Card Payment Sweden Newsletter Q2/22

AFIR PAYMENT PROVISIONS GO THROUGH AMENDMENTS

 EU Transport Ministers adopted on 2 June a general approach to the European Commission’s Alternative Fuels Infrastructure Regulation (AFIR). In the general approach, the Council clarified that users of alternative fuels vehicles should be able to recharge or refuel on an ad hoc basis and pay easily and conveniently at all publicly accessible recharging and refuelling points, without the need to enter a contract with the operator of the recharging or refuelling point. On the means of payment, the Council made only minor changes to the provisions proposed by the European Commission.

Meanwhile, in the European Parliament, the Environment Committee (ENVI) adopted its opinion to the Commission’s Alternative Fuels Infrastructure Regulation (AFIR) proposal on 31 March, the Industry Committee (ITRE) adopted its opinion on 20 April while the Committee on Regional Development (REGI) voted on 21 April, meaning that all opinion-giving committees have now adopted their opinions.

The lead Transport Committee (TRAN) discussed amendments on 19 April, 27 April and 18 May. The amendments show there is broad support for including card payments as a means of payment that should always be available for users of charging or refuelling infrastructure. The S&D group, the Greens, EPP, Renew and the Left Group have all suggested amendments to Article 5(2) to reflect that payment with payment card readers should always be possible at publicly accessible recharging stations.

As stated in our position paper on AFIR, CPS welcomes the Parliament’s amendments, in particular those of Rapporteur Ismail Ertug (S&D, DE) which would make charge points accessible and user-friendly by ensuring that users have the option to pay with their payment card stored in their smartphone. We believe the Commission’s approach to payments at EV charge points risks undermining the objectives of the AFIR proposal instead.

The vote on the TRAN report has been pushed back from 11 July and is now likely to be held in September or October.

NEW INSTANT PAYMENTS PROPOSAL DUE IN OCTOBER 2022

The latest Agenda of the European Commission College envisages that the proposal on Instant Payments will be published on 26 October 2022. The publication of the proposal had been postponed from 1 June due to the need to complete the research for the impact assessment. As previously announced in February by Commissioner Mairead McGuinness, the amendments to the SEPA Regulation will be a legislative text, rather than guidelines or recommendation. The form of the initiative will be an amendment of the Single euro payments area (SEPA) regulation.

ECB AND COMMISSION POINT TO FUTURE EU PAYMENTS REGULATION AT EPC CONFERENCE

 During a conference organised by the European Payments Council (EPC), Fabio Panetta, Member of the Executive Board of the ECB, stressed the challenge of digitalisation as one of the main factors in payments. After underlining the achievements in the field, Panetta highlighted that several steps are still to be taken, such as the implementation of SEPA for card, online and finalisation of mobile payments in order to reduce fragmentation. “We need to implement SEPA for card, online and mobile payments in order to eliminate the residual fragmentation that is hampering or even preventing European customers from using their national payment solutions in all European markets. Not only would this allow us to reap the benefits of economies of scale, it would also help avoid our retail payments market needing to rely on non-European providers to offer pan-European solutions, which is the situation we currently have for card payments” Panetta said. Another challenge that was mentioned is innovative digital retail payment solutions, and their diffusion and appeal to consumers in the EU.

Speaking at the same conference, Commissioner McGuinness pointed out that, despite all successes achieved so far, some obstacles are still impeding instant payments from being widely used. The Commissioner therefore disclosed that the Commission proposal, which should be adopted in October 2022, will focus on tackling the lack of availability, dissuasive pricing, inefficient sanction screening process, and insufficient protection of users against possible errors or fraud. Commissioner McGuinness also highlighted the importance of a digital euro, as well as the work on this matter that the Commission is carrying out with the ECB.

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.

CEPS-ECRI PUBLISH INSTANT PAYMENTS REPORT

A meeting report published this month following the CEPS-ECRI conference on “How to unlock the potential for instant payments?” held on 5 May 2022, noted that, even though instant payments hold several benefits, such as lower transaction costs, promoting innovation and faster payments, they are still fragmented across the EU. The report remarked that in many Member States, instant payment penetration is close to zero, while in others they are widely used. In fact, the conference underlined that decentralisation and national solutions have further exacerbated the fragmentation. One of the main factors that was identified as key was convincing consumers and merchants to use instant payments solutions, such as P2P, e-commerce and brand recognition.

