Scale2Save Peer Review Workshop 2020 Edition
This workshop is the third of the Scale2Save bi-annual peer exchanges that will focus on the programme, project activities and learning.
Covid-19 provides a catalyst for further savings in Africa, according to a nearly two-thirds of banking sector experts attending the first of the three-day WSBI-Scale2Save programme annual peer exchange virtual workshop.
In an online poll of participants, 59 per cent of nearly 50 participants consider Covid-19 as an enabler of savings, with the remaining respondents saying it dis-enables savings in Africa. Although the question posed did not explore long or short-term impacts of Covid-19 on savings, the result underscores how Scale2Save partner institutions tackle pandemic challenges.
The poll gave attendees a starting point to focus on how Scale2Save programme aims, project activities and learning from research can help address the current pandemic on banks’ ability to establish the viability of small-scale savings in Africa.
Update from Mastercard Foundation
A presentation by Mastercard Foundation’s Diaka Sall, who serves as Lead for Agriculture in Senegal, highlighted the foundation “Young Africa Works” strategy, a bold ambition to ensures 30 million young women and men gain access to dignified and fulfilling work across the continent. Young Africa Works focuses on areas that include micro-, small-, medium-sized enterprises and agriculture digital technology education.
“Service providers continue to expand and offer tailor made solutions, many more Africans would be included in savings will grow at the individual family and community levels, offering a pathway out of poverty. To drive this agenda, however, service providers must be innovative in their thinking and inclusive in their approach.”
“At the MasterCard Foundation, we are blessed to be in a position to partner with organisations such as WSBI under the Scale2Save programme to support initiatives and ensuring many more people on the continent are included and embrace the savings culture. on behalf of the master calculation.”
Scale2Save
European Financial Services: Serving all European citizens
ESBG | BROCHURE
Month: October 2020
ESBG member banks a make a substantial contribution to EU growth, stability and prosperity by weaving into the local and regional fabric, forming a major source of finance for people, households, SMEs and community institutions, says this new handbook.
The 118-page document provides a quick introduction to financial regulation and the role that savings and retail banks play in the EU economy and overall society. It explains ESBG positions on a host of policy areas.
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Impact of Banking Regulation: Final Report
The four social partners – EBF-BCESA, ESBG, EACB and UNI Europa Finance – have carried out a project funded by the European Commission in order to assess the impact that banking regulation has had on employment.Please find below the conclusions that we have drawn from the data collection exercise.
1. Total number of employees
In the EU28 we observe a total loss of 440,200 employees (-14%) from 2007 to 2016 in the banking sector. This shows data from the European Central bank (ECB) and also data from the members of the European social partners (ESP).
The spectrum of country profiles was wide over the period 2007-2016 ranging from significant job losses in some countries (-115.700 highest drop) to moderate job creations in others (+6.800 highest increase). The significant decrease in the number of employees in some large countries significantly affected the general drop at EU level. Reasons for domestic trends are most often country-specific and cannot be generalised. Recent policies aiming at the consolidation of the EU banking sector and the restructuring of banks’ branch networks have undoubtedly influenced the decline in employment. In parallel, the digitisation process in recent years has increased the demand for digital skills thus reshaping the equilibrium of the job markets in the banking sector.
2. Bank branches
The decline in bank branches between 2007 and 2016 (-22%) was stronger than the decline in employees (-14%) for the EU28. The average number of employees by branch was 14.7 in 2016 compared to 13.3 in 2007 for the EU28. So we observe an increase in the number of employees by branch in 20 EU countries, due to a stronger decrease in branches compared to employees. A possible explanation is that employees were distributed to other branches after the closing of their branch.
Regulation in the banking sector has put pressure on the number of branches and the number of employees. However, the impact on employment was not as extensive as the impact on the number of branches. This consolidation process is the result of both policy decisions and market trends including digitisation. To cope with this new environment, financial institutions are adjusting their business models to increase client proximity while restructuring their network of branches.
3. Age
A shift to senior age groups can be observed in the EU28 since 2007.
Looking at the total figures, notably the youngest age group 15-24 shows the largest decrease (-38%), followed by 25-39 (-19%), and finally the middle-aged group 40-54 shows a small reduction (-5%). Only the age group 55+ shows an increase of +35%.
Looking at the relative percentages, the groups 25-39 and 40-54 are of course still the largest. In 2007 the largest age group was 25-39 with 44%. In 2016 the largest group shifted to 40-54 with 41%.
The ageing trend of the average bank employee can be interpreted by: i) the stricter requirements on HR hiring procedures as a consequence of the 2007 financial crisis thus increasing the difficulties in recruiting young profiles; ii) the nature of the post-crisis job supply focusing on high-skill labour due to higher regulatory pressure; iii) the competition of new players such as FinTechs increasing the pressure on hiring job seekers belonging to the younger age groups (15-24 and 25-39 year olds).
4. Education level
There is a relative decline in low (-3%) and medium (-11%) education levels compared to an increase in a higher education level (+15%) for the EU28 between 2007 and 2016. This development correlates with an increase in higher age groups. A similar development with varying degrees can be seen in nearly all countries.
