Annexes to COM(2020)592 - Retail Payments Strategy for the EU

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dossier COM(2020)592 - Retail Payments Strategy for the EU.
document COM(2020)592 EN
date September 24, 2020
agreements to set up links.

The Commission considers that extending the availability of these cross-border infrastructures from euro to other EU currencies is important to ensure pan-European instant payments. It therefore expects that the first cooperation agreement to allow settlement of instant payments in non-euro (Swedish krona) in the TARGET Instant Payment System, which was concluded on 3 April 2020, will pave the way for solutions that facilitate cross-currency instant payments.

2.An open and accessible payments ecosystem

Access to payment systems is essential for effective competition and innovation in the payment systems market. As payment and e-money institutions compete with banks to provide payment services and contribute to innovation in the payments market, it is important to guarantee that all players have fair, open and transparent access to payment systems.

While the revised Payment Services Directive (PSD2) requires objective and non-discriminatory access to payment systems for authorised payment service providers, the Settlement Finality Directive (SFD) 55 makes access dependent on statutory criteria. This has prevented e-money institutions and payment institutions from gaining direct access to payment systems designated under the SFD.

PSD2 requires Member States to ensure that direct participants (i.e. mostly banks) in an SFD-designated payment system allow indirect access by non-bank payment service providers in an objective, proportionate and non-discriminatory manner. However, indirect access via banks may not be the best option for many non-bank payment service providers, as this makes them dependent on those banks.

The Commission is aware that some national central banks have allowed payment and e-money institutions direct or indirect participation, subject to certain criteria. This has led to level playing field issues and further fragmented the payments market. As indirect access is the only option in systems like the TARGET Instant Payment System, it can create unintended effects and operational challenges, also in relation to compliance with requirements on anti-money laundering and combating the financing of terrorism. In turn, this may distort the level playing-field between banks and non-bank payment service providers.

Key action:

In the framework of the Settlement Finality Directive (SFD) review (to be launched in Q4 2020), the Commission will consider extending the scope of the SFD to include e-money and payment institutions, subject to appropriate supervision and risk mitigation.

3.Access to necessary technical infrastructures

The Commission believes that European payment service providers should be able to develop and offer to all European users, without undue restrictions, innovative payment solutions using all relevant technical infrastructures, under fair, reasonable and non-discriminatory terms and access conditions.

The Commission is aware of a variety of situations in which some operators might restrict or block access to necessary technical infrastructures. These may include a range of software and hardware elements that are necessary if innovative payment solutions are to be developed and offered, e.g. the non-public layers embedded in mobile device operating systems (including Near Field Communication antennae), biometric identity readers such as fingerprint or face recognition scanners, app stores, point of sale kernels 56 , SIM cards, etc. 57

The most commonly reported issue relates to some mobile device manufacturers restricting third party access to the Near Field Communication technology embedded in smart mobile devices. The Commission has recently launched competition proceedings to examine the conditions for access by third parties to the Near Field Communication technology of one mobile device manufacturer. 58  

Some European card schemes report that they have difficulties in accessing the contactless kernel in the point of sale terminals, which, for cross-border payments in Europe, is deployed by international card schemes. The European Card Payment Cooperation 59 is developing a proprietary kernel, but its rollout throughout the payment chain would, according to the industry, will take several years.

These restrictions could result in significant vulnerabilities for the European payments ecosystem, hindering competition, innovation and the emergence of pan-European payment solutions. At the same time, unilateral intervention at Member State level could lead to market fragmentation and distort the level playing field.

Key actions:

In parallel with its ongoing and future competition enforcement, the Commission will examine whether it is appropriate to propose legislation aimed at securing a right of access under fair, reasonable and non-discriminatory conditions, to technical infrastructures considered necessary to support the provision of payment services. In doing so, it will take into account:

- the ongoing review of its competition policy to ensure that it is fit for the digital age; 60  

- its ongoing work carried out on the Digital Services Act 61 with regard to ex-ante rules for large online platforms acting as gatekeepers.

Such legislation would take due account of the potential security and other risks that such access could pose. In particular, it would lay down the criteria for identifying the necessary technical infrastructures and determining to whom and under what conditions access rights should be granted.


