Robert C. Gallagher, former director of the U.S. football (not soccer) team Green Bay Packers, famously remarked: "Change is inevitable - except from vending machines". As far as payments are concerned, there is plenty of evidence supporting this statement. Sparing you the details of my frequent encounters with vending machines dispensing neither change nor coffee, I refer instead to the Newsletter article, entitled: " is Just a Piece in the Puzzle: Additional European Union (EU) Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market" (see links below).
Principal regulatory initiatives impacting payments in progress
In this Newsletter article, the authors Dermot Turing and Maria Troullinou argue that when taking a close look at the broader picture, it becomes clear that the European Commission (the Commission) is determined to drive forward its vision of an integrated, efficient and stable euro payments market through regulatory action. The reforms currently carried out at EU level will have a major impact on payment service providers. According to the authors, chances are that the measures outlined in this article are only the beginning of an era which will see further regulatory changes affecting the industry. For better or for worse, they state, the Commission does reveal a sense of direction in shaping the payments market through "a comprehensive approach based on a new mix of self-regulation, regulation and competition enforcement", as stated by Joaquín Almunia, Vice President of the Commission responsible for Competition Policy, in his speech, entitled: ‘A fair and open system for payments in the Single Market' (14 December 2011). The authors conclude: European payments regulation is a moving target. The principal dossiers currently being progressed by the Commission, which will have a significant impact on the euro payments market, include the following:
- The Green Paper ‘Towards an integrated European market for card, internet and mobile payments' was published in January 2012. It is expected that the Commission will announce next steps in the coming months. To view the response to the Green Paper, refer to the links below.
- The Regulation () No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (see links below), that came into force on 30 March 2012 tasks the Commission to review the Single Euro Payments Area () governance arrangements. It is expected that the Commission will table a related communication early 2013.
- The Payment Services Directive (PSD) is being reviewed by the Commission. Article 87 of the PSD requires the Commission to present a report on the implementation and impact of the Directive, together with proposals for its revision. It has been suggested that the proposals will be published in the spring of 2013, although it should be noted that this has not been officially confirmed.
- The proposal for a Regulation on electronic identification and trusted services for electronic transactions in the internal market was published in June 2012. The legislative process leading to the adoption of this Regulation will probably take between one and two years.
The Newsletter article cited covers a host of additional regulatory initiatives now in the pipeline which will impact the financial services sector.
Be aware of ‘innovacompegration' (this is not a typo)
According to the Commission, these initiatives are aimed at promoting market integration, improving efficiency, increasing security and transparency, as well as strengthening financial stability in the , while at the same time fostering innovation and increasing the competitiveness of the economy. These are noble aspirations which deserve everyone's full support. The question however, remains whether regulatory action is the adequate means to all these ends.
On market integration: the integration of the national euro payment markets into a single European one is a process that would have never occurred spontaneously. It requires the political will and mandate to achieve it. It is therefore the task of the European legislator to set the legal and regulatory conditions required to conclude this market integration exercise. The EU lawmaker met this objective with the adoption of Regulation (EU) No 260/2012, which effectively establishes mandatory deadlines for migration to Credit Transfer and Direct Debit. - or integration - is however not an end in itself. It is an interim stage that should not be judged on the direct outcomes, but on the situation it leaves for the market to reap further benefits. is a seed rather than a fruit.
On competition: cross-border competition in the European payments market will take time to materialise, even once migration to the single set of payment schemes is completed. The removal of national barriers in the payments market will bring value, but not as much as expected or as quickly as desired. It will take time to change ingrained payment habits on both the demand and supply sides. Payments continue to rely on proximity effects: merchants prefer to bank with a nearby institution they can contact easily; consumers still open accounts based on closeness to their home or work and where staff speak their language. Even large corporations make similar considerations when searching for solutions that best meet their needs. Consequently, they will regularly choose large banks with an overlapping footprint in the markets where both are present. The most ambitious EU integrator will not change the fact that payment habits and business models on both the demand and supply sides will only change gradually once is a reality.
On innovation: Günther Gall, Vice Chair and a banker with more than forty years of experience in managing all aspects of payments, identified the main factors fostering innovation in the Blog, entitled: ‘What Drives Innovation in Payments? Invites European Authorities to Take the Market Perspective into Consideration' (see links below). These factors are, among others: (1) there must be market demand for the solution; (2) there must be a business case for providers to develop a new solution; (3) the solution must be convenient and easy to use for the customer, especially in payments. He commented: "Documents published by the EU regulators, addressing innovation in payments, do not reflect any of the items listed above; views articulated by the regulators on the subject may therefore risk overlooking the most important factors driving forward innovation in the marketplace. From the perspective of payment service providers active in the market, regulation risks stifling innovation and standardisation initiatives led by market participants. Regulation is also not suited to keeping pace with the fast evolution of technology, fraud and market developments. As a matter of principle, any regulatory action should be technology-neutral. Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace."
As observed on earlier occasions: regulatory action in the area of payments should be restricted to and focus on integration, not on ‘innovacompegration'. Experience demonstrates that the most successful innovations materialise if the market is simply allowed to generate forward-looking payment solutions in response to customer demand. It would be welcomed if the Commission would take this market reality into consideration when determining the need for further action in the area of payments.
Follow the on Twitter in January 2013 to receive more information on regulatory action impacting payments and links to relevant sources.
- EPC Newsletter (October 2012): SEPA is Just a Piece in the Puzzle: Additional European Union Regulatory Initiatives Now in the Pipeline Will Have a Profound Impact on the Payments Market
- EPC Blog (September 2012): What Drives Innovation in Payments? EPC Invites European Authorities to Take the Market Perspective into Consideration
- EPC Blog (May 2012): More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments
- EPC Newsletter (April 2012): On Innovation: What the European Union Could Learn from Apple and Facebook. Reflections on the evolution of SEPA in the new regulatory reality governing the euro payments market
- EPC Newsletter (April 2011): Innovacompegration (This is Not a Typo). Reflections on the best approach to innovation, integration and competition in payments
- Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009
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