The growth of the share of profiles with higher education in the banking sector can be explained by a heightened regulatory pressure and a more complex environment. As a consequence, banks need to recruit more experienced staff with higher degrees.
Compliance with multiple regulations obliges banks to choose employees with higher qualifications.
5. Part-Time
Behaviours regarding part-time jobs adoption is clearly different across EU countries. While this practice seems to be widely accepted in countries belonging to the Western block of the EU (where part-time can represent from 24% to 28% of total banking jobs), it remains relatively modest in Eastern countries (below 1% in some countries). About 50% of all countries show a decrease vs. 50% increase in part-time contracts. The changes are mainly only slight. The relative decrease in part-time contracts in some countries was globally compensated by the relative similar increase in other countries. Logically then, the EU28 average remained stable at +0.3% points.
The development of part-time activities can be explained by the following key factors: i) the entrance of new seekers into the job market made necessary by the need for a higher household income in some countries; ii) the increase in wages in some countries allowing the possibility for one member of the household to work part-time; iii) the development of teleworking practices; iv) the need for more flexibility from households to lead in parallel personal and professional lives in a context of widely-accepted gender equality.
6. Permanent contracts
Permanent contracts still make up the majority in all countries and range from 72% to 99% of total banking jobs in 2016 depending on the country.
A majority of 20 countries show a small decrease compared to 8 countries with a slight increase from 2007 to 2016. The EU28 average shows also a minor decrease of 1.5% points.
Despite the recent development of part-time activities, permanent contracts remain the predominant form of employment in the banking sector. Yet adjustments are being made on permanent contracts enhancing flexibility for the workers and allowing them to perform their jobs remotely or giving them the opportunity to adapt their working hours in line with professional objectives and personal duties.
7. Gender
Women still make up the majority in the banking industry with 52% in 2016 (LFS data, in ESP data: even more with 54%). In 20 countries female employees exceed 50%. The share of female employees is higher in Eastern European countries (as high as 70% in some countries), than in Western European countries (below 45% in some countries).
Comparing LFS with ESP data, the percentage of female employees is similar but not identical by country. In 7 countries, the percentage is slightly higher in ESP data, in 3 countries it is lower. We observe a decrease in female employees in 18 countries vs and increase in 10 countries. The strongest reduction amounted to 10% points while the largest increase reached about 16%. The EU28 remained relatively stable with -1.1% points.
Banking is one of the sectors that shows equality in employment between males and females. This is especially true in Eastern European countries where gender equality is uneven across sectors and where the banking industry could be seen as a leading and innovative sector in this respect.
8. Level of hierarchy
In the EU28 we observe a total decrease in the number of managers (-33%), clerks (-32%) and technicians (-9%) vs an increase in professionals (+87%) from 2007 to 2016 in the banking industry.
Executives:
In 2016, the share of executives in total employment ranged from 4% to 23% in EU countries. Several groups of countries with different trends can be observed: on one hand the group of fastest decline where the share of executives plunged by 8-12%, and on the other hand the group where the number of executives was quickly expanding with rates ranging from 8% to 9.5%. The EU23 average amounted to 12% in 2016 with a decrease since 2007 in the LFS data. In comparison the ESP average for the EU10 is 17% with a slight increase. The differences in the definition for executive positions across member states reduces the reliability of trends observed at EU level.
Female Executives:
The share of female executives varies widely with a scope going from 19% for the smallest share of female executives to 64% for the largest share. Six countries with larger shares show a decrease, whereas the majority of 13 countries with mainly smaller shares report an increase. The EU19 average indicates a small increase of 2.2% points.
Banks are gender agnostic in regards to employment and grant a high importance to skills and leadership. Over-representation of male executives seems to be changing but more time is needed to confirm this trend.
9. Pay Structure:
The pay structure was analysed on one hand by Eurostat SES data for section K (banking and insurance). This data was only available for the years 2006, 2010 and 2014. On the other hand we used ESP members’ data for 2007, 2013 and 2016 for 10 countries. As the latter is more specific for the banking industry and covers the requested years, we recommend focusing on these results. In both sources, we had a reduction in the percentage of variable pay since 2007.
ESP: In the ESP data variable pay varies from 0% to 17%. Only one country experienced an increase in variable pay (+5%) while other countries encountered a decrease in variable pay. The EU average amounts to 7% in 2016.
Eurostat SES: As of 2014, the percentage of variable pay varied from 2% to 21% in EU countries. The EU average amounted to 14%. 18 countries show a decrease compared to 6 countries with an increase.
Post-crisis remuneration policies carried out at EU level have impacted both managerial and non-managerial income with the effect of decreasing the share of variable income in total income.
