Card Payment Sweden newsletter Q1/2022

CPS POSITION PAPER ON THE EU ALTERNATIVE FUELS INFRASTRUCTURE REGULATION (AFIR) 

CPS welcomes the overall ambition of the European Commission proposal for an Alternative Fuels Infrastructure Regulation (AFIR) to expand a cross-border, consumer-friendly EV (electric vehicles) charging infrastructure in the European Union.

While AFIR aims to simplify payments at charging stations, CPS has identified important issues with regards to payments that should be further clarified. CPS believes that to ensure a successful rollout of EV charging infrastructure, the market should be as open as possible.

The Issue

Articles 5 and 7 of the Commission’s proposal mandates specific payment technologies for EV recharging points. These do not reflect the market reality today nor would ensure a future-proof legislation.

Currently, consumers and corporate users are faced with a multitude of different payment schemes to access charging stations, including apps, RFID charging cards, and credit accounts. Despite the clear preferences of European consumers, spontaneous payment with payment cards is often not possible.[1]

The proposed regulation should ensure an open market, promote consumer choice and leave sufficient room for market operators to react to market and fintech developments.

To this end, CPS calls for the AFIR to adopt a technology neutral approach which includes the availability of the most widely used payments systems today.

CPS Recommendations

1. Technology neutral approach and user choice
CPS believes that the EU payment market should be underpinned by certain key principles: fair competition, consumer demand and safety and security standards.

The EU should promote greater choices for consumers and companies 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.

As such, we believe it is necessary to maintain a technology neutral approach regarding how payments for electric vehicle charging are made. User interest should ultimately shape how most payments on EV charging infrastructure are carried out.
 

2.​ Access and usability of charging points
The AFIR proposal aims to allow users quick and easy access to new charge points, even when they are not signed up to a particular subscription model. Indeed, for the widespread uptake of EVs, refuelling and recharging has to be as easily accessible and consumer friendly as possible. To achieve this objective, charge points should accept all widely used payments systems, including payment cards.

Card payment is widespread, secure and leads to a wider usage of infrastructure. The number of cards in the euro area with a payment function reached 609.3 million, representing around 1.8 payment cards per euro area inhabitant.[2] Being internationally widespread, it would also ensure cross-border commuters and tourists are covered.

In a country like Sweden where a large part of the territory is marked by long distances and low population density, the accessibility of charge point payment is vital to promote the usage of electric vehicles, including both private and commercial. Based on this we recommend that AFIR require charge points to support more payment means and ensure that the most widely used ones including card payments are not excluded. Operators can of course also continue to offer alternative payment options such as web-based systems via an app or with a QR code.

CPS also welcomes the recent statements by AFIR rapporteur Ismael Ertug which note the importance that all users can access charging infrastructure and that payments by payment cards should be possible.

Conclusion

The Commission’s current approach to payments at EV charge points risks undermining the objectives of the AFIR proposal.

CPS urges EU policy makers to adopt a tech neutral approach, offering consumers choice. At the same time, the legislation should make charge points accessible and user-friendly by ensuring that users have the option to pay with their payment card stored in their smartphone.

[1] More than two-thirds of the respondents confirm this in a recent study conducted by infas quo GmbH on behalf of the Initiative Deutsche Zahlungssysteme e.V. in selected European countries.
 

[2] European Central Bank, “Payment Statistics: 2020”

DIGITAL MARKETS ACT AGREEMENT INCLUDES PAYMENTS OBLIGATIONS

CPS welcomes the political agreement found by negotiators from the Parliament and the Council on the Digital Markets Act on Thursday 24 March (see Parliament’s press release here and Council’s press release here).

The new rules will oblige certain gatekeeper companies like Apple to open its App Store to alternative payment systems and to allow rival companies to use its contactless payment technology (e.g. NFC) in its smartphones. Commission Executive Vice-President Margrethe Vestager said she hoped the DMA can enter into force in October and that companies would have to comply by February 2024 (Commission press release here).

This is in parallel to the European Commission’s formal probe into Apple Pay opened in June 2020 into whether Apple was leaning on websites and app developers to favour its service; whether Apple was unfairly denying rivals access to its mobile wallet; and whether it was wrongly blocking them from accessing the NFC chip.

MLex Market Insight reported Wednesday 23 March that the probe has preliminarily found the company favours Apple Pay over its rivals and that the Commission has asked market players to clarify what evidence can be relied on if the case escalates -a move indicating it is preparing to issue charges.

