24. November 2020
Digital finance – 3 von 3 Insights
On 24 September 2020, the European Commission published a communication on Retail Payments Strategy for the European Union (the Strategy). Here, we provide an overview of the four key pillars under the Strategy and the potential impact on retail payments in the future.
The Commission recognises that payments are at the forefront of digital innovation in finance. With digitalisation and changing consumer preferences, payment service providers will increasingly abandon traditional payment instruments and develop new ways to initiate payments.
However, the EU payments market is currently highly fragmented along national borders. Other than a handful of major global players – such as worldwide payment card networks and large technology providers – there's virtually no digital payment solution that can be used across Europe to make payments in shops and in e-commerce.
Although there have been encouraging developments such as the European Payment Initiative (EPI) project and work towards common European schemes and rules to facilitate interoperability of instant payment solutions, the Commission recognises the risk of inconsistencies and further market fragmentation.
Looking to the future, the Strategy envisions achieving a fully integrated retail payments system that promotes the emergence of home-grown and pan–European payment solutions. Outwardly, the Strategy sets out the Commission's plan for the EU to make a significant contribution to cross-border payments with non-EU jurisdictions, supporting the international role of the euro and the EU's open strategic autonomy.
The Strategy aims to achieve this through four pillars for strategic actions, discussed below.
The key under this pillar is for the use of instant payments to be the "new normal" across the EU. The Commission is aiming for full uptake by the end of 2021.
Uniform rules for payment transactions are recognised as indispensable to instant payments and ensuring interoperability.
However, the Commission has noted that the current voluntary nature of the SEPA Instant Credit Transfer Scheme (the Scheme) means it hasn't attracted sufficient participation. If uptake remains low by the end of November 2020, the Commission may:
For instant payments to be more attractive to consumers, the Commission will also assess:
Separately, the Commission has noted the decline in the use of cash and expressed commitment to further support the issuance of a retail Central Bank Digital Currency (retail CBDC).
There are concerns that the chances for home-grown and pan-European solutions to emerge might be substantially affected by the launch of retail CBDC , as retail CBDC targets the same market segment (retail payments), with similar features as those offered by the private sectors.
Eric Ducoulombier, the Head of Retail Financial Services and Payment Unit at the Commission, responded to the concern during a webinar organised by the Commission on Wednesday 14 October 2020. He stated that retail CBDC wouldn't crowd out solutions that come from the private sectors but would instead be complementary to the private sector opportunities.
The Commission notes that further work is needed to assess the potential impacts of retail CBDC on monetary policy, financial stability and competition.
In the area of consumer protection, the Commission will launch a review of the application and impact of PSD2 at the end of 2021 and use the review to:
To address risks to consumers arising from ICT, the Commission is also proposing a Regulation on digital operational resilience, including in the payments sector (read our coverage here).
Furthermore, to help foster a level-playing field between payment service providers, as part of the review of PSD2, the Commission will:
As payment and e-money institutions compete with banks to provide payment services, the Commission recognises the importance of all players having open access to payment systems and necessary technical infrastructures. The Commission will therefore:
The emphasis under this pillar is for cross-border payments involving non-EU countries, including remittances, to become faster and more affordable, accessible, transparent and convenient. The Commission hopes to achieve this by:
The Commission intends to play a role of political catalyst, while relying fully on the private sector to design the relevant payment solutions. Understanding the four pillars outlined above will allow institutions to start preparing for the changes and to reap the opportunities presented alongside those changes.
We'll be monitoring developments in this area to ensure you remained prepared for the changes. If you would like to discuss any of the issues raised in this article further, please contact a member of our Financial Services Regulatory team.
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