Card Payment Sweden (CPS) September newsletter

CPS’ answer to the European Commission’s Consultation on Instant Payments: key takeaways

CPS has welcomed the opportunity to provide feedback to the European Commission’s assessment on the remaining obstacles and the possible actions to ensure a wide availability and use of instant payments in the EU.

• CONSUMER PREFERENCES & FAIR COMPETITION

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.

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.

• FRAUD PREVENTION MEASURES

Whereas instant payments answer the demand for immediate payment transactions between bank accounts,  anytime and anywhere, they lack in services offered by other payment methods. Credit cards, for example, not only offer an access to a dedicated and specific credit line, increasing the freedom of choice for consumers, but they also have extensive security procedures in place, and they offer additional protection upon non-delivery of products or services or when products are damaged upon delivery.

Furthermore, the processing of instant payments makes it challenging to detect fraud and to comply with the requirements of the EU’s anti-money laundering (AML) rules, whereas high-standard fraud prevention and monitoring are some of the core features for credit card payments. For these reasons, card payments are often preferred in mid- to high-value payment transactions and for online purchases, where the risks related to the payment and the delivery of a product or service are greater.

• ADHERENCE TO SEPA INSTANT CREDIT TRANSFER (SCT INST.) SCHEME

CPS believes that the existing regulatory provisions are fit for purpose. The SCT Inst. scheme already enjoys a broad base of participants. We therefore argue that fixing a mandatory deadline for adherence to SCT Inst. is not needed, especially since the scheme’s implementation would require significant system changes and upgrades for payment service providers (PSPs).

Should the Commission decide to mandate adherence and reachability under SCT Inst., it should allow PSPs the necessary time to make any required information system changes and upgrades.

The EU executive should also consider establishing efficient dispute resolution mechanisms, for example in cases of interrupted payment, non-delivery of goods or technical issues – as is the case for cards – as well as giving PSPs sufficient time to develop efficient real-time fraud capabilities that will be critical to generate trust in instant credit transfers.

Nevertheless, we once again stress that policymaking should always be technology-agnostic in this field, which is largely driven by the habits of consumers and businesses – offering a suitable payment solution for each payment situation. We welcome an innovative and technologically advanced European payments market, based on a balanced regulatory framework in which all players can compete fairly. This should allow for multiple payment solutions to co-exist and better serve the needs of consumers in both the physical and online space.

• EUROPEAN STANDARDISATION MEASURES

CPS believes that the adoption of any standard 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.

• INVOLVEMENT OF PAYMENT SERVICE PROVIDERS

PSPs in the EU are essentially businesses aiming to offer their clients convenient transactions across the bloc and beyond the European market. CPS believes that the know-how and service catalogue of PSPs, whilst creating European payment infrastructures and strengthening the resilience of European payments through a broader roll-out of instant payments, may become an asset for the success of such initiatives.

PSPs, such as card issuers can provide the EU executive with valuable knowledge of the European payments market, interoperability networks, and facilitate instant payments if their wider roll-out is designed in collaboration with the industry.

EU updates

Instant payments top the EU Commission’s financial workplan

EU proposals on instant payments feature in a European Commission workplan presented to members of the European Parliament on the future financial services agenda.

In a letter sent on 15 September to European Parliament President, David Sassoli, and Janez Janša, Prime Minister of Slovenia, alongside her annual State of the European Union speech, Commission President Ursula von der Leyen pledged an “initiative on instant payments in the EU”.

The letter follows the September publication by the Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) of a report on “Instant payments: current and foreseeable benefits”. 

The report wishes to encourage payment service providers’ (PSPs) towards instant payments-related developments by highlighting the potential benefits of such innovation. It also provides PSPs with key recommendations for market developments with the aim to fully cash in on the opportunities offered by instant payments.

ECON committee to force Apple to open up its payment infrastructure

The European Parliament could force Apple to open up its payment service (Apple Pay) to other companies under amendments to the Digital Markets Act (DMA). The European Commission proposed the legislation last year to prevent online gatekeepers from holding too much market power. The DMA’s ambition and scope mean members from several Parliamentary committees are involved in drafting the final rules. Among them is the economic and monetary affairs committee (ECON), with MEP Stéphanie Yon-Courtin acting as the rapporteur for the bill.

The French liberal is determined to prevent tech giants from forcing other companies to use their technology for services. That includes “a payment service, or a technical service supporting the provision of payment services of the gatekeeper”, Yon-Courtin’s draft opinion says. That may represent a problem for Apple since PSPs are only allowed to use the “near field communication” (NFC) technology that underpins Apple Pay to make transactions.

The draft also advocates for a “reporting mechanism” where companies can send “useful information on gatekeeper’s practices and market realities and changes” to EU authorities. The mechanism would be “open to competitors, business users, end users and Member States”.