10. Reasons for Internal Restructuring
A survey from Eurofound analysed that 82% of all published events report “internal restructuring” as the reason for job cuts in the financial industry (banking and insurance for the EU28) from 2007 to 2016. Internal restructuring is from the banking sector’s point of view more a consequence than a reason, therefore Kantar Live conducted a survey among the ESP members to get further indications. In the study four reasons were described to be most important, namely the financial crisis, market forces, digitisation and regulation. The current situation and the reduction in employment is induced by mutual interdependencies of these factors. According to expert interviews, market forces and digitisation are the main triggers, followed by regulation. The impact of the financial crisis seems to be more indirect due to stricter regulations. But the situation is different by country and this result may also vary.
Comments to the main factors:
Financial crisis:
- More indirect than direct impact through increased cost pressure caused by stricter regulations, changed policies, mergers etc.
- Job losses were more eminent after bust of the dotcom bubble. Nevertheless bank liquidations after the crisis, decreased branches and employees.
Market Forces
- Historically low interest rates and a low GDP impact remunerations.
- Increased competition by non-banking competitors: FinTech.
- Consolidations and restructurings after many mergers and acquisitions.
Digitalisation
- Technological innovation modifies the customer demand and customer relationship and fosters the arrival of new competitors, e.g. FinTech.
- New business models: RoboAdvisors, Artificial Intelligence, digital central staff functions, e.g. in HR reduce the need for personnel.
- Employment gains by new job profiles, e.g. in IT, will not compensate the immense job losses, e.g. in retail banking.
Regulation
- Increased costs due to more complicated processes, e.g. for documentation.
- Directive Basel III increased requirements on the equity ratio, which ties up capital.
- PSD2, the European Payment Service Directive, forces the banks to disclose customer and account data which increases competition, e.g. of fin-techs.
We should try to collect additional data in the second phase of the project in order to arrive to a more accurate basis for more specific conclusions. The pure numbers of losses do not reflect the efforts of employers and unions and social partners in general (including works councils) in mitigating the effect of the job losses.
A recent study across EU countries has revealed that around 82% of job losses in the banking industry between 2007 and 2016 can be attributed to “internal restructuring”. As a matter of fact, internal restructuring should be perceived as a consequence of environmental change that induced job losses rather than as a root cause. The key drivers of internal restructuring are, from the most important to the least important, as follows: i) market forces, ii) digitisation, iii) banking regulation; iv) the 2007-2008 financial crisis.
Regarding market forces, the environment in which banks have been operating since the financial crisis has been tough and turbulent. Low GDP growth among the EU28 countries combined with a low-interest rate monetary policy has put pressure on the profitability of financial institutions and forced them to adopt new commercial strategies. The entry of new competitors (e.g. FinTechs) on the banking market has also pushed traditional financial services providers to internally reorganise themselves in depth to meet new kinds of customer demands. Finally, the consolidation of the banking assets triggered by policy makers in the EU28 has led to a series of mergers and acquisitions and opened the door for organisational change and cost rationalisation at institutional level.
The advent of the digital era for financial services also played a role in internal restructuring. Technological innovations have created new customer demands, has reshaped customer relationships and has initiated the entry into the market of new competitors. About human resources, financial institutions are adapting new business models including the use of RoboAdvisors, Artificial Intelligence and digital central staff functions with a downsizing impact on labour-intensive tasks.
Another reason that led to internal restructuring is regulation. More complicated processes are leading to higher costs for banks. New prudential rules initiated by Basel III led to higher capital requirements and a need for banks to increase their prudential buffers thus reducing their capacity to reach out to the real economy. Also, the European Payment Services Directive (PSD2) has forced the banks to disclose customer and account data which increases competition.
Finally the financial crisis indirectly impacted financial institutions through a series of subsequent events such as increased cost pressure caused by stricter regulations, changed policies and mergers. The decline in economic conditions also led to a rise of NPLs which in some rare cases led to liquidation thus negatively impacting employment.
11. Changes in job profiles
We used a survey by EY, the European banking monitor (EBM), which covered 12 European countries as a starting point and complemented and verified the results by 5 interviews with banking experts in large European countries (France, Germany, Italy, Spain and Poland).
EBM stated that banking managers in 12 EU countries estimated in 2016 the major headcount reductions in administration, head-office functions and retail and business banking.
Job gains are expected in compliance and asset management, which is a contrast to 2013.
ESP: Banking experts in 5 EU countries expect for the next 10 years more loss than gain. Major loss is expected in administration and retail banking, gain is expected mainly in compliance and IT. The situation will of course differ between the countries.
Summarising, the overall expectations for the EU from EBM and ESP does not match completely but in the main aspects.
Reasons and Expectations for changed job profiles in the last and next 10 years:
Past: 2007 to 2016 (last 10 years)
1. Simpler activities were already either outsourced or automated, e.g. for payment transactions, loan processing and administration.
2. Alliances of joint data centres reduced the needed IT-experts, as one expert serves several centres. In Spain there were strong reductions among IT-experts caused by subcontracting and outsourcing to third parties.
3. In the past traditional (retail) banking was most developed, currently the trend (caused by digitisation and market pressure) goes more into asset management, private and corporate banking and internet banking.
