26 October 2015

ECB's Mersch: Challenges of retail payments innovation

Yves Mersch says that for the Eurosystem, the main focus is on pan-European retail payment solutions in euro; the EU must ensure the safety of innovative payment services, which market needs to be based on a level playing field; and that he expects the adoption of instant payments to be set shortly.

Part 1: The key institutions involved in payments innovation

The points I just made illustrate that, despite all the effort that has gone into the integration of the euro retail payments market in Europe, we are not there yet. Only last month, the European Commission published a roadmap for an upcoming Green Paper on Financial Services and Insurance. The main purpose of this initiative is to investigate obstacles and gaps in previous legislation that prevent the supply side from providing services across the Single Market and the demand side from enjoying the benefits of the Single Market. With regard to innovation, the European Commission roadmap recognises that the current trend of digitalisation in retail payment services – i.e. the development of new models and approaches through technology and the internet – provides a particular opportunity to further integrate markets and solve a number of pending issues in the retail payments sector.

The European Central Bank very much welcomes this initiative as it should complement the efforts of the Eurosystem and the Euro Retail Payments Board to further develop open, fair and competitive retail payments in the EU.

The Euro Retail Payments Board, or ERPB, is the third body working towards innovation in payments, alongside the Eurosystem and the European Commission. The ERPB was created by the European Central Bank in 2013 as a strategic body that formulates guidance and a common starting point for the development of an integrated, innovative and competitive market for retail payments in euro in the European Union. It also provides recommendations on work priorities, including standardisation needs. The ERPB is composed of high-level representatives from both the supply and demand side. On the supply side, there are representatives of the banking community, payment institutions and e-money institutions. On the demand side, there are representatives of consumers, retailers with physical premises, internet retailers, businesses/corporates, small and medium-sized enterprises and national public administrations. Representatives of national central banks participate in the board’s work on a rotating basis and the European Commission participates as an observer.

New payment service providers

In Europe, it is expected that non-banks will have a stronger role in payment markets in the years to come. This will contribute to a wider choice of products and increased competition.

One category of non-bank payment service providers is that of payment institutions. Payment institutions came into being as a result of the enactment of the Payment Services Directive, or PSD1 (now revised - PSD2). [...]

Actually, payment initiation services provided by third parties have existed in the market for some time now. [...]

An important follow-up work to PSD2, which was adopted by the European Parliament on 8 October and is expected to be formally adopted by the EU Council of Ministers in the near future, is the drawing up of so-called regulatory technical standards. This includes, in particular, the requirements for strong customer authentication and for secure and open communication standards between third party service providers and account servicing entities. As I mentioned in the first part of my speech, the European Central Bank and the European Banking Authority are closely cooperating in this area under the remit of SecuRe Pay. [...]

Instant payments

[...] The European Retail Payments Board mandated the payments industry to design a scheme for instant payment services by November 2015. The European Payments Council, which represents payment service providers, is working on a proposal for the design of a common scheme based on the SEPA credit transfer. This proposal is to be delivered in the next meeting of the European Retail Payments Board in November 2015. [...]

The development of pan-European instant payment services is also an integral part of what we call the Eurosystem’s “vision 2020”. Overall, our vision 2020 encompasses three central areas: first, it aims to explore the synergies between TARGET2 and TARGET2-Securities, with the ultimate goal of achieving a consolidated Eurosystem market infrastructure for large-value payments and securities settlement. Second, it aims to increase the level of harmonisation of the Eurosystem’s collateralisation techniques and procedures, and to consider whether a common Eurosystem collateral management system would be useful. Third, it will assess new service opportunities arising from bringing TARGET2 and TARGET2-Securities closer together. In particular, it will consider the benefits of enhancing TARGET2 services in the field of instant payments, at least in the settlement layer. Furthermore, it will review how the Eurosystem could foster the emergence of a competitive and open clearing solution for instant payments. [...]

Conclusion

To conclude, allow me to summarise the three main messages that I would like you to take home from my speech today.

First, I hope that I managed to explain that for the Eurosystem, the main focus as regards retail payments innovation is on pan-European retail payment solutions in euro. We should take advantage of the harmonisation and integration already achieved with the SEPA project in working towards innovative payment solutions, be they instant payments, mobile payments or other payment-related services. This does not mean that we should ignore global developments or prevent local or regional initiatives from emerging. I would like to emphasise, however, that we should avoid the development of non-interoperable silo solutions. Rather, the harmonisation of standards and business rules, pan-European reachability, interoperability and a harmonised legal framework are the foundations on which innovative payment solutions should be based.

Second, I would like to underline that the market for innovative retail payment services needs to be based on a level playing field. Hurdles preventing new service providers from entering the market must be avoided. The Eurosystem welcomes innovation and new market faces. At the same time, all entities providing payment services to end users should be licensed and supervised. As for banks, e-money institutions and payment institutions, licensing of new payment service providers should be proportionate and risk based.

Third, while it is clear that users will go for innovative payment services that are convenient and inexpensive, they also take it for granted that the regulatory authorities ensure the safety and efficiency of the products and services. [...]

Last but not least, as instant payments will be the basis for many innovative services offered by payment service providers, I expect that, by the end of this year, the course for the development and adoption of instant payments in Europe will be set.

Full speech

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