 
DUTCH ACM CONTINUES TO FINE APPLE OVER IN-APP PAYMENTS

In December 2021, Apple was ordered by the Dutch Authority for Consumers and Markets (ACM) to “adjust the unreasonable conditions in its App Store that apply to dating-app providers.” More concretely, the Authority requested that Apple offers dating-app users an alternative to Apple’s own payment system in the App Store and ensures that dating app providers have the possibility to refer to payment systems outside of the app, a function currently not available for dating apps. Apple lodged an appeal against the ACM’s decision on 14 January 2022.

Until the regulator is satisfied Apple complies with the order, it is fining Apple €5 million a week up to a limit of 10 weeks. The ACM must then seek to collect the money — a step which Apple can challenge in court.

Apple submitted its latest proposal for solutions to address the ACM’s concerns on 21 March. The ACM said it would study the offer but that, in any case, it came too late for Apple to avoid a ninth €5 million euros fine for not complying with its order – leaving the total fine at €45 million euros.

The ACM case has been ongoing in parallel to the EU’s Digital Markets Act negotiations and EU antitrust investigation. Commissioner Vestager said Apple’s response to the probe shows how big platforms play fast and loose with Europe’s competition laws and shows that regulators need resources to properly enforce upcoming legislation.

 
EUROPEAN PAYMENTS INITIATIVE SCALED DOWN

After weeks of delay, the European Payments Initiative (EPI) interim company updated its website on 11 March announcing that it is “adapting its scope and objectives” after only thirteen shareholders confirmed their commitment to the project. EPI was previously backed by more than 30 entities and aimed to offer payment instruments to consumers and merchants across Europe, such as payment cards, digital end-to-end real-time payments, peer-to-peer (P2P) payments and a digital wallet.

What the updated scope will accommodate is currently uncertain, EPI chief Martina Weimert told the Handelsblatt (in German). However, it is likely to focus more on instant payments and digital solutions, than on payment cards.

The banks and payment service providers that will be founding the EPI Holding Company are Banco Santander, Banque Fédérative du Crédit Mutuel, BNP Paribas, Crédit Agricole, Deutsche Bank, Deutscher Sparkassen- und Giroverband, Groupe BPCE, ING Bank, KBC Bank, La Banque Postale, Nets, Société Générale and Worldline.

On the European Central Bank’s (ECB) side, executive board member Fabio Panetta had expressed his support for the EPI initiative in a letter dated 15 November 2021 – on the condition that its objectives are consistent with those of the Eurosystem’s retail payments strategy and that EPI will reach additional markets and banks in the future.  If it is based on coherent objectives and if it manages to offer a “friction-free, user-friendly and superior payment experience for consumers and merchants”, the initiative can contribute positively to the bloc’s payments sovereignty and competition, Panetta wrote.

It remains to be seen who will cover the costs of providing the seamless service requested by the ECB. With this comes additional challenges of finding a technical platform all parties can agree to, and convincing European watchdogs that the project is indeed of common European interest.

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. Furthermore, we believe that 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.

COMMISSION SHIFTS INSTANT PAYMENTS INITIATIVE

An update to the Commission agenda shows that the initiative on instant payments has been tentatively moved forward to 1 June. The European Commission had originally postponed its planned initiative on instant payments in the EU from 5 April to 29 June.

With it now scheduled for 1 June, the French Presidency will have one month to steer discussions in the Council before handing over to the Czech Republic.

Speaking at Afore’s 6th Annual conference on Fintech and Regulation on 8 and 9 February, Commissioner for Financial Services Mairead McGuinness said the Commission wants to make instant payments the standard within the EU, adding that “it’s going to take far too long for the market alone to arrive at the place we want it to be.”

While CPS welcomes the uptake of instant payments as they will offer consumers a new payment method perfectly tailored for certain transactions, we believe 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.

Furthermore, 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.

 
DIGITAL EURO TIMELINE CLARIFIED

The timeline for Europe’s own Central Bank Digital Currency (CBDC) is becoming clearer, with a proposal for a digital euro expected in early 2023 and a possible introduction as soon as 2026. The European Commission was expected to launch a public consultation in March.

Meanwhile, on 16 February the European Parliament published a resolution on the European Central Bank annual report of 2021, where MEPs welcomed the European Central Bank’s (ECB) ongoing probe into a digital euro. If successful, the ECB will begin work on a prototype by October 2023.

Under the scope of the ongoing investigative phase in the ECB is the question of a digital euro’s business model, including whether it should be financed through merchant fees like cards or be a public good without a fee.

ECB Director General of Market Infrastructure and Payments Ulrich Bindseil expressed, in an event hosted by the Peterson Institute for International Economics (PIIE), on 9 March that distribution would likely happen through ‘regulated entities’, such as banks and other licenced payment providers. This is in line with the plans of the European Commission, whose Director of Horizontal policies in DG FISMA Marcel Haag commented that a digital euro should be distributed by private service providers rather than central banks, during Afore’s 6th Annual conference on Fintech and Regulation on 8 and 9 February.