4. In some countries the workforce remained relatively stable due to decrease and increase, e.g. in France and Poland but in others we had tremendous reductions, e.g. in Germany and in Spain.
Future: 2017 to 2027 (next 10 years)
1. Further big mergers among European banks are expected (comparable to HypoVereinsbank and Unicredit), which will affect employment.
2. New skills needed among the employees will evolve and organisations have to adapt.
3. Digital technologies and automation affects all areas and will decrease employment e.g. in payment and loan processing, head office and administration and retail banking.
4. IT experts with new skills are needed for the further digitalisation and automation but often these positions are outsourced. FinTechs will cause rivalry, but will also be taken over, which will lead to rising employee figures due to integration.
5. Regulation will create new jobs in compliance, but will also change job profiles. On the other hand, it might put pressure on jobs.
6. Changes in customer demand (e.g. self-deciders in finance), will cause the need for new business models, which means opportunities for new jobs, e.g. in product development.
The changes in job profiles reflect the changing world of banking.
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WSBI commits to the UFA 2020 Goals
WSBI commitment to financial inclusion
WSBI is a member of the Coalition of Partners that support the World Bank Group’s Universal Financial Access (UFA) 2020 Goal.
At its meeting in Washington, D.C., on 23 September 2015, the WSBI General Assembly announced a new UFA 2020 numerical commitment that aims to reach 1.7 billion clients and 400 million new transaction accounts by the end of 2020, based on the current membership. This pledge reinforces WSBI’s continued engagement with its ‘Account for Everyone’ goal launched by the trade body in 2012, which it re-endorsed in 2015 at the World Bank spring meetings. The UFA commitment also forms and integral part of the Washington Declaration issued the day after during the 2015 WSBI World Congress
“WSBI recognises that achieving universal financial access by 2020 requires a collective effort. We are honoured to be part of the initial Coalition of Partners who have been invited to contribute to this global cause.
“WSBI will leverage its broad outreach in some 80 countries worldwide, harnessing opportunities offered by new technologies to deliver an accessible, affordable and quality product and service offer that meet the needs of underserved and unbanked while boosting financial access and usage.”
– WSBI President Heinrich Haasis
WSBI’s global reach
An international banking association, WSBI brings together savings and retail banks from around 80 countries representing the interests of approximatley 6,000 banks in all continents. As at year-end 2014, members served a baseline total of 1.3 billion customers, which includes providing accounts for the poor worldwide. It remains fully committed to the ‘Account for Everyone’ goal adopted by its members in May 2012 when reaffirming a deep commitment to financial inclusion set out in our Marrakech Declaration.
WSBI and World Bank Group forge deeper strategic partnership
The World Savings and Retail Banking Institute (WSBI) and the World Bank have agreed to forge a deeper commitment to the World Bank Group’s strategic goal of Universal Financial Access (UFA) by 2020.
The two bodies signed a Memorandum of Understanding in Washington on 24 September 2015 to form a strategic partnership, the first ever between the two bodies. Together, they aim to identify and thereafter facilitate or implement joint actions involving WSBI member banks in support of the 2020 goal.
Actions taken jointly by the two parties will address issues at both global and country level, including needed legal or regulatory reforms, financial technology investments, stakeholder dialogues, advisory services, innovation support for incubator work, as well as field and market fit testing. Initial priority will go to WSBI members who represent 17 of the 25 countries the World Bank has identified as ‘focus countries’, containing 70 per cent world’s unbanked. WSBI members in other countries could be added by mutual agreement.
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Corporate Social Responsibility
Socially responsible banking is part of WSBI and ESBG members' DNA. A strong commitment to sustainable development, members place corporate social responsibility (CSR) as an integral part of their business. They hold values outlined by the Three "Rs": retail, regional, responsible.
A sustainable banking model: crucial to financing the real economy
A sustainable banking model provided by embedded CSR and sustainable development practices is crucial to financing the real economy, leading the way to a competitive social market economy. Against this backdrop, WSBI-ESBG advocates continuing with its engagement in all relevant CSR initiatives at European level and international level, so as to contribute to the 2030 Sustainable Development Agenda and the 17 Sustainable Development Goals, approved by the UN General Assembly in 2015. The development of CSR should be led by enterprises themselves, as they are best placed to design a sustainable strategy according to their business model, their needs, their positive impacts, and the expectations of their partners. Collaboration with other stakeholders in these endeavours remains key. In addition, WSBI-ESBG believes that a level playing field in the adoption of responsible practices is key, making it the responsibility of all entities and not only of the business community. In addition to this respect, prescriptive regulatory frameworks should be avoided when fostering CSR, as this would hamper social innovation, a driver of CSR and sustainable development.
There is a need to consider the longer term where environmental, social and governance initiatives can fulfil their maximum potential. Long-termism is necessary to create a sound basis for sustainable growth (EU growth agenda), and should be envisaged in reporting, investments, risk assessment etc. In this respect, governments should include ESG factors in their own policies: government investment, public policies, etc. There is a growing understanding of the benefits that reporting on non-financial issues can have. However, reporting should remain flexible and the choice of each business according to its needs and strategy.
