On 24 September 2020, the European Commission published a communication on a Retail Payments Strategy for the European Union (EC Communication).
The EC Communication outlines the vision and four key pillars of this new strategy with a particular focus on encouraging innovation in retail payments markets within the European Union (EU) as well as creating efficient and interoperable retail payment systems across Europe.
Vision for European retail payments
The European Commission’s vision for EU retail payments is that:
- 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 EC Communication notes that a more competitive and innovative payments market will benefit all Member States, including those that do not use the euro.
The strategy is intended to build towards a single, coherent, overarching policy framework to support innovation and digitalisation in payments. The EC Communication describes the current EU market for payments as largely fragmented along national borders as most domestic payment solutions based on cards or instant payments do not work cross-border. The EC Communicates states that, at present, with the exception of large players, including worldwide card networks and large technology providers, there is virtually no digital payment solution that can be used across Europe to make payments in shops and e-commerce.
This is the case despite recent and trend-setting developments which aim to displace old channels and traditional payment instruments by developing new ways to initiate payments, including payments across borders.
The Retail Payments Strategy is designed to address European payment market fragmentation and create digital and instant payment solutions with a pan-European reach. The strategy will contribute to the European Commission’s broader vision for digital finance given that payments are at the forefront of digital innovation in finance .
The Strategy is focused on the four key pillars which are closely interlinked:
Pillar 1: Increasingly digital and instant payment solutions with pan-European reach
Pillar 1 involves encouraging the use of instant payments as the “new normal” across the European Union, in particular interoperability. The EC Communication highlights challenges that have arisen around widespread adoption of mobile payments and point-of-interaction payments (e.g. QR codes, Bluetooth and NFC). The European Commission proposes to evaluate the relatively low numbers of Payment Service Providers (PSPs) participating in the SEPA Instant Credit Transfer Scheme and, if necessary, propose legislation requiring PSPSs to adhere to the Scheme by the end of 2021.
To address concerns about user protection, for example around fraud and problems with payments, European authorities (including the European Commission, European Central and/or the European Banking Authority) will examine whether additional legislative safeguards on refunds and crisis management are needed to ensure consumers’ trust in and increasing usage of instant payments. Charging structures of instant payments will be compared to regular credit transfers to assess if this affects take-up.
The EC Communication also proposes a number of further measures such as exploring the feasibility of developing a “label”, accompanied by a visible logo, for pan-European payment solutions as well as the promotion of the use of electronic identity solutions under Regulation 910/2014 (eIDAS Regulation) to support the fulfilment of Strong Customer Authentication requirements under the Second Payment Services Directive 2015/2366 (PSD 2).
The EC Communication notes that the COVID-19 pandemic has shown how important it is that digital payments be widely accepted by merchants. However, acceptance of digital payments varies significantly across the EU and across sectors. In 2022, the European Commission proposes to undertake a study on the level of acceptance of digital payments in the EU, including by small and medium sized enterprises as well as public administrations, and explore possible reasons for low levels of acceptance.
Lastly under pillar 1, the European Commission will continue to monitor the availability of cash within the euro area as well as any developments in respect to a Central Bank Digital Currency as a retail payment solution.
Pillar 2: Innovative and competitive retail payments markets
User (especially consumer) confidence and protection in using payments is a key theme. At the end of 2021, the European Commission proposes to launch a comprehensive review of the application and impact of PSD 2. This review will also involve re-examining existing legal limits of contactless payments, with a view to striking a balance between convenience and fraud risks.
In the EC Communication, the European Commission notes the successes of PSD 2 including in establishing open banking where third party payment service providers may access banking and payment customer data to provide new innovative payment services.
Building on the PSD 2 experience and the digital finance strategy, the European Commission plans to present a legislative proposal for a new “Open Finance” framework by mid-2022.
The PSD 2 review process will consider any risks stemming from unregulated services, such as those provided by technical services ancillary to payment services, and assess whether and how these risks can be mitigated. This may involve direct supervision and bringing these activities into scope of PSD 2 by listed them as regulated payment services. The Commission also proposes to identify the issuance of electronic money as a payment service in PSD 2 and, if appropriate, bring issuers of electronic money tokens into scope of these rules.
One of the measures introduced by PSD 2 is strong customer authentication which requires two factor authentication to stamp out fraud and increase consumer confidence. As part of pillar 2 of the new strategy, the Commission proposes to evaluate how well strong customer authentication has decreased payment fraud in the EU and explore what further measures may be required to combat new types of fraud.
Pillar 3: Efficient and interoperable retail payment systems and other support infrastructures
The European Commission proposes to consider whether to the bring payment institutions and electronic money institutions into scope of the Settlement Finality Directive 98/26/EC (SFD) in a review of the SFD commencing in the fourth quarter of 2020.
Additionally, the European Commission proposes to consider whether legislation is necessary to ensure that all PSPs have access to payment infrastructure in a manner that is fair, reasonable and under non-discriminatory conditions. The Commission is aware of a variety of situations in which some operators might restrict or block access to necessary technical infrastructures. These may include a range of software and hardware elements that are necessary if innovative payment solutions are to be developed and offered. For example, limited access to near field communication antennae or biometric identity readers.
Pillar 4: Efficient International Payments including remittances
The European Commission encourages payment system operators to facilitate access between European systems such as TARGET Instant Payment System with non-European payment systems so long as there is an appropriate level of consumer protection, fraud and money-laundering prevention, and interdependencies risk mitigation.
In addition, the European Commission calls for the adoption by global international messaging standards such as ISO 20022 and the use of the Global Payment Initiative of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which facilitates the tracking of cross-border payments for participating institutions in real time.
When it comes to remittances beyond the European Union, the European Commission proposes to support SEPA-like initiates in regional groupings of low and middle income countries, and in relevant cases the possibility of non-European countries to join SEPA. It proposes to look at the appropriateness of requiring that maximum execution times should apply to transactions where “one-leg” in in the European Union.
Next Steps
The EC Communication sets out the European Commission’s ambitious plans for a new retail payments strategy for the European Union. It builds on already announced measures such as the European digital finance strategy but adds new payments specific actions along with timeframes for delivery.
The specialist payments team at DLA Piper will monitor developments closely across the European Union including at a Member State level and are available to discuss the impact of this new strategy on your business.
and then 