COMMISSION OPENS CONSULTATION ON PSD2

The European Commission launched on 10 May a targeted consultation on the review of the revised payment services Directive (PSD2), a targeted consultation on the open finance framework and data sharing in the financial sector as well as a public consultation on the same topics. The two targeted consultations (open until 5 July) are aimed at professional stakeholders with knowledge or experience in the field of payment services, while the public consultation (open until 2 August) is designed to allow for input from the general public.

The consultations are launched in the context of the Commission’s review of and report on the impact of the PSD2 in Q4 of this year. If amendments are deemed appropriate, the Commission may also publish a legislative proposal.

The Commission says the review will assess the relevance of PSD2 in light of market developments regarding new market players, services and technologies. The Commission intends to ”evaluate whether the scope, exclusions and definitions of the directive are still appropriate to ensure relevant market players are regulated, a level playing field exists and risks are sufficiently mitigated”. Other aspects of the rules relating to payment fraud and access to account data and payments infrastructures, will also be opened up for scrutiny to see if they are still fit for purpose.

EBA WEIGHS IN ON PSD2 CONSULTATION

The European Banking Authority (EBA) has recommended merging the EU payment services rules with provisions governing e-money. On 23 June, the EBA published an Opinion and Report in response to the European Commission’s Call for Advice on the review of the PSD2. In its response, the EBA puts forward more than 200 proposals that would contribute to the development of the single EU retail payments market and ensure a harmonised and consistent application of the legal requirements across the EU. In particular, the EBA has observed that, while some objectives of the PSD2 have started to materialise, there are still many issues and challenges that need to be addressed. The proposed amendments include:

• merging the PSD2 and the Electronic Money Directive;
• clarifying the application of strong customer authentication (SCA) and the transactions in scope;
• addressing new security risks for customers, such as social engineering fraud, where customers are tricked into initiating a payment transaction;
• addressing concerns about authentication approaches (e.g. based on smartphones) that have led to the exclusion of certain groups of society from using payment services online;
• addressing underlying issues and obstacles to the provision of payment initiation services (PIS) and account information services (AIS), including the proposals for (i) AIS providers to apply their own SCA with their customers instead of relying on the authentication procedures by banks, (ii) empower customers to remain in control of their data; and (iii) support the development of high-quality interfaces across the EU;
• moving from ’Open banking’ to ‘Open finance’ (or otherwise the expansion from access to payment accounts data towards access to other types of financial data);
• addressing the enforcement shortcomings in relation to the implementation and application of SCA for e-commerce card-based transactions and the removal of obstacles to the provision of AIS and PIS;
• addressing unwarranted de-risking practices by banks affecting payment and e-money institutions; and
• adjusting the prudential requirements, in particular in relation to initial capital, own funds, the use of professional indemnity insurance, the proposal for recovery and wind-down for significant payment institutions and possible consolidation group supervision.

CPS supports the EBA’s call to clarify the existing framework, in particular key definitions (including the meaning of key concepts like “payment account”, “payment instrument” and “initiation of a payment transaction”), the scope of exclusions, and the application of strong customer authentication. Uncertainty around these concepts mean there are differences in interpretation.

EUROPEAN PAYMENTS INITIATIVE TO FOCUS ON DIGITAL WALLETS

The European Payments Initiative (EPI) interim company announced on its website on 11 March that it was “adapting its scope and objectives” after thirteen shareholders confirmed their commitment to the project.

On 3 May, in an interview with the German Handelsjournal (in German), EPI CEO Martina Weimert said the project will accommodate a digital wallet as well as an instant payments solution and confirmed a European payments card would not be included at this stage. The business model will be based on a merchant fee negotiated individually by acquirers and merchants. EPI is expected to make an announcement in the coming weeks on the digital wallet. The wallet would allow the clients of EPI banks to use their phone to pay across Europe. In addition, banks would be able to use the wallet to move funds around with minimal security checks. Weimert suggested EPI will involve European companies only and ensure payment data is not monetised, and additionally claimed that the wallet would be ideal for holding central bank-backed digital currencies, such as the digital euro.

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 . Eric Ducoulombier, Head of Unit of Retail and Financial Services of the European Commission, stated during the “9th Annual QED Conference on the Future of EU Payments” that the joint funding of projects will be possible via partnership between the public and the private sector.

