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As a part of the digital finance package, the Commission published its retail payments strategy that aims to improve the payment systems and infrastructures throughout the European Union. The strategy consists of four closely interlinked pillars and Commission’s intentions to review and further develop the existing as well as new payment solutions.

Pillar 1: Increasingly digital and instant payment solutions with pan-European reach

The first pillar of the retail payments strategy aims to enhance the use of instant payments in Europe. Such payments could (partly) replace the traditional card payments in physical and online purchases. However, at service providers’ end, this would require harmonized rules for different payment solutions and at consumers’ end it is necessary to provide the instant payments with same charges and accessibility as the card transactions.

To establish the position of instant payments alongside with other payment solutions, the Commission will assess whether there’s a need for legislation regarding the service providers’ adherence to the SCT Inst -system, an instant payment system that is developed for instant payments in euro. Additionally, the Commission will assess the current payment systems relying on QR-codes and NFC-technologies as well as need for standardization of payments based on QR-codes.

In addition to facilitating the broader deployment of instant payments, the first pillar underlines the importance of utilizing the SEPA (Single European Payments Area) system and digital payments in general. The strategy also aims to diminish the challenges that new actors may face while providing the cross-border payment solutions in Europe.

In conclusion, the first pillar is about enhancing the instant and digital payment systems that could be used across the EU. The concrete actions to reach the goals are still waited to be taken. 

Pillar 2: Innovative and competitive retail payments markets

Strategy’s second pillar focuses on strengthening the open banking concept and the high level of security for payments. These goals are planned to be established especially by two activities: review of Second Payment Services Directive (PSD2) and after that a legislative proposal for a new ‘open finance’ framework (expected by mid-2022) that would broaden the open banking concept and allow broader data access in the financial field.

To ensure the functioning retail payments markets, also consumer protection is at the core of the Pillar 2. The Commission highlights transparency of the payment transactions, balance between usability and eliminating the fraud risks, and the importance of strong customer authentications to increase the consumer confidence. These aspects are also expected to be taken into consideration in the currently on-going PSD2 review. 

Pillar 3: Efficient and interoperable retail payment systems and other support infrastructures

To ensure the functionality of pan-European digital payment systems and functional retail payment systems, it is crucial to secure the payment infrastructures and interoperability between different payment systems in Europe. There are several actions taken or to be taken to develop the payment systems and to extend the cross-border availability as well as availability with also other currencies than euro.

One – and rather familiar – step is of course the entry into force of PSD2 that requires the credit institutions and other direct participants to give the third-party providers (TPPs) an access to their APIs. It is however recognized that the third-party providers are dependent on the banks, and therefore it is necessary to assess other options for the TPPs as well. Additionally, some technologies that could be utilized in payment systems (regardless of PSD2), are restricted by their operators.

The Commission is therefore examining the possibility to a new legislation that would secure the access to technical infrastructure. It’ll also consider the fitness of its competition policies for the digital age and at the same time pay attention to security requirements of the payment systems. 

Pillar 4: Efficient international payments, including remittances

The fourth pillar of the strategy focuses on faster, more affordable and accessible cross-border payments to non-EU countries. While the Commission considers it important to facilitate the use of European payment systems in Third countries, it also recognizes that the level of consumer protection, risk mitigation and money laundering prevention should be at certain level in these countries.

The Commission has rather ambitious list of key actions to develop the international payment systems, but the list seems to focus more on different payment systems than ensuring the said requirements for the Third countries. It remains to be seen whether there will be actual legislative proposals regarding the international payments and how to manage the safeness of the payments and infrastructures.

What to expect as the outcome of the strategy?

As the strategy outlines the objectives for retail payments systems for the next years, here’s a few developments that could be expected in the European payment system markets:

—   Pan-European development of digital and instant payments. While such payments are already a new normal in many EU countries, there are huge differences in the use of such systems across the EU.

—   More broad technology in payment systems. PSD2 granted TPPs an access to APIs of banks and some other actors. The next phase is probably to allow and relieve the use of other technologies and infrastructures by legislation as well.

—   Maintaining the high level of consumer protection. As the strategy focuses on facilitating and developing the payment systems, the EU legislation is characterized by strong consumer protection. There’s no doubt that it’ll be at the core of any legislative proposals in the future as well.

—   Initiatives for global payment systems. As the EU is sort of a trendsetter in open banking, it is natural that it’ll also be a forerunner when it comes to developing the global payment systems as well. 

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Armida Rantanen

Legal counsel

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Anna Rossi

Legal counsel

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Eeva Rakkolainen

Legal counsel

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