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September 03, 2018

Yves Mersch of ECB spoke, at the European Institute of Financial Regulation in Paris, about strengthening the European financial industry amid disruptive global challenges in the form of digital technology. He explained that, although the foundations have been laid in EU for providing safe and efficient market infrastructure, European institutions have not leveraged this groundwork to offer pan-European payment services. Instead, the foundations are often exploited by multinationals from outside Europe offering innovative, consumer-friendly solutions. European banks seem to have surrendered much of the pan-European payment business.

ECB has brought the market together, initially via the SEPA Council and then via the Euro Retail Payments Board (ERPB). The ERPB was instrumental in the development of the SEPA instant credit transfer scheme, which is now live, with over 1,000 providers participating. These instant payments have been achieved without legislation, with the ECB instead facilitating dialog and consensus between market actors. Moreover, that scheme will soon be complemented by the new Target Instant Payment Settlement service (by ECB), which is set to go live this November, providing a real-time, high-end platform for payment service innovation. With regard to the increasing presence of multinationals, Mr. Mersch said that PayPal now dominates the market for online payments in Europe, using the pan-European Single Euro Payments Area (SEPA) credit transfer and SEPA direct debit schemes to provide harmonized services. Meanwhile, Google, Apple, Facebook, and Amazon are also offering significant payment services with pan-European reach, some of which involve joint ventures with banks at the national level. Meanwhile, Chinese giants, such as Alibaba and Tencent, are advancing. While these companies are to be admired for their ability to expand and provide innovative services that consumers want, "why there are no European companies competing in that arena." 

He examined the risk that the dependence of Europe on foreign providers will increase further regarding the development of innovative payment services, since banks are resisting the objectives of the second Payment Services Directive (PSD2) on this front. The revised Payment Services Directive (PSD2), which is in the process of being implemented, will provide secure and interoperable payment account access and will allow innovative new payment services to be provided in EU. While legislation is indispensable for an integrated market and to promote innovation, it is not the only precondition. Cooperation between stakeholders is also essential to ensure smooth and harmonized processes throughout the EU. Banks have been "defensive when it comes to granting technical access to new and innovative payment service providers, which will limit European fintech companies' ability to provide competitive solutions." He fears that "global giants from outside Europe will use their network power to increase their presence further."

The payments landscape in Europe is changing. Significant numbers of consumers are moving to online payment channels, with retail payments increasingly being carried out via mobile phones. Virtual currencies have long been a topic of debate. European citizens demand pan-European services that are safe and efficient. Consequently, there is a need to look carefully at the governance and regulation of payment solutions. Many payment channels are provided by non-European companies. Although those companies comply with the legislation and use the European payment infrastructure, they are, for the most part, not domiciled in Europe. This increases the dependence of Europe on third countries. "We have to be mindful of the fact that extraterritorial jurisdiction could, in a worst-case scenario, affect the operation of those companies and disrupt payments between European counterparties, " said Mr. Mersch. In the current geopolitical environment, such risks are, unfortunately, not as remote as they once were and need to be taken seriously by European policymakers.

Related Link: Speech

Keywords: Europe, EU, PMI, Banking ,Regtech, PSD 2, SEPA, ECB

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