D.Pillar 4: Efficient international payments, including remittances

In Europe, regulation and industry efforts to achieve SEPA have drastically reduced the costs of transferring money over the last decade. However, payments across the EU’s external borders are slower, more costly, more opaque and more complex.

Global remittances have expanded almost six-fold since 2000, reaching an estimated USD 714 billion in 2019 62 . This rapid growth has been largely driven by flows to low and middle income countries, which account for three quarters of the total. Together, the EU, the United States and Saudi Arabia are by far the main source of remittance flows to low and middle income countries, accounting for about two thirds of the total.

For low and middle-income countries, remittance inflows are of high macroeconomic relevance, representing for many over 10% of their GDP. They also provide an essential financing lifeline for many recipient families and often act as an informal social safety net, enabling 800 million family members (for whom remittances represent on average about 75% of their income) to pay for food and for healthcare, education and other basic needs. As measured by the World Bank’s Remittance Prices Worldwide database, the global average cost of remittances is still close to 7%, whereas the international community has committed to reducing those costs to less than 3% by 2030. As a consequence of the Covid-19 pandemic, remittances are projected to fall by about 20% in 2020, as migrants face job losses and uncertainty.

The Commission’s objective is for cross-border payments involving non-EU countries, including remittances, to become faster, more affordable, more accessible, more transparent and more convenient. This will also encourage greater use of the euro and strengthen its position as a global currency.

The main frictions affecting international cross-border payments were recently identified in the Financial Stability Board’s (FSB) Stage 1 report on cross-border payments 63 . Taken together, these frictions create barriers for payment intermediaries seeking to provide cross-border services, can increase prices for end-users, dampen investment in modernising cross-border payment processes and also affect remittances.

The Commission believes that a mix of actions at global and jurisdiction-specific level is required. In line with the findings of the Committee on Payments and Market Infrastructures (CPMI) 64 , these can be broken down into EU-specific actions and actions to facilitate remittances.

Key actions:

-Where feasible, the Commission expects the relevant payment system operators, in particular where the recipient jurisdiction has also adopted instant payment systems, to facilitate linkages between European systems such as TARGET Instant Payment System (TIPS) or RT1 65 and instant payment systems of Third countries - as long as the latter benefit from an appropriate level of consumer protection, fraud and ML/TF prevention and interdependencies risks mitigation measures. The direct access of non-bank payment service providers to payment systems may increase the potential benefits of such linkages. Consideration could also be given to establishing linkages for other types of payment systems, including retail and wholesale, where relevant, subject to similar safeguards.

-The Commission calls for the implementation, at the latest by end 2022, of global international standards, such as ISO 20022, which facilitate inclusion of richer data in payment messages.

-In order to further increase the transparency of cross-border transactions, the Commission encourages payment service providers to use the Global Payment Initiative (GPI) of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which facilitates the tracking of cross-border payments for participating institutions in real time. Wide usage of the tracker would make it possible for originating payment service providers to better estimate and disclose to the payer the maximum execution time of a cross-border payment. The Commission will assess, in the framework of the PSD2 review, whether transparency of cross-border international transactions needs further improvements.

-As instant payments also become the norm internationally, the Commission will assess, in the context of the PSD2 review, the appropriateness of requiring that the maximum execution time in ‘two-leg’ transactions also applies to ‘one-leg’ transactions 66 .

-The Commission is following with interest the ongoing work carried out in the framework of the European Payments Council on possible further harmonisation of business rules and messaging standards for one-leg transactions. The Commission will assess whether it is necessary to make these mandatory.


Addressing specific issues affecting remittances:

All of the above-mentioned strategic actions can facilitate cross-border flows, and therefore also benefit remittances. In addition:

-The Commission encourages Member States’ initiatives to support the remittance sector, subject to commitments by remittance service providers to progressively reduce the cost of remittance services over time.

-The Commission will, in the framework of EU development policy, support SEPA-like initiatives in regional groupings of low and middle income countries, and in relevant cases the possibility for Third countries to join SEPA  (e.g. in the Western Balkans and in the Eastern Neighbourhood).

