European payments regulations: 5 key questions

With so much happening when it comes to European payments regulations, P27’s Senior Manager for Business Execution Jussi Snellman breaks down some of the priority questions driving discussion in the European Commission and elsewhere.

In his role, Snellman has a birds-eye view of payments’ evolving regulatory landscape. He sees himself as a “jack-of-all-trades”, tasked with maintaining a “holistic, strategic view” over regulatory developments taking place in Brussels and Frankfurt, as well as the Nordic capitals.

“My challenge is to keep abreast of the big picture and look at ways in which P27 can be proactive rather than reactive,” he explains.

And when it comes to European payments regulations, the big picture keeps getting bigger. Not only is P27 closely monitoring and participating in regulatory processes in the Nordic countries, but the EU’s Retail Payments Strategy has also laid out the European Commission’s vision. And the G20 Financial Stability Board (FSB) has also released a roadmap to enhance cross-border payments.

With so many discussions taking place at the national, European, and international levels, P27’s Snellman offers a list of the priority questions driving current regulatory discussions affecting the payments market in Europe.

1) How to reduce fragmentation and increase competition in European payments?

Currently, payment instruments in Europe are domestic or regional in nature or controlled by global players.

“There really is a lack of end-to-end European payment products,” says Snellman.

Thus, the European Commission is focused on creating a truly pan-European retail payments market that will simplify the currently fragmented market, while at the same time increasing competition from non-bank players.

The P27 payments platform currently under development also has the potential to support that vision.

“We also want a payment market that is less fragmented but remains competitive and is still pan-European in nature,” says Snellman.

2) Who should have direct access to critical payments infrastructure?

It’s hard to overstate the importance of robust and stable payments infrastructure to the smooth functioning of society.

“It’s understandable, desirable and absolutely vital that whenever we talk about access to critical infrastructure that security is the number one priority,” says Snellman.

“If something goes wrong, it will have immediate, far reaching, and potentially catastrophic consequences.”

Thus, the question of what institutions and players should have access to the infrastructure is an important and increasingly complex one, especially considering the entry of new players and technologies.

In concrete terms, it’s about what sort of institutions should be protected by Settlement Finality, a 1998 EU Directive that is currently up for renewal. It regulates systems used by market participants to transfer financial instruments and payments. The European Commission is now seeking input as to whether, for example, non-bank payment services providers should be covered.

“The question of who should have direct access to payments infrastructure is of interest to P27 because we are, at the end of the day, an infrastructure provider,” says Snellman.

3) How should consumer data be protected?

Questions of data and consumer protection have long been important to Europeans and discussions related to European payment regulations.

“It’s all about giving people control and peace of mind regarding the security of the services they use,” says Snellman.

He points to PSD2 and GDPR as examples of recent EU legislative developments designed to address consumer and data protection concerns. And with the PSD2 renewal process set to commence later in 2021, the question is once again up on the agenda.

“One of the areas they are looking into especially relates to consumer protection and how measures established with the original PSD2 worked, what gaps may exist, and where we should go from here,” he explains.

4) How to promote cross-border and instant payments?

The ability to send payments seamlessly and instantly across borders and in multiple currencies is considered something of the “holy grail” of payments and something regulators are keen to see on offer to customers across Europe.

“As other services we use become seamless and instant, it becomes increasingly apparent that cross-border payments lag behind,” says Snellman.

And thanks to recent advances, technology is no longer a “limiting factor” to implementing instant and cross-border payments, he adds. However, many regulatory hurdles remain in the way of achieving seamless and efficient cross-border payments.

“I think the question of how we can utilize instant capabilities across borders is one of the most important areas for discussion and development. And that is precisely what P27 aims to achieve here in the Nordics,” Snellman adds.

P27 has been focused on this vision since its start and is constructing a platform and processes that will enable all parties to provide instant, cross-border services.

“By integrating the Nordics into a single payments region, P27 will make it possible to offer more harmonized payments solutions covering not only a single market but multiple markets, thus making it easier to integrate the Nordics with the rest of Europe when it comes to different payment solutions,” he says.

5) What is the most sensible division of labour?

In addition to grappling with new market players, technology, and customer expectations, regulators must also address concerns about how best to split responsibility between public sector and private sector players. But the arrival of new possibilities like instant payments is forcing regulators and market participants to reconsider what Snellman believes to be “perhaps the biggest question in the minds of many”.

“It touches on what the role of the central banks should be and what the role of the private sector and other market participants should be,” he explains.

Snellman believes there is “broad agreement” that end solutions like customer interfaces should be in the hands of market participants and that final settlement should be in the hands of central banks. However, there is a “significant and widening grey area” between those two ends of the spectrum.

“There is a lot of debate and different opinions about how the market players should interact with central banks and public authorities,” he says.

European payments regulations: the road ahead

It remains unclear exactly how discussions about the above issues will evolve or whether one particular question will come to dominate the agenda. In many ways, they are all intertwined, according to Snellman.

“This is a complicated soup with many cooks involved,” he says.

“The deeper you get into the details, the more it becomes less about facts and the more it becomes about opinions and probabilities.”

Regardless, he says there is no doubt that the EU’s Retail Payments Strategy will play an important role in shaping the trajectory of discussions regarding European payments regulations.

“We are all affected by one another. It’s a complex network,” he explains.

“Everybody needs to learn how to cope with one another and play together, and that will take some time.”

Note: P27 is still in a preliminary stage, and the establishment of P27 is subject to regulatory approvals and requirements.