I took part in the Payment Institution Panel during the EPCA event at EPIF’s invitation. We wanted to share some insights with you about the ‘game changers’ in the payments industry. With Michael Wade’s presentation on disruptive innovation in mind, I believe regulations will definitely play a major role in the evolution of payments in coming years.
At the moment there are plenty of potential regulatory updates on the horizon that might change the payments environment as we know it e.g. PSD – Payment Services Directive, Proposal for a Regulation on MIF, Proposal for a new Directive on AML, Proposal for an EU Regulation on Data Protection, Recommendations for the Security of Internet Payments). And the way this process is handled by the policy-making bodies and enforced by regulators will be significant in defining how the sector will look in the medium and long term.
Some of my concerns about the regulations once they are finally published and adopted relate to:
- Market fragmentation, especially in regards to anti-money-laundering and PSD passporting requirements, which is not consistent with the general goal of achieving an internal market for payments.
- There is a risk that these regulations constitute a hurdle for innovation, as they could discourage investment in technology, so that the benefits for the whole industry and for consumer choice might be at risk. In other words, the less appealing the payments sector becomes, the fewer providers available (due to a lower incentive for technology investment to enter the market) – and thus the less consumer choice.
- There could also be a risk of unrealistic rules on several matters, such as on MIF (Multilateral Interchange Fees), a fact that may reduce the number of market participants and customer choice. Some prescriptive regulations could thus discourage market entry or force small stakeholders to exit the market.
My recommendations for the Payment Institutions?
Payment Institutions should try to focus on their core business, depending on their own business model and their capabilities. We should also try to foster innovation and to provide best-in-class services. And last but not least, we should adopt a symbiotic approach with other stakeholders, including banks, addressing general interest purposes, so as to build up and maintain a solid and consistent payments’ marketplace.
My advice for the policy-makers?
First I would like to say that I really understand the tough challenge policy-makers face when trying to adopt proposals or issue interlinked legal instruments. On the bright side, some of the key pieces of legislation (AML, PSD, etc.) are currently being reviewed. It is a great opportunity for EU policy-making bodies involved in the adoption of those instruments to act consistently towards shared goals, such as a European integrated market for payments. Policy-makers should also prioritize between the different public goods (essential and most beneficial for the industry and society: achieving better consumer protection, innovation, competitiveness, market integration) and the objectives to pursue. I hope they will strike an accurate balance so as to protect those public goods.