-The Commission will promote the access to payment accounts in low and middle-income countries, which will also facilitate the digitalization of remittances.

All these actions could support the international role of the euro by enhancing the ability of citizens and companies to use the euro as a currency for person-to-person transfers, investment, financing, and trade flows.


IV. Conclusion

This strategy identifies key priorities and objectives for retail payments in Europe over the four years to come, based on extensive input from all stakeholders and taking in full consideration the outcome of the public consultation.

To achieve these objectives, the Commission is committing to a number of important actions. The Commission encourages all stakeholders, at national and EU level, to engage actively in the implementation of this strategy.


(1)

Commission’s Communication “Towards a stronger international role of the euro” from December 2018. https://ec.europa.eu/info/sites/info/files/com-2018-796-communication_en.pdf

(2)

According to the ECB, in 2018, cashless payments reached 91 billion transactions in the euro area and 112 billion in the EU while they were about 103 billion in 2017.

(3)

https://group.bnpparibas/en/press-release/major-eurozone-banks-start-implementation-phase-unified-payment-scheme-solution-european-payment-initiative-epi  

(4)

  https://ec.europa.eu/info/news/200702-european-payments-initiative_en  

and https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200702~214c52c76b.en.html

(5)

Such as P27 in the Nordic countries

(6)

E.g. the European Mobile Payment Systems Association (EMPSA)

(7)

The Euro Retail Payments Board (ERPB) is a high-level body chaired by the ECB, bringing together the supply and demand side of the European payments industry

(8)

  https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp191126~5230672c11.en.html

(9)

See footnote 1

(10)

  https://www.europeanpaymentscouncil.eu/what-we-do/sepa-instant-credit-transfer . For the euro area only the penetration rate currently amounts to 65.9%. The penetration rate of all SCT scheme participants is 56.1%.

(11)

Article 4(4) of Regulation (EU) No 260/2012

(12)

Mobile-initiated end-user solutions and instant payment solutions at the point of interaction

(13)

This includes for example the development of the ‘SEPA Proxy look-up’ and the ‘Request-to-Pay’ schemes, as well as functionalities such as ‘e-invoice presentment’ and ‘e-receipts’

(14)

  https://www.europeanpaymentscouncil.eu/what-we-do/other-schemes/sepa-proxy-lookup-scheme

(15)

Encompassing both physical point of sale and e-commerce

(16)

Quick Response

(17)

See section 3 under the Third Pillar for more details

(18)

  https://www.europeanpaymentscouncil.eu/what-we-do/other-sepa-payments/sepa-goes-mobile/ad-hoc-multi-stakeholder-group-mobile-initiated

(19)

See Section 1 of the Third Pillar of this Communication for more details

(20)

Such as the so-called ‘authorised push payments’ scams which, in the UK alone, resulted in £456 million (€504 million) of losses in 2019.

(21)

Directive (EU) 2015/2366

(22)

See Section 1 under Pillar 2

(23)

Directive 2014/59/EU

(24)

CPACE is being developed as a result of some European card schemes having difficulties in accessing the contactless kernel developed by international card schemes - see section 3 of pillar 3.

(25)

 E.g. inspired by initiatives contained in the Small Retailers Guide https://op.europa.eu/en/publication-detail/-/publication/d606c517-4445-11e8-a9f4-01aa75ed71a1/language-en

(26)

  https://ec.europa.eu/digital-single-market/en/digital-innovation-hubs

(27)

Verein für Konsumenteninformation v Deutsche Bahn (C-28/18, EU:C:2019:673 (5 Sept. 2019)

(28)

Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC

(29)

Regulation (EU) 2018/1724 establishing a single digital gateway to provide information, procedures, assistance and problem solving services.

(30)

In 2018, the total number of non-cash payments in the Euro Area, comprising all types of payment services, increased by 7,9% compared with the previous year.

(31)

  https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op201.en.pdf

(32)

According to the Riksbank, the proportion of those who paid for their most recent purchase in cash decreased from 39% in 2010 to 13% in 2018.

