoni: no extra consumer protection in cross-border enforcement

In May we reported on this blog on AG Bobek's Opinion in C-347/18 Salvoni v Fiermonte. The referring Italian court that was requested to issue a Certificate for the cross-border enforcement of an order for payment against a consumer in Germany under the Brussels I Regulation (Recast). The order appeared to be in breach of the Regulation's jurisdiction rules; the consumer was domiciled in Germany, not in Italy. Should the court review and rectify the order, or inform the consumer of the possibility to challenge its enforcement? In this respect, the court referred to the CJEU's case law on Article 47 EUCFR and the Unfair Contract Terms Directive. According to AG Bobek, however, such an "extra layer of protection for consumers" could not be read into the provisions of the Regulation.

The CJEU confirms this in its judgment of 4 September. First, it found that the Certificate-procedure under the Brussels I Regulation can be qualified as judicial in the sense of Article 267 TFEU. Therefore, the preliminary reference was admissible. Secondly, it held that the court that issues the Certificate does not have to (re-)examine (ex officio) the jurisdiction of the court that has given the underlying judgment, even if it involves a consumer. The CJEU made a distinction between jurisdiction (see e.g. Article 17(1) of the Regulation for specific rules on consumer contracts) and recognition and enforcement. In the latter phase, it is the party against whom enforcement is sought who must oppose it. Because jurisdiction is one of the opposition grounds, there is no violation of Article 47 EUCFR. The CJEU's case law on the Unfair Contract Terms Directive does not apply in the context of the Brussels I regulation, which contains rules of a procedural nature. 

As we pointed out earlier, this outcome is understandable in light of the Regulation's framework, which aims to enhance the free movement and rapid enforcement of judgments within the EU, in the light of mutual trust based on legal certainty. From a consumer protection perspective, it possibly leads to a gap in the effective judicial protection of consumers. Not only is a court that has failed to apply mandatory jurisdiction rules (ex officio) in violation of the Regulation not allowed to rectify this; it is not allowed to subsequently inform the consumer of her defence possibilities either.  

Recent update on consumer protection in financial services

At the end of March I had a pleasure to present at the Consumer Protection in Financial Services conference organized by the Academy of European Law (ERA). The conference tackled the themes of cross-border payments, consumer and mortgage credit and financial digitization and innovation raising many theoretically interesting and practically relevant questions. Without discussing these, our readers might be interested in the current and upcoming initiatives of the EU Commission.

Cross border payments 

The review of Regulation 942/2009 has ended and the amending regulation is about to be published (see the Proposal here). The basic changes to the current regime will be the extension of the basic principle of having no difference in charges for domestic and international payments to non-euro countries, and there will be enhanced transparency requirements for currency conversion services.

Payment services

The most important development in the progress of applying Directive 2015/2366 (PSD2) is the entry into force of Regulation 2018/389 supplementing PSD2 with Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication in September 2019. In addition, since the entry into force of PSD2 several Application Programme Interfaces (APIs) have been developed (such as the Open Banking in the UK) and the working of which is being actively monitored by European Banking Authority and the EU Commission. 

Payment accounts

The review of Directive 2014/92/EU has started with the study being awarded that will cover the update of the list of services part of the payment account with basic features, assessing the need for additional measures for price comparison websites. The review will also cover new aspects not included into the scope of the Directive such as  the feasibility of cross-border account switching, and the EU-wide portability of IBAN numbers.

Mortgage credit

Directive 2014/17/EC is due for review in 2020 and the Commission is currently preparing to award the study for the review. The study will cover the use and consumer understanding of ESIS and the cross-border success of the Directive. It will also cover new areas not currently included into the scope of the Directive such as the need for supervision of credit registers, the impact of digitization on mortgage credit and the need for additional post-contractual rights for consumers.

Consumer credit

Directive 2008/48/EC is currently being evaluated, the EU Commission has just closed the public consultation. After gathering all the information from the evaluation the EU Commission will decide whether or not review the Directive. Some new issues under consideration are similar as with the Directive 2014/17/EC and extend to the need to regulate/supervise credit registers and the impact of digitization on consumer credit.

Unfair contract terms

Directive 1993/13/EC was also discussed especially in the context of mortgage credit, and it has been noted that the Commission is currently working on a guide for applying the Directive in the light of the rich case-law that significantly advanced the level of protection provided by the Directive (and which we have discussed on this blog).