Europe Needs New Rules to Be Global Leader in Payments, Says EU Commissioner

EU Commissioner for Financial Services Mairead McGuinness delivered a speech in November at the annual conference of the European Payment Institutions Federation that encapsulated the EU payment strategy for the coming years, starting in the first half of 2022.

From the beginning, the Commissioner stressed how much the payment sector has changed in the last decade: “New types of companies have entered the EU payments market. Some, like processing companies or payment gateways, are not in direct contact with consumers. Others, including Big Tech companies and social networks, are using their vast customer base to gain a firm foothold in payments.”

McGuinness continued with an unusual warning, saying that “the traditional lines between market players are becoming blurred,” and that while “more competition is not a bad thing, we need to make sure we address possible risks, protect consumers and maintain a level playing field.”

While this message could be seen as a good balancing act between competition and consumer protection policies, which in fact should go hand-in-hand, it camouflages a clear policy to monitor every move from financial institutions, payment processors, card networks and tech companies, as the rest of the speech shows.

The European Commission doesn’t want to miss this train, and policymakers have seen an opportunity to boost an EU payment industry even if new regulation is needed. In 2020, the Commission adopted its Retail Payment Strategy — rather than specific actions, it defines a set of priorities and references how to create a pan-European payment solution, mostly by European firms.

But McGuinness is more specific about which rules may be changed. The first area that will likely be subject to change is instant payments. “In the European Union, we want to be among the global leaders in the area of payments, with an innovative and competitive payments market,” she said.

The Commission identified four requirements essential to instant payments progress. First, the EU needs to reach a critical mass. Second, there must be effective safeguards to protect consumers. Third, prices for instant payments shouldn’t be a premium service, and finally, the EU must step up sanctions screening.

The Commission is ready to implement legislation as soon as 2022 to accelerate the adoption of instant payments, but it is yet unclear in which direction it will go. If the Commission decides to make the use of certain infrastructure for instant payments compulsory, as it did with the infrastructure for the Single Euro Payments Area (SEPA), it may benefit EU companies like Nexi and Worldline, as they have a wide European footprint. Card networks may be the most affected by this EU policy, as their instant payments networks are smaller in Europe and they could potentially lose access to consumers.

The second area where reforms may be coming is the Payment Services Directive (PSD2). The EU was the first country to adopt open banking rules through PSD2, but this directive is becoming obsolete to accommodate new products (i.e., BNPL) or new players, such as tech companies. McGuinness added a few other challenges this regulation is facing, including costumer identification, digital identity and, perhaps more importantly, a solid foundation for the transition to open finance.

These remarks suggest that PSD2 could be subject to significant reforms to prepare the path for an open finance economy. This would mean that in addition to third-party providers, other participants in the financial markets could have access to data from financial institutions. For instance, insurers could request access to banks’ data to provide their own services —and not only payment-related services. A legislative proposal to amend PSD2 could be ready by the end of 2022.

If these two initiatives weren’t enough, the European Commission will also work with the European Central Bank on the possible impact of a digital euro. “A digital euro could give consumers more choice. And for payments, it could have big implications. It could help private intermediaries develop truly European payment solutions using European infrastructures, and support instant payments,” noted McGuinness.

While these remarks came in a speech rather than a formal press release, they still signal how important the new payment policy will be in 2022 and in the years to come.