Part of the Digital Finance Package
Within the Digital Finance Package adopted by the European Commission (EC) in September 2020, the legislative proposals on crypto-assets (MiCA and DLT pilot regime) and digital operational resilience (DORA) have probably attracted most of the attention from the market whilst the Retail Payments Strategy, to some extent, went off the radar.
So, all eyes on the Retail Payments Strategy (RPS) which contains some pathbreaking statements about the future of (retail) payments within the EU.
In this article, we will focus on the first pillar of the RPS, the promotion of cross-border European payment solutions, and more precisely on the deployment of instant payments. Before that, it is worth looking at what pushed the EC to bring up such a strategy.
Reasons for elaborating a Retail Payments Strategy for the EU
First, it is beyond doubt that the pandemic has boosted digitalisation in general, including contactless/cashless payment methods. In addition, wearables such as watches nowadays, and glasses or belts in the future, are becoming prominent payment devices. Advanced authentication technologies relying on biometrics even have the potential to render payment devices dispensable.
In this context, the EC notes that the EU payments market, although dynamic, remains fragmented to a significant degree along national borders with domestic payment solutions based on cards or instant payments that do not work cross-border.
According to the EC, a single, coherent, and overarching policy framework should be the result of the development of a clear vision for European retails payments. The EC proposes to play the role of political catalyst in this regard, whilst relying fully on the private sector to design the relevant payment solutions.
Instant payment as the “new normal”
The current fragmentation of the EU retail payments market prevents citizens and companies from fully benefiting of instant payments, says the EC.
As a quick reminder, instant payments allow funds to be immediately available to the payee, and in combination with mobile payment, they have the potential to increase the competitiveness of EU payment service providers (PSPs).
“However, the current voluntary nature of the Scheme has not attracted sufficiently rapid and broad participation. Some euro area Member States are clearly lagging behind. The Commission therefore believes that action is likely to be necessary in order to accelerate the pace of adherence to the SCT Inst. Scheme.”[1]
To this day, meaning more than 3 years since its introduction, only 58% of European PSPs from 23 countries have joined the SEPA Instant Credit Transfer Scheme. Therefore, the EC does not exclude to take legislative action like it was done with the SEPA Regulation[2], i.e. setting a legally binding end-date for migration to SEPA.
Consumer trust and consumer protection
Whilst the nearly real-time availability of the funds on the payee’s account constitutes undoubtfully a milestone in the everyday payment experience, it may, combined with the irrevocability of payments, also bring some downsides for consumers, notably when it comes to erroneous transactions or fraud. In this context, the EC also refers to challenges in terms of money laundering, cyber-attacks as well as operational and liquidity risks for PSPs and reminds them to put in place appropriate and real-time fraud and money laundering/terrorist financing prevention tools when providing instant payments.
In addition, the EC considers that, in order to establish instant payments as the new norm, instant payment services should offer features such as chargebacks[3] and should not be too costly, it being understood that there will most likely be additional costs where certain features and add-ons, such as chargebacks, are offered.
Finally, the EC is, in the context of the roll-out of instant payments, seeking for a level of consumer protection equal to those offered by other payment instruments.
Click here to download the PDF: PayTechLaw_Infographic_Retail Payments Strategy
[1] Communication from the European Commission on a Retail Payments Strategy for the EU, Page 6
[2] Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro.
[3] The return of credit card funds used to make a purchase to the buyer in certain cases such as a wrong payment.
Cover picture: Copyright © Adobe Stock / Mariia Korneeva
