The European Union’s next steps in developing the payments market post COVID-19
One of the most important lessons following the COVID-19 crisis is probably that the world is becoming more digitally connected and that it does so at an extremely fast pace. From a regulatory point of view, policymakers are challenged to ensure that the policies they develop fit with this transition and that they encourage innovation in a fair and sustainable manner. This is even more true for the payments market, which has, over the past few years, undergone rapid change, driven by technological developments, consumer demand, and regulation.
The European institutions have played an important role in developing this market. Traditionally, the European payments regulation has been very technical, focused on harmonising the European market. During the last decade, including during the latest European Commission (EC) mandate (2014–2019), consumer (and retailer) interest has been an important driver of payments policy. The Cross-Border Payment Regulation (CBPR), adopted in 2009, has been a good example of this. The legislation required banks to apply the same charges for domestic and cross-border electronic payment transactions in euro. However, non-euro member states fell out of the scope, and CBPR2 aims to address this. The extension of the scope to include non-euro member states has been a logic step in further harmonisation and development of the single market. More contested, however, have been the amendments around currency conversation. Indeed, CBPR2 proposed requirements to increased cost transparency for currency conversion services provided for online credit transfers and card-based transactions. These amendments came after increasing complaints from consumers, who ended up with a high bill due to untransparent charges through dynamic currency conversation. In certain cases, the practices were facilitated by merchants as a cost recovering mechanism. CBPR2 does not prohibit or price cap any service, which is a positive development, but requires more transparency. Consumer transparency can only be applauded, however, policy makers should also keep reflecting on where the balance between meaningful information and an overload of information is. The latter may have the opposite effect and will not contribute to consumer choice.
Consumer centric policy can only be welcomed. During the current EC mandate (2019–2024), however, we are seeing that the payment policy has become more political and part of a geopolitical strategy. The European Commission recently adopted its Retail Payments Strategy, setting out a vision for the European payments market for the next years. With this, the EC is aiming to make the European payments market fit for the digital age, and at the same time ensure it is more autonomous and resilient to external threats such as fraud, cyber risks, foreign sanctions, and others.
One of the measures to achieve this objective is the creation of a regulatory framework that allows for the uptake of instant payments for Europeans to become less dependant on cards with the ambition to make instant payments the ‘new normal’. As part of this effort, the European institutions are also supporting the development of the European Payments Initiative (EPI), an initiative launched by several banks to create a European card and instant payment scheme.
Seeking a European autonomous payments market is a legitimate aim for any government. It should, however, not come at the cost of fair competition, open systems, and interoperability as this will have a negative effect on innovation, security, and ultimately the end user. Autonomy will not be achieved through promoting one provider, solution, or technology over the others. An autonomous or resilient payments market derives from a competitive market, where consumers can choose from and have access to various safe, secure, fast, and convenient payment solutions that adhere to the highest European standards and regulations. A resilient market is one where providers offer and adhere to the latter, no matter where they come from. Europe should not become ‘an isolated island’ for payments but needs to be interconnected into the global market.
A level playing field of payment solutions, which guarantees similar treatment to new and existing solutions, will stimulate payments providers to build solutions based on sustainable and secure business models, encouraged by users’ demand. In such an environment, home-grown EU solutions will be an added value to the market. Similarly, instant payments will be a great additional option adding to the competitive landscape. We see instant payments to be complementary to cards, and having specific use cases. It should be up to the consumer to choose what payments method they want to use for each individual purchase.
European regulators should strive to maintain this open and fair economy that welcomes all players equally as this will foster competition and create a dynamic market that benefits European payment users, including consumers, governments, businesses, and merchants.