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EU payments have evolved dramatically over the past decades. From initially relying on cash, cheques, and then credit and debit cards, the last 10 years have seen the emergence of numerous digital and mobile payment options. Supported by the digital transformation, banks and third-party providers have created new ways to make online and in-store payments. These innovations have also been the result of various legislative initiatives and Eurosystem investment in new infrastructure.
The payments market has likewise seen major changes, starting with the Payment Services Directive (PSD1) adopted in 2007, followed by its revision in 2015 (PSD2). It is currently undergoing a third revision, which proposes to split the directive into two parts, with proposals for a PSD3 and a regulation, the Payment Services Regulation (PSR).
PSD2 supported new means of payment by giving third-party providers access to payment accounts and payment initiation services (i.e. open banking). Still, open banking has a long way to go before it reaches its full potential, with the PSD3 and PSR proposals trying to tackle issues.
The European Commission has not limited itself to proposing improvements to open banking. It has gone a step further by proposing a new regulation, FIDA (financial data access), whose approval would legally establish such access, commonly referred to as open finance.
In line with the objectives set by the European Commission in its retail payments strategy in 2020, the Instant Payments Regulation was adopted in March 2023, with the aim of making all bank accounts accessible 24/7/365. With the new regulation, bank transfers will no longer require a few days but a few seconds. In parallel with traditional payment methods tied to a bank account, cryptocurrencies – regulated by the Markets in Crypto-Assets Regulation (MiCA) – are gaining traction. This is partly thanks to their ability to facilitate cross-border and digital payments while allowing the user to remain anonymous.
Although the capacity of crypto-assets to work as a means of payment remains to be seen, the ECB has started working on a digital euro. The aim is to launch a new payment method alongside traditional money, functioning as a digital cash option hosted by the ECB and using a ‘domestically’ developed transfer system. It will have a major impact on the payments market as we know it today, with its full implications yet to unfold.
Yet overall, regulatory processes are lengthy, with draft proposals going through intense debate. The legislation and many regulatory measures have made it increasingly complex to fully understand their real impact on the market or how they interact.
In this paper, we explore the policy initiatives that will be the focus of European legislation in the next institutional cycle. We start with the level one files left pending from the new institutional cycle, namely PSD3/PSR, FIDA and the Digital Euro; then we delve into those entering level two, with a special reference to the Instant Payments Regulation; finally we look into the future and analyse the need for a regulatory pause, as well as for the European Commission to actively promote in other jurisdictions EU’s regulatory standards on crypto-assets....
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