The European Commission (EC) adopted the new Digital Finance Package on 24 September 2020. The Retail Payment Strategy (RPS) is one of the key components.
The RPS sheds some light on the EC’s priorities for the upcoming years and tells more about its vision of payments in the EU (i.e. a more digitalised and innovative payments landscape, new pan-European payments solutions, integrated EU market, enhanced customers’ protection).
The COVID-19 pandemic has only confirmed the shift to digital payments and e-commerce and has further demonstrated that payments are instrumental in rebuilding the economy. The economic recovery relies extensively on consumption, which does not exist without the related payment for the good or the service. Payments are also at the forefront of innovations and offer new challenges (e.g. combatting frauds and improving security in instant environments) and opportunities (e.g. new payment solutions for consumers and merchants). Below are some key considerations on RPS for businesses regarding their transactions.
The EC is now ready for the full uptake of instant payments. Instant payment means that funds are 'instantly' (more precisely, in under 10 seconds) available to the payee. For example, consumers could make instant cashless person-to-person payments, or merchants could benefit from instant payments and receive the funds at the very same time of the transaction.
The solution itself is not new. The scheme for instant payments (SCT Inst.) has been available since 2017. But unlike other schemes (such as SEPA direct debits or credit transfers), adherence to SCT Inst. is not mandatory (for now), which makes it unpopular in many EU countries. Mandating adherence to instant payments brings its own challenges for those involved in the payment ecosystem: how to comply with AML requirements in such an instant environment? How to preserve consumers’ protection? How to align this solution with other existing instruments? How to manage the increased liquidity risk that results from instant flow of funds? There is a lot to be discussed.
European payment solutions
The EC plays an active political role and supports the development of competitive pan-European payment solutions that rely extensively on instant payments (e.g. European Payment Initiative, EPI). Other options will be explored in the future, such as the feasibility of developing a ‘label’ for eligible pan-European payment solutions, the development of European specifications for contactless card-based payments (CPACE), as well as the modernisation and simplification of EU merchants’ (SMEs in particular) payment acceptance facilities.
Innovative and competitive retail payments markets
Whilst the second Payment Services Directive (PSD2) introduced the concept of open banking (i.e. access to payment accounts) and enabled the emergence of new players, some jurisdictions already offered broader open services. In this vein, the EC is now contemplating to export this concept (branded ‘Open Finance’) to other areas by mid-2022. This will undoubtedly increase the competition among the players and raise a number of interrogations and legal uncertainties.
As the pandemic has hastened the shift to digital payments and e-commerce, companies should closely monitor ongoing initiatives and adapt their business models accordingly whilst turning challenges into opportunities.