While CPS fully agrees that the European payments market should be autonomous and resilient to external threats, European authorities must also ensure a level playing field and healthy competition in the market. In this context, we do not believe subsidies are a good 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.

EUROPEAN PARLIAMENT SET TO ADOPT DIGITAL MARKETS ACT

The European Parliament is set to vote on the Digital Markets Act (DMA) in the plenary session foreseen for the period of 4-7 July. The DMA will ban certain practices used by large platforms acting as “gatekeepers” and will enable the European Commission to carry out market investigations and impose hefty fines. We recall that under the DMA, gatekeepers will be prevented from bundling services together. Gatekeepers will no longer be able to require app developers to use certain services (including payment systems or identity providers) in order to be listed in app stores. At the same time, gatekeepers will also have to allow app developers fair access to the supplementary functionalities of smartphones (including contactless payment technology like the NFC chip).

COMMISSION ESCALATES APPLE ANTITRUST INVESTIGATION

The adoption of the DMA is 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.

On 2 May, EU Competition Commissioner Margrethe Vestager sent a charge sheet known as a statement of objections to Apple after investigating the company for unfairly restricting companies from accessing its Apple Pay mobile payment system. “We have indications that Apple restricted third-party access to key technology necessary to develop rival mobile wallet solutions on Apple’s devices,” Vestager said. “In our statement of objections, we preliminarily found that Apple may have restricted competition, to the benefit of its own solution, Apple Pay”. In response, Apple said that opening up NFC technology designed to prevent fraud through a security chip in the iPhone’s antenna could make the system vulnerable to abuse.

A Commission statement of objections lays out the results of the initial antitrust investigation. Apple can now respond to the charges in writing and can make its case at an oral hearing before the Commission takes a final decision on whether the company breached competition rules. Apple could receive fines of up to 10 per cent of its global turnover if the charges are upheld.

APPLE FINALLY COMPLIES WITH DUTCH ACM IN-APP PAYMENTS ORDER

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.” The Dutch competition authority confirmed in a statement last month that Apple’s latest proposal on payment conditions for dating apps finally addresses their concerns and fulfils the requirements under EU and Dutch competition law, putting the months-long dispute to rest.

Apple announced some more changes to the mechanism it had first proposed to comply with the order from the regulator to allow dating apps to use alternatives to Apple’s own payment system for in-app purchases in the Netherlands. In an update to its terms, Apple said developers not wanting to use its payment system now had three choices: 1) using an independent system within their own app; 2) pointing to a different website to complete a purchase; or 3) both of those options.

The concessions mean Apple can avoid a new order with higher penalties. However, it still faces a penalty of 50 million euros for not complying quickly enough. That case will still go ahead, despite the agreement.  Apple is also appealing the ACM’s original order, which could be reversed if successful.

The Dutch regulator hopes this could set a template for other regulators around the world similarly looking into app stores, as is the case in South Korea, the UK and the US, as well as serves as a warning for enforcement issues to arise from the EU’s Digital Markets Act.

DIGITAL EURO PRIORITIES DISCUSSED AS COMMISSION RUNS CONSULTATION

The European Commission launched its targeted consultation in view of its plans to propose a Regulation enabling the introduction of a digital euro​. With the consultation, the European Commission is seeking to collect information on how a digital euro would impact different industries and how important it is, for example, that digital euro payments can be made using devices such as smartphones and chipcards. ​The consultation ran until 14 June and targeted the payment industry and other relevant stakeholders.

In a meeting on Monday 4 April, Finance Ministers of the Euro area Member States discussed the priorities for the development of a digital euro, including finding the right balance between ensuring privacy for users and counteracting the use of the digital euro for unwanted purposes. The President of the Eurogroup Paschal Donohoe said that a risk-based approach could be followed to allow for more privacy for less risky and smaller transactions. Finance ministers had also expressed some interest in offline functionalities for low value digital euro payments in close proximity.