(33)

“Central Banks and payments in the digital era”, BIS, June 2020 https://www.bis.org/publ/arpdf/ar2020e3.pdf

(34)

According to the ECB study on the “Use of cash by households in the euro area” (ECB occasional paper no 201/November 2017) on average 5-6% of the surveyed participants in the euro area reported that it was (very) difficult to find an ATM or bank when needed.

(35)

On viral transmission see for instance https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200428~328d7ca065.en.html

(36)

BEUC, “Cash versus cashless: consumers need a right to use cash to use cash”, https://www.beuc.eu/publications/beuc-x-2019-052_cash_versus_cashless.pdf

(37)

World Bank, Global Findex 2017

(38)

For more information, see the Report from the Commission to the European Parliament and the Council on restrictions on payments in cash, COM(2018) 483 final.

(39)

For example. see the EBA Guidelines on the exemption from the fall back mechanism under the RTS on SCA and CSC: https://eba.europa.eu/eba-publishes-final-guidelines-on-the-exemption-from-the-fall-back-mechanism-under-the-rts-on-sca-and-csc  

(40)

 E.g. the EBA Opinion on obstacles to the provision of third party provider services under the Payment Services Directive: https://eba.europa.eu/eba-publishes-opinion-obstacles-provision-third-party-provider-services-under-payment-services   

(41)

 See https://eba.europa.eu/regulation-and-policy/payment-services-and-electronic-money/eba-working-group-on-apis-under-psd2

(42)

https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/190726-joint-statement-psd2_en.pdf  

(43)

  https://eba.europa.eu/regulation-and-policy/payment-services-and-electronic-money/guidelines-on-major-incidents-reporting-under-psd2  

(44)

See https://dmarc.org/ . DMARC is a way to make it easier for email senders and receivers to determine whether or not a given message is legitimately from the sender, and what to do if it is not.

(45)

Which is currently being reviewed in order to enhance the protection and resilience of critical infrastructures against non-cyber related threats.

(46)

  https://eba.europa.eu/eba-provides-clarity-banks-consumers-application-prudential-framework-light-covid-19-measures  

(47)

COMMISSION DELEGATED REGULATION (EU) 2018/389 of 27 November 2017 supplementing Directive (EU) 2015/2366 of the European Parliament and of the Council with regard to regulatory technical standards for strong customer authentication and common and secure open standards of communication

(48)

Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (OJ L 267, 10.10.2009, p. 7).

(49)

Article 3(j)

(50)

This assessment shall take into account, inter alia, the EBA guidelines on outsourcing (EBA/GL/2019/02), which apply to all regulated payment service providers.

(51)

Speech by B. Cœuré of 29 November 2019

https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp191126~5230672c11.en.html

(52)

  https://www.ecb.europa.eu/paym/intro/news/html/ecb.mipnews200724.en.html

(53)

TARGET2 is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem.

(54)

TARGET Instant Payment Settlement (TIPS) is a market infrastructure service launched by the Eurosystem in November 2018. It enables payment service providers to offer fund transfers to their customers in real time and around the clock, every day of the year.

(55)

Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems.

(56)

A kernel is a set of functions that provides the processing logic and data that is required to perform a contact or contactless transaction in the payment application of a point of sale terminal.

(57)

As identified by respondents to the public consultation preceding this strategy

(58)

Case AT.40452

(59)

  http://www.europeancardpaymentcooperation.eu/

(60)

 The Commission is currently reviewing the rules applicable to horizontal and vertical agreements, as well as the Market Definition Notice. Moreover, in June 2020 the Commission launched a public consultation in order to assess whether a New Competition Tool may be required in order to address structural competition problems that current competition rules cannot tackle in the most efficient manner. More information on these review processes can be found in the website for the Directorate General for Competition: https://ec.europa.eu/competition/consultations/open.html

(61)

  https://ec.europa.eu/digital-single-market/en/digital-services-act-package  

(62)

“Covid-19 Crisis through a migration lens”, Migration and Development Brief 32, Knomad, World Bank, April 2020

(63)

 Ibid

(64)

https://www.bis.org/cpmi/publ/d193.pdf

(65)

RT1 is a pan-European instant payment system owned and operated by EBA Clearing.

(66)

The so-called ‘one-leg transactions’ are those transactions where either the payee’s or the payer’s payment service provider is located outside of the Union.