Assessing the real-world impacts of the EU’s growing regulatory confidence
Like it or not, the reality is that where payments is concerned the EU has chosen to be an interventionist regulator. And as its confidence in devising and implementing payments regulations continues to grow, it’s becoming more rigorous and far-reaching in its approach.
The result? The implications of EU regulation for all players in the payments ecosystem are increasing, as are the complexity and scope of the rules themselves. All of which makes it even more important to look below the headlines to assess the real business impacts.
A rising tide
Looking back, the EU’s regulatory confidence has followed a clear progression. From its first Payment Services Directive (PSD1) which started the journey to regulate payment services and payment service providers in all EU and EEA Member States, we have progressed to PSD2 which started to open the market to new players driving competition. Next year a major review of PSD2 will take place including an assessment of its scope – so PSD3 is on the horizon. The EU’s rising interventionism has been apparent for several years.
Now it’s going a big step further with two new, major frameworks:
- The Retail Payments Strategy (RPS) sets out the long-term policy environment for the future of retail payments in the EU in an increasingly digital world
- The Digital Finance Strategy (DFS) maps out how this future will work, describing the underlying approach to opening up the market to validated players.
A lot of the existing coverage of these regulations is fairly legalistic and focuses on objectives and structure: the RPS, for example, has three goals and four pillars, while the DFS had four priorities. But what does all this mean in terms of practical business impacts?
The RPS: the route to universal digital payments
First, the RPS. At the heart of this framework is the EU’s policy goal that universal uptake of instant payments (IP) must be in place by the end of 2021, taking us to a ubiquitous real-time payments platform across the EU. The subtext is that not enough providers have taken up the IP schemes to date, and they need to pick up the pace.
The major barriers include the lack of interoperability between settlement and clearing mechanisms, which must be tackled. Meanwhile, in terms of end-users, IP take-up and usage are being hampered by the current lack of standardization for example around QR codes – which again needs to be addressed.
Also, the EU will look to create a label or “brand” that will be clearly identifiable to consumers. This is likely to be based on the European Payments Initiative (EPI), which aims to replace today’s fragmentated landscape of national schemes for card, online and mobile payments with a unified card and digital wallet scheme across Europe. The EU will also seek to make remittances a lot easier, quicker and cheaper to initiate.
The DFS: embracing and opening up digital innovation
As for the DFS, its overall goal is to encourage digital innovation and make the benefits available to all European consumers and businesses. The first step will be to remove fragmentation in the Digital Single Market for financial services – including enabling interoperable digital identity solutions to ease on-boarding, and development of a new Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework. Passporting and one-stop shop licensing will help drive scale.
At the same time, the EU regulatory framework will be adapted to facilitate digital innovation, including in DLT and crypto-assets, and there will be an oversight and cybersecurity certification framework for cloud service providers. Data-driven innovation in finance will be supported by a common financial data space offering real-time access to regulated financial information in standardized and machine-readable formats.
Finally, there’ll be initiatives to address the challenges and risks associated with digital transformation, as Fintechs become more integral to financial ecosystems. This will involve supervision based on "same risks, same rules, same regulation" in areas like customer-related, risks, financial stability and competition.
That’s our whistle-stop tour of the RPS and DFS. In our forthcoming blog posts we’ll drill down into specific areas and highlight practical impacts for banks and payments service providers. Stay tuned.