WSBI-ESBG members play an important role in territorial cohesion as well as being important actors in the preservation of the diversity of the financial system. Therefore a reinforced role, benefitting from the application of the principle of proportionality, is the way forward to be able to contribute to accomplish the objectives of the Europe 2020 Strategy: smart, inclusive and sustainable growth, and the 2030 Global Sustainable Development agenda, and the 17 UN SDGs.
ESBG position
WSBI-ESBG has a firm commitment to continue to work towards creating welfare, raising awareness, identifying trends and creating opportunities for dialogue, engaging with other stakeholders and bringing forward its members’ responsible business model. WSBI-ESBG strives to participate in all relevant EU and international initiatives and fora, adding its value and longstanding experience in the field.
Background
WSBI-ESBG members have an embedded social commitment to the communities and regions in which they operate. This is an integral part of their identity and one of their distinctive features. WSBI-ESBG members contribute to the improvement of living conditions, supported local economic development and build greater social cohesion in their local communities. In most countries today, this commitment to society is one of the pillars of a broader and comprehensive CSR approach, which is reflected in banking activities and professional practices. Thus WSBI-ESBG members’ involvement stretches from financial inclusion and financial education projects to environmental action, preservation of cultural heritage, fair and clear relations with customers, engagement with stakeholders, etc. WSBI-ESBG members embody a “stakeholder” model, seeking to bring value and return to the whole community of stakeholders which surrounds them, including investors, suppliers, customers, employees and the local community in which they operate. Moreover, WSBI-ESBG members’ commitment to social responsibility is greatly supported by a substantial contribution to philanthropic activities which amounted to around €1.7 billion, according to the latest yearly data of the institute. Through a series of philanthropic investments, WSBI-ESBG members are driven by the conviction that alongside their banking and financial activities and traditional intermediation role, they also have a social responsibility.
WSBI-ESBG is actively involved in the debate on CSR and sustainable development practices at European and international levels. By way of example, WSBI-ESBG has recently become a Supporting Institution of the United Nations Environmental Programme for Finance Institutions. In addition, WSBI-ESBG pays a lot of attention to all European Commission developments that manage to mainstream responsible practice in businesses, including its financing growth and sustainable finance strategy, or its work to implement the SDGs at Union level. Sustainable Development Goals. In these areas, WSBI-ESBG contributes its expertise to the work of policymakers and standard setters. >>View WSBI-ESBG and members’ contribution to the SDGs.
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Remittances
During the next five years, US$1 trillion in worker remittances will flow to rural areas, dwarfing official development aid by a 4-to-1 ratio – and rural areas only represent half of worldwide remittances.
Background on remittances
To be able to send remittances is the reason why so many people – almost 1 in 8 people on the planet – migrate, whether across borders, continents, or even within their country of birth. Migration flows may change due to political or economic drivers, but the phenomenon will remain.
Whilst remittances are “people’s money” much needed by the beneficiaries and their communities for daily consumption, research indicates that this market segment also saves, requires insurance products, and takes up and reimburses loans – though today generally not from the formal banking sector – and responds positively to financial education efforts.
WSBI and Fair Value Remittances
WSBI’s payments practice already in 2003 formulated the “Fair Value Remittances” value proposition which promotes end-to-end transparency and accountability in migrating from cash to account-based remittances and served as input to the 2007 BIS/World Bank International Guiding Principles. WSBI also developed a proof-of-concept international remittance switch allowing multiple remittance service providers to interconnect thus providing for a cost-efficient alternative to dominant networks. WSBI continues to work with policy makers and members worldwide to continuously improve the remittance value proposition whilst enabling wider financial inclusion through remittance-linked products and services.
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Cash
ESBG acknowledges that access to cash is a relevant concern and may become a crucial issue in light of pandemic-related developments.
Although access to cash needs to be ensured for the population, especially that in rural and remote areas, the secure management for cash and the maintenance of a wide network of ATMs is expensive for banks. In terms of optimising the cash cycle, payment service providers and other participants in the cash value chain, should pursue two main, complementary strategies, namely shortening, and thus optimising, the cash cycle, and continuing to reduce manual handling and any redundant processes. In parallel, a broader discussion is needed on what cash services banks and other stakeholders render to the wider public and at what cost. Following a proper debate, these “stakeholders” could be widened to include merchants as well as payment services providers and FinTech companies.
Identified Concerns
Despite continuous growth in cashless transactions, we observe an increasing concern about the need to ensure continued access to cash (both notes and coins) from certain parts of the stakeholder community with some expectations that this access should not need to cover its own costs. At the same time banks are required to heavily invest in the development of new means of electronic payments (most notably the further development of pan-European instant payments) while facing competition from digital-only providers that do not support cash services or face-to-face services, do not invest in the necessary infrastructure and yet use the infrastructure provided by banks for the benefit of their own customers. Banks are keen on servicing all their customers, regardless of their digital abilities. However, digitalisation can create tensions and impose choices, in particular in the areas of co-existence of cash and electronic payments and providing services to customer segments that hesitate to or have difficulties in adapting to the digitalisation of payments and other financial services.
