While in theory the imminent European proposed legislation seeks a harmonized market for payments, the reality shows us a fairly fragmented one, mainly due to a lack of cooperation between home and host regulators. To illustrate this point we can look at the proposal for a revised Payment Services Directive (PSD2) pursuing harmonization effects, but which is undermined by the AML reality, because the proposal for a 4th Anti-Money Laundering Directive is a minimum harmonization instrument.
This obviously leads us to a complex and costly compliance framework for the payments market, which especially impacts smaller cross-border ecommerce players who might lack the necessary resources to deal with it. And it also leads us to the following question: does it make sense that local or regional rules apply to a borderless environment like the e-commerce one?
On the bright side, regulators can and must cooperate to tackle this fragmentation of the European Payments Legislation, especially now that the European Banking Authority (EBA) has been granted a broader role in this respect by the Proposal for a Revised Payment Services Directive (PSD2) (and because all the legal instruments are being launched at the same time). What remains to be seen is whether the European Banking Authority will be sufficiently budgeted to fulfill the role with which they have been entrusted.
Uneven playing field
An equally important concern is the one referring to the level playing field that must be fostered by policymakers and regulators. Enhanced competition is one of the goals generally sought by some of the European proposals for Directive or Regulation around the corner. But interestingly, those very initiatives might in the end deter it. This is the case, for instance, with the Regulation on Multilateral Interchange Fees, which might possibly:
– Strengthen the position of big players (who have the muscle to face tough times) and show the exit sign to the smaller ones; and
– Reduce consumer choice (as fewer providers will be available and prices might ultimately increase).
It is also the case of the Proposal for a Revised Payment Services Directive (PSD2) that it does not lay down specific measures to protect the right of smaller Payment Institutions to access bank accounts freely. To illustrate this point, I will share with you that within the context of the European Payment Institutions Federation (EPIF), we have dealt with cases of Payment Institutions in many European countries which are being prevented from accessing a bank account – or from keeping an existing one – with no excuses or weak ones, based mainly on money-laundering aspects; the Payment Institutions end up getting the account back, but they normally need legal counsel or even court rulings. Last but not least, in general, this creates enormous competitive disadvantages for European cross-border ecommerce players who operate globally.
Photo source: sitepres.europarl.europa.eu