Meanwhile, the ECB’s Fabio Panetta said in an event on 8 April that the digital euro should nevertheless not be too successful, as this could have a negative impact on the existing funding structure of banks. That could be ensured by limiting its attractiveness as a form of investment. Both Panetta and the Governor of the French Central Bank François Villeroy de Galhau have suggested that the amount of digital euros a person can hold should be limited. Limiting holdings would reduce the risks of a bank run, while the digital nature of the CBDC would allow supervisors to have real-time information on deposit flows and react quickly to early signs of mass deposit withdrawals. If the right balance is achieved so that the digital euro becomes a preferred payment option, it could help banks compete with Big Tech companies’ own payment solutions, Panetta noted.

Other stakeholders have been weighing into the discussions in recent weeks. Speaking at the European Payments Conference, the Executive board member of the German Bundesbank, Burkhard Balz, said payments with central bank digital currencies (CBDCs) such as the digital euro, could be offered based on smart contracts, allowing immediate and automatic payments for example after electric car charging. Furthermore, a report published in May by the ECB argues the digital euro should accommodate some data sharing features. That way, merchants would be able to share payments information with digital platforms and banks in return for better financing terms. 

At the same tile, stakeholders are increasingly questioning the project and the urgency of developments. The Centre for European Reform (CER) published a report on 7 June saying CBDCs could be expensive mistakes and central banks should instead use regulation to make payments cheaper and more competitive. The timeline proposed by the Commission has been questioned by Inge Van Dijk, the Dutch central bank’s director on payments and market infrastructure. Finally, the European Banking Federation (EBF) answered the Commission’s targeted consultation, highlighting major risks for financial stability, crowding out of private solutions, finding a sustainable business model for intermediaries and responding to user needs. The EBF advocated for further meaningful and transparent exchange with all relevant stakeholders.

EUROPEAN CITIZENS UNAWARE OF DIGITAL EURO PROJECT

An ECB Study on New Digital Payment Methods published on 30 March shows that European citizens have little knowledge of the ongoing digital euro project. However, they agree that banks and central banks are the safest and most reliable providers. Moreover, prospective users would prefer a digital wallet that allows for payments regardless of the platform or device used by the parties to a transaction. The research shows that debit cards are currently most commonly used for everyday shopping, while credit cards are used for specific purchases. Cash and mobile payments are also popular, the latter especially among younger users. The report shows that merchants are positive to offering a range of payment methods and that it is important to satisfy consumer preferences. Moreover, they considered it important to implement new payment methods to maintain an image of being up to date. However, fees charged by some payment providers were considered an issue.

MASTERCARD & VISA FACE MARKET REVIEWS IN UK

The UK payment systems regulator (PSR) will assess through two market reviews into scheme and processing fees, as well as cross-border interchange fees, Mastercard and Visa’s market power. The reviews focus on Mastercard and Visa as the two card payment system operators account for 99% of debit and credit card payments in the UK. PSR stated that it would analyse the impact on the fees on competition and whether the markets are working well for participants and users. The consultation paper document on UK-EEA consumer cross-border interchange fee can be found here, while the one on card scheme and processing fees can be found at this link. The PSR is consulting on the reviews until 2 August. During the consultation period, the PSR will also be running a series of engagement events and will be encouraging stakeholders to help shape the scope of the reviews.

EU ADOPTS SIXTH SANCTIONS PACKAGE AGAINST RUSSIA

The sixth package of sanctions against Russia, which the Commission presented on 4 May, was approved by Member States on 3 June after a dispute over a Russian oil pipeline carveout. The EU is extending the existing prohibition on the provision of SWIFT to three additional Russian credit institutions – Russia’s largest bank Sberbank, Credit Bank of Moscow, and Russian Agricultural Bank – and the Belarusian Bank For Development And Reconstruction.

On 14 June, Mairead McGuinness, European Finance Commissioner, appeared before the ECON Committee in Parliament where MEPs asked about the current range of sanctions imposed on Russia. ​McGuinness said the Commission was mindful of the need to keep the right balance between effective sanctions and ensuring that legitimate transactions can continue and mitigating the impact on some third countries and their ability to connect to the global financial system. The Commissioner also sought to assuage concerns that crypto could be used to circumvent the sanctions.

Belgium’s central bank, the NBB, published a report on 30 May highlighting the risk that China and its allies could circumvent Western sanctions if Beijing manages to develop a central bank-backed digital currency (CBDC) for cross-border payments.

After this very long newsletter only one think left to say: WISHING YOU ALL A NICE AND SUNNY SUMMER.