In terms of ensuring citizens’ access to cash, banks realise that they are responsible for cash distribution. Handling cash, however, is labour-intensive and the cash cycle consists of various actors adding to complexities in the value chain. A decline in cash usage, where the COVID-19 pandemic has worked as a catalyst, has a logical effect on the related unit costs, as these tend to increase. Given this backdrop, there is need for a proper debate, choices to be made and expectations to be set regarding the cost and type of cash services banks and other stakeholders provide to the wider public. Following a proper debate, these “stakeholders” could be widened to include merchants as well as payment services providers and FinTech companies. Therefore, ESBG supports the need to find a sustainable balance between consumer demand for cash and social responsibility on the one hand and efficiencies in the cash cycle on the other hand.
Why Policymakers Should Act
Without proper intervention, a decrease in usage will result in an increase of per-unit cost for providing cash services. Actors will withdraw from providing cash services as it will no longer be economically attractive, and this will in fact further propel the increase of per-unit costs. Therefore, ESBG advocates for the creation of a forum to discuss how the cash cycle can be optimised as well as under what conditions cash services should be provided by whom.
Background
Both PSD2 and the Interchange Fee Regulation (IFR) have contributed to decreasing the use of cash, on the one hand by stimulating innovation especially in digital payments, on the other hand by making pricing for card acceptance at merchants more attractive. COVID-19 is also accelerating this development. Some countries have introduced caps above which cash transactions are not allowed – this in an attempt to fight money laundering and terrorist financing. Also, further reductions in the issuance of high denomination banknotes (e.g. the EUR 500 banknote) may contribute to this. Cash fulfils the needs of certain groups but not necessarily the needs of society as a whole, so finding a proper balance is key.
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Open Banking
Digitalisation is a major driver for innovation and will inevitably accelerate in the future. It is important that banks are able to innovate and compete on equal footing with each other and also with other non-bank players.
With respect to open banking, we recommend EU authorities to allow its development in Europe through coordinated market-led initiatives and not by regulation. Open banking should be based on API technology and on mutual benefits/reciprocity for all the parties involved in the ecosystem. In the specific area of payments, the appropriate first step should be to work on a payment data sharing model on a contractual and economically sustainable basis that does not go beyond what it is legally required by PSD2 and/or GDPR.
The current asymmetries in data access should be solved in a market-driven harmonised European framework. A multi-sectorial approach would be needed in order to fulfil consumer expectations, ensuring a level playing field for all players, mutual benefits and the highest standards of consumer protection. Significant investments were required that were not offset by a clear business case. As these infrastructures are now further maturing, ESBG believes that it is time to monetise them to develop services that go beyond PSD2. A flourishing datadriven market – be it in payments, broader financial services or between different industries – should be based on principles of mutual benefits and potential monetisation of services and infrastructure by all market participants as well as reciprocity.
As for the potential development of ‘open finance’ extending beyond payment accounts, and the development of a European data economy, financial services should not be considered in isolation, and data sharing should not be limited to financial services. The current asymmetries in data access should be solved in a harmonised European framework. A multi-sectorial approach would be needed in order to fulfil consumer expectations, ensuring a level playing field for all players, mutual benefits and the highest standards of consumer protection.
Identified Concerns
Banks have developed APIs that comply with PSD2 requirements. However, ESBG believes that unlike the situation in the US, PSD2 is not adapted to develop and strengthen open banking. On the one hand, PSD2 being a Directive has entailed fragmentation among member states. On the other hand, a flourishing datadriven market should be based on principles of reciprocity, mutual benefits and potential monetisation of services and infrastructure by all market participants.
The fact that PSD2 requires banks to grant third parties access to customer payment account data without being compensated for that does not outweigh the ensuing investments that banks need to make. A different approach than PSD2 should be taken, such as the one in the US, where industry standardisation and bilateral agreements are working as a catalyst for development on commercial terms.
Moreover, from a data privacy perspective, global BigTech companies’ existing data superiority combined with access to payments data is extremely concerning as it could lead to unintended negative outcomes for EU citizens. BigTech companies, indeed, are mostly un-regulated. Furthermore, the EBA determined that up to 53% of the FinTech sector financial services are not yet regulated (see EBA Discussion Paper on FinTech – 2017). This can ultimately become a risk not only from an economic, political, operational and privacy perspective but also from a consumer perspective.
The threat of undesired dependency increases when considering both growing global BigTech and many smaller unregulated entities’ interest in payments. There are reasons why this industry is regulated in the first place. Dependency on such actors for basic EU internal market functions underpinning the economy – starting from payments but likely expanding to consumer finance, mortgages and other financial services – may harm the European economy. ESBG believes EU regulators should follow the principle ‘same risks, same rules’. It is therefore important to find a balance between consumer protection and the EU’s competition potential.
