EU divided over implementation of payments directive

A smartphone with NFC Near Field Communication which is equipped with the Telekom app MyWallet is hold in front of a payment terminal at the Bitkom trend congress in Berlin, Germany, 27 November 2012. NFC-enabled mobile phone can be used for payments by simply tapping the phone on any PayPass-enabled terminal at checkout. The Federal Association for Information Technology, Telecommunications and New Media (Bitkom) discusses future trends of the ICT industry at the congress. [EPA/MICHAEL KAPPELER]

The European Commission questioned on Wednesday (25 September) some member states’ decision to grant at least 18 months to banks for the full implementation of the European Payments Services Directive 2, which requires stronger authentication procedures for online payments.

The new rules, in force since January 2018, represented a “game-changer”, said Eric Ducoulombier, head of unit for retail and financial services at the European Commission.

It opened the door for new ‘tech’ startups to provide financial services (fintech firms), as traditional banks were obliged to share their customers’ data with merchants.

The goal was also to facilitate Europe’s leadership in the fast-growing payment business, seen as “strategic” in the context of the efforts to strengthen the EU’s economic sovereignty, Ducoulombier added in an event organized by EURACTIV.com, and supported by American Express.

“This is driving innovation,” as hundreds of fintech startups have emerged across the bloc, he said.

However, he admitted that Europe is in a “strange” situation now, given that some parts of the PSD2 are not enforceable, in particular, the new “strong consumer authentication” to strengthen security and fight against fraud in online payments.

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Last June, the European Banking Authority, the competent regulatory authority in this field, allowed for additional time to fulfil the new requirements included in the new legislation, given the complexity of the payments markets across the EU, and the challenges arising from the changes required.

The banking watchdog, however, did not set a specific date for the full implementation.

Ducoulombier anticipates that “pretty soon” member states will agree on “a common EU-wide transition period”.

Given that the rules should have been already in place as from 14 September, the EU Commission is opting for a limited transition period of 12 months.

Markus Ferber, member of the European Parliament’s Committee on Economic and Monetary Affairs, considered that the full implementation of the strong consumer authentication should take place “the sooner, the better”.

Ducoulombier said that some national governments decided to move forward and grant unilaterally an 18-month transition period to their banks and market players, although he did not name them.

“We cannot wait 18 months, that is too long”, Ducoulombier stressed by stating the importance of securing online payments.

He warned that these national decisions could complicate the implementation of PSD2.

More competition?

Some voices, however, said that the new rules failed to bring all the innovation and competition promised by the co-legislators.

Sujata Bhatia, senior vice-president, Merchant Services Europe at American Express said that big players became more dominant, and the newcomers are still struggling to compete.

Christopher Decker, a researcher at Oxford University, agreed that there wasn’t a “radical shift” in terms of dominant players.

And he added that the evidence was “mixed” in regards to the innovation and the number of fintech startups created thanks to the new rules.

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Ducoulombier defended the “major importance” of PSD2 to facilitate that Europe becomes a competitive player in the digital payments sector

“We have to be fair…let’s give it a bit of time to produce an impact”, he said recalling that the rules are in place only since one year and a half, and some parts only since less than two weeks ago.

Ducoulombier said that the EU has a “unique opportunity” to place its flag in the realm of payments. “If we don’t act, the centre of decisions may not be in Brussels”, he warned.

Ferber agreed with the Commission official. “We have two options: either we wait until Mr Facebook invents something, or we come up with a European solution”, he said.

Libra

The implementation of PSD2 came against the backdrop of the announcement of Facebook’s new digital currency Libra.

Ferber said that he was “disappointed” about the Commission’s decision not to consider cryptocurrencies and tokens as financial instruments in the revision of the Markets in Financial Instruments Directive, that he shepherded in the Parliament. He added that he would advocate for a blanket ban on the cryptocurrency before it comes to Europe.

In his opinion, this would have facilitated the regulatory response to Libra, an issue that the Commission is trying to address at this stage.

Decker expressed his scepticism in regards to the promises made by Facebook’s digital currency, especially the lower costs for payments.

Bhatia explained that Facebook offered American Express to join the project, but the company refused for reasons she did not want to disclose.

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Edited by Samuel Stolton

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