Card Payment Sweden (CPS) December newsletter

EU updates

EU Instant payments initiative set for March 2022 

The European Commission Work Programme published on 19 October reveals the Commission plans to adopt an initiative on instant payments in the EU in March 2022 to “ensure the European providers are equipped with tools to compete with international competitors.” 

The Commission has not yet decided whether the initiative will be legislative or non-legislative. Legislative options could cover a mixture of possible ‘enabling’ measures leading to the full roll-out of instant payments.  

The Commissioner for financial services, financial stability and Capital Markets Union, Mairead McGuinness issued a pledge to speed up instant payments in a speech at EPIF’s 6th Annual Conference. “At the current pace of progress, our analysis shows that it would take more than a decade to arrive at a full rollout of instant payments. We cannot afford to wait that long,” 
 
At a CEPS webinar end of October, Ms. Céu Pereira, Payments Team Leader in the Commission’s DG FISMA said the full rollout of instant payments will boost competition in the market, allowing the combination of open banking with instant payments and also allowing the development of real pan-EU solutions by the market. She added that the Commission’s initiative will likely not be of a legislative nature. 
 
CPS believes that the European payment market offers suitable solutions for every kind of transaction. Therefore, CPS welcomes the uptake of instant payments as they will offer consumers a new payment method perfectly tailored for certain transactions, thus complementing other means of payment and stimulating greater competition. 
 
However, CPS also believes that the EU payment market should be underpinned by certain key principles: fair competition, consumer demand and safety and security standards. We therefore hold that instant payments should not be marketed as ‘the new normal’, as this would risk hampering the market equilibrium and to damage consumer choice.
 
The EU should promote greater choices for consumers without any bias for any specific technology solution, be it instant payments, credit cards, electronic bank transfers or any other. Consumer preference should continue to drive the evolution of the payments market, as preferences can differ among payment needs and Member States.
 
Finally, we must remember that Europe is not an isolated island – global reach must be ensured by payment means in order to fulfil consumer requirements. CPS believes that the adoption of payment means should continue to be market-driven rather than be mandated by EU policy. 

It is paramount to understand that the payments market is global in nature, as payments are often made across national borders and beyond the EU. Thus, for a payment method to answer the market needs it should be interoperable with global payment networks and standards.

European Payments Initiative entering critical phase  

In a joint statement on 8 November, seven EU countries backed the European Payments Initiative (EPI), taking the project a step closer to its formal launch. France, Germany, Belgium, Finland, the Netherlands, Spain and Poland argued EPI is needed to address fragmentation across the EU of domestic payment solutions based on cards or credit transfers, and the lack of interoperability between existing national solutions, schemes and infrastructures. 
 
Speaking at EPIF’s Annual Conference, EPI chief executive Martina Weimart called for public funding for the initiative. Weimart also told Reuters that retailers were not willing to fund the new initiative, and that banks and other EPI shareholders “can carry only so much”. 
 
Speaking to the European Parliament’s ECON committee on 18 November, the ECB’s Fabio Panetta, Member of the Executive Board, said Visa’s hike in interchange fees for UK purchases from EU merchants showed the need for Europe to develop a homegrown rival to the US card companies. 
Panetta confirmed the ECB sent a letter of support to the EPI. 
   
The EPI Board has now expressed its intention to convert the EPI Interim Company into the target company. Each shareholder is now finalizing its own internal decision-making process. The final list of shareholders of the EPI Holding Company is expected to be revealed by the end of the year. On 9 December, PKO Bank Polski (“PKO BP”), Poland’s largest bank, and OP Financial Group, the leading Finnish retail bank, announced they were joining EPI as founding shareholders. 
 
The backers hope to launch the entity in the first half of next year. It would first focus on providing instant payments for consumers and small businesses and aim to streamline electronic transactions, which can take as long as two days to complete.  EPI would then expand into other services, such as debit and credit cards — most likely from 2023 — as well as a digital wallet for smartphones that people can use to shop with and send money to each other. The full roll-out, couple with international acceptance of EPI payments, is expected to take until 2025. 
  
Part of the business pitch for EPI is that it’s designed with the EU’s strict data privacy safeguards in mind. A recent study by Deutsche Bank also argues that an increase of foreign influence over the EU market would make it harder for Brussels to enforce its rules and protect people’s payment data. The French Data Protection Authority (CNIL) also published a White Paper (in French) on payment data and means of payment in which it also makes recommendations on the EPI project. In particular it says EPI can make data protection a competitive differentiator and puts forward suggestions as to how they could do this.
 
CPS agrees that the European payments market should be autonomous and resilient to external threats. Nevertheless, our members encourage the European authorities to ensure a level playing and healthy competition in the market. 
 
We believe that successful business models do not require subsidies. Subsidies are not a solution to anything other than to influence consumer and business behaviour: they do not solve problems unless a product or service can stand on its own two feet. 

 
In-app payments included the Digital Markets Act  

Lawmakers in both the European Parliament and Council have included provisions on in-app payments in the EU’s proposed new competition rules, known as the Digital Markets Act (DMA). The initial text, presented by the European Commission in December 2020, only referred to “identification services.” 
 
The draft texts would prevent Gatekeepers from requiring their dependent business users to include any identification or payment services provided by the gatekeeper itself as part of the provision of services or products by these business users to their end users. The DMA text still needs to be formally approved by both institutions and is subject to negotiations between them.  
 