Why Policymakers Should Act
Beyond PSD2 and on the road towards open banking and a data-sharing economy, there is need for a fairer foundation to be put be in place. An access scheme that clearly spells out rights and obligations, based on mutual benefits, can provide the necessary building block safeguarding the interests for all involved. For these developments to take place, the guiding principles should be the following:
- Support the development of common API-standards, so that consumers can benefit from the safe availability of data. APIs should be the bespoke and preferred means of access to third-party data due to security, scalability and interoperability reasons;
- Ensure a level playing field by following the principle ‘same risks, same rules’;
- Put consumers at the centre of the market by ensuring they have a clear understanding of the risks and establish robust consumer protection measures;
- Ensure the safe and ethical collection and processing of data on commercial terms.
Background
With the opening up of payment accounts data and infrastructure, PSD2 has paved the way for a new banking era. This, however, is only the first step towards the wider development of data sharing, both in the area of payments and financial services, and the broader economy. PSD2 only opened up payment accounts; there is no such a thing as open banking for the time being. As a consequence, banks have developed APIs that comply with PSD2 requirements. There is still a lot of fine-tuning to be made, such as supervisory convergence and the alignment with other pieces of legislation, such as the GDPR, which we believe to be sufficient for the sharing of data.
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Payments Innovation: Instant Payments, Mobile Payments and CDBC
While competition is welcome, ESBG believes that innovation should be built on market-based terms. Designing innovative payment solutions fully adapted to both consumers’ and corporates’ needs should continuously take place; customers’ behaviour keeps changing due to new emerging technologies. In particular, following the COVID-19 crisis, we believe that the demand for such solutions will increase.
Concerning instant payments, it is important that the industry continues to support the work done by European market infrastructures such as the privately developed ones and the TIPS system of the ECB. Once these infrastructures can ensure full interoperability and reachability, the industry can start building further applications based on these infrastructures, especially on a pan-European level. This will assist in making instant payments the ‘new normal’. Here it is especially relevant that the dialogue intensifies between policymakers, infrastructure providers and the industry to reach the most optimal outcome. This should be based on a long-term sustainable business model that is attractive to all stakeholders. Adoption rates for instant payments should be measured in terms of reachable accounts only, as that is the only relevant benchmark.
Identified Concerns
ESBG believes that customers are at the heart of the payments evolution: the focus of any payment-related initiative or development should be a seamless customer experience that meets their needs and takes into account instantaneousness, security, data protection, convenience and the existing diversity of payment means. As the future of contactless payments relies on mobile banking and digital wallets, we advocate for ensuring payment service providers a non-discriminatory access to vital components of mobile devices (e.g. NFC or biometric identity readers) to foster the development of more innovative approaches. To that end, ESBG welcomes the approach of the European Commission to critically investigate practices limiting access to the NFC functionality on mobile devices. In addition, access to common technical platforms/ecosystems, especially of the so-called Big Techs with a dominant position is required as well.
Whilst European banks have successfully developed and rolled out pan-European payment schemes for regular credit transfers and direct debits, certain areas of the payments market remain fragmented. Cross-border card payments in the internal market, for example, are only possible because of the solutions provided by a few global, non-European market players. This creates a reliance on such players, which can become a risk from an economic, political, operational and privacy perspective. We share the fears that dependence on non-European global players creates a risk that the European payments market will not be fit to support our Single Market and single currency, by making it more susceptible to external disruption such as cyber threats. Accordingly, ESBG has welcomed the European Payment Initiative (EPI) as a promising step forward for payments in Europe.
Digital currencies have the potential to substantially re-shape the future of banking and financial intermediation. Central Bank Digital Currencies (CBDC), i.e. digital currencies issued by the public sector, are thought to provide a significant boost in the retail use of digital assets. At the same time, however, new risks and vulnerabilities may arise. Besides systemic risks concerns, ESBG considers especially worrying risks that may jeopardise the commercial banking system, namely the erosion of retail deposit funding and disintermediation of its core lending functions, as well as the increase of intractable loss of its payment business.
Why Policymakers Should Act
Over the past two years, the Commission and the ECB have repeatedly stressed that payments play a strategic role for the development of the European economy. Payments are considered an important factor for European sovereignty and are an important driver for strengthening the international role of the Euro. However, before compelling customer propositions can be developed, there is a need for certainty about a sustainable business model for instant payments, as the massive investments required need to be offset by a proper business case. Previous attempts to develop pan-European payment solutions – notably in the area of payment cards – failed due to the lack of policymaker support for a proper business model. Accordingly, policymakers should:
- Ensure consumer and data protection;
- Ensure non-discriminatory access by PSPs to vital components (e.g. NFC or biometric identity readers) of mobile devices;
- Support the development of payment schemes under European governance and infrastructure to reinforce
- Europe’s sovereignty in payments;
- Further develop instant payments, including at point of interaction;
- Fully address the potential risks emerging from Central Bank Digital Currencies.