Furthermore, individuals should only be able to hold a limited amount of digital euro coins, French Central Bank Governor François Villeroy de Galhau said at the Bank of International Settlements’ Innovation Summit on 22 March. This could mitigate negative impacts on commercial banks’ deposits should many clients exchange their deposits to a digital currency in a financial downturn.

Eurogroup Ministers confirmed their support for the ECB’s plans on a Digital Euro in a meeting on 25 February. In a letter to the President of the European Council, Eurogroup President Mario Centeno reiterated his support and confirmed that Ministers will discuss the virtual currency’s potential privacy issues in a meeting in April, while its impact on the financial system and the use of cash will be on the agenda in June.

 
EUROPEAN PARLIAMENT TACKLES CRYPTO PAYMENTS

The European Parliament’s Committee on Economic and Monetary affairs (ECON) adopted its position on the EU’s markets in crypto assets bill (MiCA) on 14 March. The report was adopted despite differences among MEPs on how carbon-heavy blockchain technologies should be tackled.  A controversial proposal to ban so-called Proof-of-Work systems was blocked by opponents arguing it would shut Bitcoin out of Europe and make it an unattractive destination for innovation.

With a negotiating position in place, talks with the Council can now begin. Tough discussions are expected on whether the European Securities and Markets Authority (ESMA) or the European Banking Authority (EBA) should be in charge of supervision.

Meanwhile, small anonymous crypto payments could be banned under new EU rules on transparency of crypto-asset transfers. An existing EU law known as the ”travel rule” requires conventional money transfers above 1,000 euros to identify and record both parties to the transaction. Several lawmakers view that lower limit as inappropriate since it is to circumvent with assets like Bitcoin. ​

Spanish Green lawmaker Ernest Urtasun and his Belgian right-wing counterpart Assita Kanko plan to scrap the proposed threshold for when crypto payment service providers would be required to identify and record both parties to the transaction. The plans have cross-party support from S&D, The Left and Renew Europe and is in line with the position of EU Member States.

 
FSB RAISES CONCERNS OVER TECH ENTRY INTO FINANCIAL SERVICES

In a report published on 21 March the Financial Stability Board (FSB) finds that the digitalisation of retail financial services accelerated due to the Covid-19 pandemic. From 2019 to 2020, the use of digital wallets grew from 6.5 percent to 44.5 percent of all online transactions. The FSB warns that while increased use of tech can improve cost effectiveness and financial inclusion, it comes with the cost of potential negative impacts on financial stability – especially if it leads to the dependence on a few Big Tech or FinTech providers. They point to financial institutions increasingly relying on cloud computing, where providers such as Amazon, Microsoft and Google dominate.

The FSB noted that several jurisdictions have already taken regulatory actions to tackle these issues. It highlights “the importance of cooperation between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors, and where relevant, with competition and data protection authorities” and concludes that this is “particularly important for policy measures on Big Tech providing financial services”.

The report follows the FSB’s ‘Assessment of Risks to Financial Stability from Crypto-assets’ published on 16 February, where the FSB stated unbacked crypto-assets such as Bitcoin, stablecoins and decentralized finance platforms could soon pose a threat for financial stability “due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system”. According to the FSB, a risk to financial stability can escalate quickly because of the rapid evolution of crypto-assets, and it is therefore planning to examine how countries are responding to these risks. The Board recommends a “timely and pre-emptive” evaluation of policy responses. 

 
EU SANCTIONS ON RUSSIA AND THE IMPACT ON PAYMENTS

In the wake of Russia’s unprovoked and unjustified invasion of Ukraine, the Council imposed financial sanctions on Russia and individuals connected to the Russian government. On 2 March, the Council decided to exclude seven Russian banks from SWIFT. Moreover, the sale, supply, transfer and export of euro denominated banknotes to Russia is prohibited and the Russian Central Bank’s assets have been frozen. ​On 15 March, the Council decided to ban all transactions with certain state-owned enterprises and the trade in certain goods. ​

So far, two of the largest banks in Russia, Gazprombank and Sberbank, are not excluded from SWIFT due to their role in energy payments. However, it is prohibited to make new investments in the Russian energy sector.​
In addition to the sanctions imposed by the EU and other jurisdictions, payment companies such as Mastercard, Visa, American Express and PayPal have taken voluntary action and suspended their operations in Russia.

The main implication of the sanctions on payments is that international transactions through SWIFT involving any of the excluded banks cannot be carried out, impacting e-commerce and POS transactions. However, Russia has its own domestic transaction system (SPFS) and has close ties with the Chinese interbank system (CIPS).