How Can EU Regulations Respond to the Changes in the Payment Industry?

With the payments market evolving rapidly, the existing rules and regulations require adjustment. In this article, we’ll uncover which changes are likely to take place in the industry and how the EU could respond to them.

Insights on Payment Market Changes and EU’s Response

We can receive some of the main insights into the future of the EU’s response to the payments market changes from the keynote speech given during the European Payment Institutions Federation Annual Conference in Brussels on November 16, 2021. It was delivered by Mairead McGuinness, Commissioner for Financial Services, Financial Stability, and Capital Markets Union.

1. The Developing World of Payments

The Commissioner first gave an overview of the current situation on the market and the rules in place.

Here are the main state-of-the-art tendencies in the payments industry highlighted in this part of the speech:

• Growing variety of payment methods. Ms. Mcguiness mentioned that due to modern technology, payment services have become more diverse, convenient, and secure, with contactless transactions, QR codes, and non-banks overtaking the scene. According to Ms. McGuiness, innovations have brought us to a completely new payment ecosystem.
• Fresh business models. New companies entering the EU market also contribute to the shifting environment. Such businesses include firms that are not in direct contact with users, such as payment gateways and processing companies, and those that use their client network to gain a firm foothold in payments, like social networks and large tech organizations.
• Consumer behavior changes. Users nowadays want to shop and pay through a variety of channels and transfer money to foreign countries easily. The pandemic contributed to this trend, with ecommerce and mobile payments beating previous records.
• Intensifying competition. The competitive landscape experiences changes due to the fact that the traditional division of roles among market players is blurred. While growing competition is not a negative aspect, it does create certain challenges that need to be addressed.

Mairead McGuiness also mentioned that the main piece of legislation available for payments in the single market is the Revised Payment Services Directive, adopted in 2015. The Commissioner stated that while it ensured a solid foundation for open banking in the EU and provided security and for payment account data, it needs to be updated to suit the new risks the industry is facing.

2. Recent Adjustments and Future Plans

Ms. McGuiness dedicated a big part of her speech to the recently introduced measures aiming to tackle the newest challenges in the market, as well as describing the potential adjustments that need to take place.

Here are the key initiatives that were mentioned:

• Retail Payments Strategy. Adopted in 2020, it is a long-term policy framework created to support the development of retail payments in the European Union and utilize the opportunities digitalization provides. With its help, the EU Commission strives to achieve a customer-centric, competitive, and innovative payments ecosystem.
• Instant payments. The Commissioner emphasized the importance of instant, safe, and frictionless payments in the EU. She also described their perspectives in combination with add-on services and their role in increasing the competition, diversifying the payment methods variety. There are currently 4 major roadblocks making their implementation difficult - critical mass, consumer security, pricing, international sanctions. The Commission is determined to address those obstacles and accelerate the rollout of instant payments, with an initiative introduced in the first half of 2022.
• IBAN discrimination. This is where a company or public body refuses to make or accept payments from non-domestic accounts. While it’s banned under the Single Euro Payments Area regulation, it still exists in some EU Member States. The Commission plans to work hard on resolving this matter.
• Payment Services Directive. PSD2 is the backbone of retail payments in the EU and a facilitator of open banking. The Commission intends to further develop this initiative and introduce a revised version in the foreseeable future.
• Settlement Finality Directive. The EU Commission is looking into the possibility of extending the scope of the Directive by including e-money and payment institutions, subject to appropriate supervision and risk mitigation. It’s also willing to tackle the issues revolving around access to some technical infrastructures.
• Payments beyond the EU. Mairead McGuiness talked about the importance of assessing the transparency of rules applied to international transactions and continuously working on improving those standards to match current needs.
• Central Bank Digital Currencies & the Digital Euro. Almost 90 countries are considering introducing central bank digital currencies, while seven have already launched one. The European Central Bank is also assessing the possibility of developing a digital euro in close cooperation with the EU Commission. According to the speech, the Commission is ready to support the digital euro on a variety of levels.

Ms. McGuiness also stated that the Commission is working on a European Digital Identity framework that will enable citizens to prove their identity and share electronic documents from a digital wallet which would be recognized across the EU member states. While these measures are not directly applicable to the payments sphere, they will certainly have an impact on it, especially in topics like money laundering and terrorism financing.

The Commissioner also talked about the Anti-Money Laundering (AML) package. She stated that the EU Commission is working on creating a single rulebook regarding it. This is to ensure that the rules and regulations will be more consistent across the European Union Member States.

3. Final Thoughts

Mairead McGuinness finalized her report by stressing the need to support innovation in the European Union and declared that the EU Commission would provide the legal certainty the market needs.

What Awaits the Payments Industry in 2022 and Beyond?

As you can see from Ms. McGuinness’s speech, the future of the payments industry is quite promising.

The main focal point of the EU Commission’s strategy is to build an ecosystem that features the following characteristics:

• Innovation
• Diversity
• Improved consumer experience
• Enhanced security
• Instant money transfers
• Easy cross-border transactions
• Transparency
• Stability

With many of the adjustments coming up already this year, both consumers and businesses should be prepared for the changes.