The interplay between legislation and technology in European electronic payments
With the electronic payments market growing rapidly, the European legislators are facing a challenge in promoting market integration without stifling the needed innovations. To analyse the ways forward in facing this challenge, CEPS and the European Credit Research Institute hosted on November 26th a panel discussion, which was received by a large audience.
After the opening remarks from the chair Wiebe Ruttenberg, Head of Market Integration Division at the European Central Bank, Gerd Heinen (DG MARKT, European Commission) gave a short overview of Commission’s current focus points and MEP Sampo Terho emphasized the key points of the Parliament’s work in the area. The panel, also including representatives from Ericsson, MasterCard, PayPal and Western Union, emphasized the need for legal certainty for technological innovations to take payment systems further. It was, however, pointed out, that legislation per se is not the key, but identifying the areas where the benefits from legislation can be directly expected.
The panel agreed that year 2013 will be important for the regulatory work in payments, and that the European Commission’s main steps in this work are the review of the Payment Services Directive (PSD), possible proposal for the regulation of Multilateral Interchange Fees (MIFs), and a proposal for the new payments governance framework. In the review of the PSD, there are new issues that are being considered, such as access to information about the availability of funds. The regulation of MIFs could also end up being dealt with as a part of the PSD, but the analysis of regulation of MIFs is still open, as there are several dimensions as to what to regulate, and how to regulate, leading to several possible alternative combinations to be considered. In the assessment of the SEPA governance two key issues have emerged, being the lack of sufficiently broad representation of different stakeholders and strengthening of its role.
It was also pointed out that payments are not a product that consumers buy, it is only an instrument needed to get the service/product wanted. This is why payment service providers are seen as solution providers, making innovations in payments crucial to make them an efficient support tool in commerce. Functional approach to payments by legislators was called out in the discussion, meaning that legislators should not ask what the problems are now, but instead determine what kind of markets we want, and work on that basis. The more complex the technology solution, the more difficult it is to regulate it efficiently. Some of the panellists argued that currently, there is too much uncertainty for full extent technological development in payments. Therefore, technology neutral, risk-based regulation was called for.
The panel also discussed some of the main obstacles for innovations in payment technologies. Cash was pointed out as the biggest obstacle that all payment services providers are facing. The role of MIFs in promoting electronic payments was also emphasized, with the main argument that the harmonization of MIFs would hamper the development of payments if it is done upfront in the process, while instead it should come only at the stage when the infrastructure for electronic payments and their technologies are set up in a level way. One example of regulation hindering innovations and functioning of payments was mentioned to be the Anti-Money Laundering rules (AML).
The panel closed the discussion by exchanging views about what is a level playing field, which everyone wants to promote. The panel determined it as a market which is transparent with each player knowing what is allowed and possible, definitions and rules being technology neutral but adequately differentiated, where also new comers have a fair chance, where you cannot choose winners and losers, and where competition exists at all price forming levels.
