In September 2020, the European Commission identified its priorities for retail payments in Europe for the next four years. Analysis by Mélina Le Sauze, Director – Treasury Advisory.
The European payments market is a reality, but it is still fragmented. Great progress has been made with the Single European Payment Area and the two Payment Services Directives, but there still remains significant disparities in the payment solutions used throughout Europe. For example, there are more than ten national card systems in Europe (including GIE CB, Girocard, pagobancomat and multibanco) and these solutions are generally only deployed in individual countries. The major beneficiaries of this fragmentation are the international Visa and MasterCard networks.
The new European payment strategy aims to eliminate market fragmentation and promote financial innovation. It also represents a way of restoring Europe’s sovereignty in this critical area.
The strategy is based on four pillars:
1) Increasingly digital and instant pan-European payment solutions
2) Innovative, competitive retail payment markets
3) Efficient and interoperable retail payment systems and other support infrastructures
4) Efficient international payments
Without going into detail about all the proposed actions, here are some points to bear in mind.
– Instant payment will be the new ”normal”. This payment method is suitable for many purposes, particularly physical and online purchases, which are dominated by card payment systems. The Commission is aiming for the full uptake of instant payments in the European Union by the end of 2021. A lot of work still needs to be done on the rules, solutions and technologies to be used and the infrastructure that is needed.
– To date, nearly 60% of payment service providers in Europe have joined the SEPA instant transfer scheme (SCT Inst). The possibility of making membership of the scheme compulsory in the near future has been raised. A study was carried out in November 2020 on the number of PSPs and accounts capable of sending and receiving instant SEPA transfers. The results of this survey will be instrumental in the decision to legislate on whether payment service providers join the SCT Inst scheme by the end of 2021.
– Regarding the technologies to use at the point-of-interaction: payment solutions are increasingly based on QR codes. However, QR codes are not standardized at the European level. The Commission believes that developing a single, open and secure European standard for QR codes would promote the adoption and interoperability of instant payments. The Commission is not ruling out action in this regard.
– Payment solutions need to operate within a cross-border framework. With this in mind, the Commission will consider, for example, the possible labeling of solutions that meet cross-border criteria by the end of 2023.
– Current security and fraud risk measures will be examined to determine whether additional measures (such as strong authentication for contactless payments below €50) need to be taken.
– Another important issue is the need to harness the full potential of the Payment Services Directive (PSD2), particularly on the subject of Application Programming Interfaces (APIs) and strong authentication. On the current issue of API multiplication, at the end of 2021 an evaluation will provide conclusions that, we hope, will set out a more precise framework for open banking activities and deal with the thorny subject of API standardization by mid-2022.
With regard to the European Payment Initiative (EPI)
A group of 16 banks from five countries (France, Germany, the Netherlands, Belgium and Spain) have decided to come together last summer to create a European standard for cross-border and domestic payments.
Their aim is to establish a unified European system that would couple digital wallet and instant transfers to create the next-generation credit card.
Unlike previous initiatives, such as MONNET, the EPI will be able to use existing technologies and several current regulations as a basis on which to build the system’s foundation (these include PSD2, the rules on exchange, and even request-to-pay, for which the first version of the rulebook was published in November 2020).
What about RTP?
Request-to-pay (RTP) is a messaging system associated to transfers (including instant transfers). It will facilitate reconciliation and enable recipients to express their payment preferences (including specifying payment terms: immediate or deferred payment).
Request-to-pay can be paid immediately by the payer (Pay now), at the time of acceptance, or at a later date (Pay later).
The SEPA Request-To-Pay (SRTP) scheme will come on line from 15 June 2021 in all SEPA countries, namely the Member States of the European Union and the countries and territories to which the geographical scope of the SEPA scheme (SCT, SDD) has been extended (Andorra, Monaco, San Marino, Switzerland, the United Kingdom and Vatican City).
A first version of the SRTP scheme rulebook was published last November and a second version will be released in November 2022. It is interesting that the current rulebook presents the scheme as a generic four-corner ecosystem with a beneficiary, a payer and two RTP service providers – one for the beneficiary and the other for the payer. This model makes us think of the model applicable to bank cards and the definition of the interchange rules. The European Payment Council (EPC) reserves the right to recover program management fees from participants. This opens up a debate on RTP’s interest in payment initiation, which will be the subject of our next article.