ECB goes on digital euro roadshow 

Eurozone Finance Ministers met on 8 November to discuss the digital euro. The President, Paschal Donohoe, confirmed that the Eurogroup will aim to prepare a summary of policies for the Commission and the ECB to consider when designing a digital euro. Donohoe also confirmed that the Eurogroup would discuss the subject next in April 2022, focusing this time on the role of privacy. 
 
Meanwhile, the ECB’s Panetta has been on an informal roadshow to help shift public opinion. He gave speeches on the necessities of a central bank-backed digital currency in Madrid and Helsinki before speaking to the European Parliament, where he called on MEPs to do their part by helping cement the digital euro into law. 
 
The ECB’s support for the initiative is twofold: it enables keeping central bank money as the monetary anchor in the digital age and it fits the EU’s strategic objectives as having a digital euro with its own payment rails would make Europe less vulnerable to foreign threats. “By providing a fast, cheap and safe digital means of payment, a digital euro would support the euro’s international use and Europe’s autonomy in global payments,” Panetta said. Panetta denied the new virtual currency would present a competitor to private-sector companies, arguing that these would continue to find customers and provide front-end services. 
 
The ECB began phase two of developing a digital euro in October, experimenting with design features and how that might impact the financial industry. That would continue until the end of 2023.

 
ECB creates digital euro advisory group and appoints programme manager

The European Central Bank (ECB) appointed 30 senior business professionals to be members of the Market Advisory Group advising the Eurosystem on potential designs and distribution ideas for a digital euro. The group will meet on a quarterly basis, starting next month. The group includes representatives from Banks, Fintechs, Payments Associations Paul Le Manh, from the EPI Interim Company. 
 
Evelien Witlox will take up the position of programme manager of the digital euro project at the ECB as of 1 January, the ECB said in a statement. Her current job is global director of payments at ING. In her new post, Witlox will join the senior management team of the Directorate General Market Infrastructure and Payments. 
 
 
Central banks and BIS explore retail CBDC options 

 The Bank of International Settlements (BIS) and a group of 7 central banks, including the European Central Bank, Federal Reserve and the Sveriges Riksbank, published a series of papers on how digital currencies could be designed to limit any negative effects for private lenders. The studies found that CBDCs could hurt bank lending and profitability if introduced too quickly and people start moving their savings out of banks and into digital fiat money instead. 
  
To minimize risk, the reports note that policymakers could make design choices to influence demand. For example, by offering zero or negative interest on CBDCs, making them less attractive than bank deposits. There could also be limits on transfers or holdings of CBDCs, or fees if transfers exceeded a certain amount. The report noted, these considerations would need to be balanced against a desire for CBDCs to increase financial inclusion and to act as a convenient method of payment. 
 
At the BIS’ Regulating Big Tech Conference on 6 October, the Head Agustín Carstens said digital currencies could help prevent Big Tech domination in payments. Not only would CBDCs keep money within public hands but ensure that the clearing and settlement process would remain anchored to central banks’ balance sheets too. Without that, big techs could be able to create their own ecosystems, dominate the market with their networks and splinter the payments system, Carstens warned.  
 
In addition, on 13 October, the G7 published a set of 13 Public Policy Principles for Retail Central Bank Digital Currencies (CBDC) covering a range of issues from legal and governance frameworks, data privacy, to competition. The principles are in line with the BIS coordinated reports above – they call for central bank digital currencies to support public policy objectives, should not prevent central banks from fulfilling their mandate, and “[do] no harm” to monetary and financial stability. 

 
EU Member States agree on new rules for crypto asset markets 

The Council has agreed its position on how to regulate the bloc’s market for crypto assets (MiCA). Under the Council’s draft rules asset-backed virtual currencies such as Meta’s Diem would be restricted to a daily limit of 1 million transactions worth up to 200 million euros to avoid undermining state sovereignty. EU Member States want the EBA to supervise the biggest crypto assets that could be used as means of payment but the European Parliament want ESMA to be the supervisor on the basis that the online assets are like financial products.  
 
The Council also agreed on another initiative with an impact on crypto assets, the AML-fintech bill proposed by the Commission this summer. The Commission’s draft rules meant any company in the EU that’s transferring €1,000 worth of crypto assets in or out of the bloc would have to provide details on who’s moving money around. However, Council scrapped that threshold amid concerns that illicit financiers could develop software that transfers thousands of crypto transactions under €1,000.

 
ECB approves new oversight framework for electronic payments covering crypto assets 

Companies that issue and use crypto assets for payments will soon be under European Central Bank supervision. On 22 November, the ECB unveiled a new oversight system that targets electronic payments instruments, schemes and arrangements, called “PISA.” the framework will apply from mid-November next year for payment companies that are already under ECB supervision. New companies will get a grace period of 12 months. PISA will cover any digital asset that results in the pay out of euros, which includes Bitcoin. The new system is designed to complement the incoming EU MiCA rules.  

 
Payments Europe publishes study on card use

An independent study published by Payments Europe, whose members include Mastercard and Visa, found that cash payments are declining and that around 80 percent of in-store transactions are now electronic. The study is based on a survey carried out over almost two weeks last July with 680 shopkeepers and 3,223 shoppers across France, Germany, Italy, Spain, Sweden and Poland.