This comes as the Commission is still investigating payment apps’ access to Apple’s NFC antenna under competition law, while Germany will introduce changes to its legislation regarding the access to technical infrastructure by payment service providers in Spring 2022.

The investigation phase of the digital euro project is about to start

The European Central Bank (ECB) will begin a two-year investigation into the prospects for launching a digital euro. The move marks the beginning of real-world experimentation with the digital version of the official single EU currency.

Experimental work conducted by the ECB over the past ten months found no major technical obstacles to any of the assessed design options for both the Target Instant Payments Settlement System (TIPS) and alternatives such as blockchain. The experiments also suggested that architectures combining centralised and decentralised elements are possible (see here for the official press release by the ECB).

During the project’s investigation phase, the Eurosystem will focus on exploring design options and user requirements. Experts will address issues such as how to reconcile data protection with usability and how to ensure a digital currency would not hurt the banking system by pushing savers to withdraw deposits in favour of holding central bank cash. This phase would then be followed by live testing.

Whatever the technical challenges the Frankfurt-based institution might face, there is clearly a strong political will to push ahead with the project. The European Commission said in a statement that the digital euro would support a number of policy objectives set out in its wider digital finance and retail payments strategies including digitising the European economy, increasing the international role of the euro and supporting the EU’s open strategic autonomy.

To that extent, the investigation phase will further explore the changes to the EU legislative framework which might be needed. Collaboration between the ECB and the Commission on this front will be intensified.

Act fast or miss the digital payments boat, BIS’s Cœuré tells central banks

Central banks should press ahead now with digital currency projects to avoid falling behind private sector payment initiatives that are already gathering pace, said Benoît Cœuré, a former European Central Bank official who now heads the BIS Innovation Hub (see here for the full speech).

“The time has passed for central banks to get going”, Cœuré told the Eurofi Financial Forum in Ljubljana, adding the EU was uniquely placed to face the future by building on its fast, open payment system and on strong guarantees provided by its GDPR rules.

The idea of CBDCs emerged after a Facebook-led consortium – initially named Libra, now Diem – attempted to disrupt the payment system by introducing a global stablecoin, which would act as a digital token pegged to a fiat currency, such as the US dollar.

Diem has since rebranded as a national digital option, not too dissimilar to PayPal, but other stablecoins are materialising as alternative payment options, as the use of cash declines and individuals look for cheaper ways to send funds abroad.

Although these tokens are not yet permitted for payments, consumers are increasingly looking for digital alternatives for their cash, including investing in Bitcoin, to earn money quickly and easily.

A CBDC partly responds to these changes in consumer behaviour by providing a digital version of cash as opposed to customer-held, private bank money, although it is still not clear whether a digital version of existing notes and coins will pay interest on customer deposits.

The banking sector should be involved in the development of the EU digital ID scheme

The European Commission in June published a proposal for a Regulation amending the eIDAS Regulation, to establish a framework for a European digital identity.

The cornerstone of the proposal is the so-called European Digital Identity Wallets (EDIW) – personal digital wallets that will allow citizens to digitally identify themselves, store and manage identity data and official documents in electronic format.

Concretely, the EU digital ID would offer faster onboarding processes and improve customers’ user experience, while ensuring the same level of security as face-to-face onboarding. Hence, it could facilitate the adoption of digital banking services.

There are however certain aspects to be addressed to ensure a positive outcome of the initiative, as highlighted by the European banking sector in their response to the European Commission’s consultation.

For instance, the obligation to accept EDIW for authentication in any service where strong customer authentication (SCA) is required does not consider the multitude of special requirements for the banking industry to dynamically secure banking transactions (PSD2 RTS). In case of obligation, ID wallets should include authentication mechanisms that ensure its usability for performing SCA under PSD2.

European banks further express concerns about the mandatory acceptance of the EDIW for payments systems, especially in card payments, which could result in reducing customer experience and in additional investments for the industry. To address Point of Sale (POS) and Point of Interaction (POI) requirements, users must be able to load payment account (and credit card) attributes into their EDIW for all their account servicing payment service providers (ASPSPs). This is to allow them to select the account/card attribute they wish to use for the payment.

These and other critical issues, as well as the need for harmonisation with AML/CFT identification data and interpretations and storage limitation under EU privacy rules, call for the involvement of the financial sector in the evaluation and development of the toolbox.

As an industry association promoting the use of card-based payments, CPS believes the numerous use-cases and the related costs to implement a European digital ID in practice, mean interested stakeholders also need to take part in the on-going discussion, as they can play the important role of partner for the EU and member countries in building up an adoption roadmap for the success of the initiative.

The European Payments Initiative: Laying the infrastructure for Europe’s super payments app

Just over a year ago, some 30-plus banks and credit card processors in Europe have teamed up to take on some of the biggest US FinTechs and payments companies.

The European Payments Initiative (EPI) project, backed by the European Commission and financial regulators, is looking to build a European payment champion that can take on PayPal, Mastercard, Visa, Google and Apple, among others.

In making the leap from concept to reality, the innovative payment solution could lay the infrastructure for a European “Super App”.

Payment options would conceivably be “tied together in a continuum where digital wallets, peer-to-peer (P2P) payments, cards and an instant payment/SEPA Instant Credit Transfer (SCT Inst) are all on offer, in much the same fashion that super apps have done elsewhere in the world, Martina Weimert, CEO of the EPI Interim Company, told PYMNTS.com (see here for the full interview).

As Weimert noted, the digital wallet will be at the centre of it all, cementing the continuum of cards and value-added services – including, in the future, digital identities.

Concerning business models, EPI represents a huge investment for the members of the project, and is interested in public support not only in the field of regulation but also in terms of investment.

CPS agrees with the European Commission that the European payments market should be autonomous and resilient to external threats. Our members, however, 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.

EBA consults on draft Guidelines on the limited network exclusion under PSD2

The European Banking Authority (EBA) is consulting on its draft Guidelines on the application of the limited network exclusion requirements, which certain payment instruments might benefit from under the second Payment Services Directive (PSD2). The deadline for the submission of comments is 15 October 2021.

Payment instruments covered by the ‘exclusion’ under Article 3(k) of PSD2 (Limited network exclusion, or LNE) include store cards, fuel cards, membership cards, public transport cards, parking ticketing, meal vouchers and others.

Given the significant inconsistencies the EBA has identified on how this exclusion is applied in EU Member States, the proposed Guidelines aim at clarifying specific aspects of its application.

In particular, the EBA is proposing in these Guidelines to address specificities for each type of limited network exclusion envisaged under Article 3(k) of PSD2, including, where relevant, criteria and indicators on how to qualify a limited network of service providers and limited range of goods and services.

The Guidelines also cover EBA’s expectations on the use of payment instruments within a limited network, the application of the LNE by regulated payment service providers and electronic money issuers, as well as the application of the notifications to competent authorities (CAs).

The proposed Guidelines, however, cannot address all the inconsistencies that the Paris-based institution has identified, as the EBA cannot change definitions or amend legal requirements set out in the PSD2.

BIS’ payments committee publishes priorities

In early August, the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS)  published its work programme for the first time, as part of its commitment to increase transparency.

The Committee’s 2021-2022 programme focuses on two main themes: ‘shaping the future of payments’ and ‘evaluating and addressing risks in financial market infrastructures’. Both topics have mounting importance to governments and financial markets given the disruption – and opportunities – caused by the trend towards digitalisation.

On payments, the CPMI says it will continue to work towards improving cross-border payments and address policy issues arising from digital innovations in payments, such as the hot topics of central bank digital currencies (CBDCs) and stablecoins.

In particular, the CPMI will work with the Financial Stability Board (FSB) and other stakeholders on a roadmap – ‘Project Nexus’ – which has been developed to enhance cross-border payments. The blueprint includes technical standards and operational guidelines for a scalable network that would connect national instant payment systems, enabling cross-border payments to reach their destination ‘within 60 seconds’. The CPMI will also continue to monitor de-risking in correspondent banking in cooperation with the FSB and based on data provided by SWIFT.

The CPMI further notes that the pandemic has led to an even greater interest in digital payment methods, in particular central bank digital currencies (CBDCs) and stablecoin arrangements.

Accordingly, the Committee is focused on analysing the future of payments, covering issues such as multilateral payment platforms, stablecoin arrangements and an international dimension of CBDCs. The initial focus will be on how these innovations can benefit cross-border payments.

European Commission publishes 2021 Strategic Foresight Report

The Commission in September adopted its second annual Strategic Foresight Report – “The EU’s capacity and freedom to act”. This Communication presents the EU’s perspective on open strategic autonomy in an increasingly multipolar and contested global order.

The Commission has identified 10 key areas of action where the EU can seize opportunities for its global leadership and open strategic autonomy. Strategic foresight thereby continues to inform the Commission’s work programmes and priority-setting.

The report discusses digital finance, the impact of digital currencies, and instant payments. On the latter, the Commission believes instant payments will create new opportunities for citizens and businesses, while emphasizing the importance of ensuring consumer protection.

Thanks to their core features (real-time processing, 24/7 availability), instant payments are seen by the EU executive as viable alternatives – or even replacements – to other payment methods, such as card payments or direct debits (possibly with additional services like Request to Pay).

Michael Hoffmann, CEO Card Payment Sweden

2021.09.24