Background
European policymakers are particularly keen on ensuring that future developments in the field of instant payments lead to the emergence of EU-wide cross-border instant payment solution(s) in euros, due to fears that foreign governments could hold leverage over the EU if global companies from non-European countries, as service providers with global market power, will not necessarily act in the best interest of European stakeholders.
So far, the EU has welcomed new market-led initiatives aimed at providing pan-European payment solutions. At the same time, aware of all the potential risks, the EU has curbed the development of private-led frameworks aimed at issuing digital currencies (e.g. Libra Association).
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Payments Regulatory Aspects: PSD2 & IFR
To further strengthen the European payments ecosystem, ESBG supports further standardisation of European APIs and the interconnectivity throughout the industry as well as a data-sharing economy, as long as it is based on mutual benefits and reciprocity. ESBG believes that a common SEPA API Access Scheme should be developed based on mutual benefits that would reduce investments required for PSPs to connect to each other. The EU should support such a scheme.
With regard to payment-related functionalities that go beyond the scope of PSD2 and that are required by TPPs (such as payment guarantees, delegated SCA, etc.), we believe these should be elaborated through a coordinated market-driven initiative within the Euro Retail Payments Board (ERPB) SEPA API access scheme work. The ERPB should seek to start working on a scheme as soon as possible, building on the work already carried out within the ERPB. The various business models of TPPs (pre-PSD2 TPPs and post-PSD2 TPPs) should be fairly represented in these ERPB discussions though.
Finally, with regards to interchange fees, ESBG welcomes the European Commission report published in 2020 and supports the conclusion that there is currently no need to revise the IFR.
Identified Concerns
PSD2-supported access to payment accounts data has fostered the entry of new players within the payments industry, acting as payment initiators or account aggregators. Banks welcome innovation and competition by new payment service providers. However some of these new players are driven by business models that are cross-subsidised by customer engagement and commercialised data profiling, which creates pricing of the actual payment service that traditional banks cannot match. The fact is that banks are required to provide these new entrants with access to payment account data without being compensated for the investments that banks need to make.
Therefore, we believe that the full benefits of ‘open payments’ beyond PSD2 and further expansion of data sharing can only be reaped if done on the basis of mutual benefits and a fair distribution of value across market players. For instance, taking payments beyond PSD2 should be developed through coordinated market-driven initiatives such as establishing a SEPA API access scheme. The Payment Accounts Directive (PAD) requires banks to provide bank accounts to all types of European consumers, regardless if they are profitable or not. Additionally, it is worrying to observe that some TPPs still deploy direct access to customer accounts via screen-scraping or reverse-engineering even though they are required to use the dedicated interface (if provided) in accordance with their PSD2-licence.
The payments market in the EU continues to undergo fundamental shifts due to a mix of regulatory changes, changing customer behaviour and demand, and technological development, resulting in a multitude of service offerings. Cards are still the most commonly used electronic payment instrument for consumer-to-retailer payments in the EU, and card payment volumes have more than doubled in the last ten years. COVID-19 is also accelerating consumer and merchant trends away from cash and towards contactless and electronic payments (of which many are card-based). In this respect, it is important to create the best possible environment for existing European schemes and future pan-European payment solutions to be innovative and reliable. The IFR is a crucial piece of legislation as it creates a stable legal environment on which such pan-European solutions could be built upon and flourish. ESBG believes that amending the IFR would have detrimental effects, especially on competition and innovation.
Why Policymakers Should Act
New technologies are currently shaping how people interact and engage in commerce. For the market acceptance of payment methods, it is important for the whole payments industry to be able to develop and be integrated into new technologies. However, it is currently very difficult for the industry to set out a clear and consistent strategy for the years to come, within a stable regulatory framework and through returns on investments. ESBG considers that the following aspects are essential to a successful payments strategy for the European Union:
- A level playing field where players of all sizes have the opportunities and incentives to invest and profit from innovation by providing a stable and harmonised regulatory and supervisory environment;
- Ensure strong customer authentication and data protection;
- Ensure non-discriminatory access by PSPs to vital components (e.g. NFC or biometric identity readers) of mobile devices;
- Provide certainty about business models in card payments by maintaining the framework of interchange fees stable;
- Allow for sound and long-term sustainable business models.
Background
The European payments market has undergone fundamental shifts over the past years, sparked by a mix of changing customer needs, regulatory action, technology and innovation, and increased competition. The revised Payment Services Directive (the so-called PSD2) entered into force as of 13 January 2018 with the objective of making payments more secure, boosting innovation and helping banking services to adapt to new technologies. In a nutshell, PSD2 enabled third-party providers (TPPs) to build financial services on top of banks’ data and infrastructure by accessing bank customers’ payment accounts through online interfaces. This allowed both retail and corporate customers to use licensed TPPs to support managing their payments services with their banks. The European Banking Authority (EBA) then published a set of Guidelines, Regulatory Technical Standards (RTS) and Opinions to drive the technical implementation of the PSD2 and to specify the conditions that need to be met in order for banks to restrict access to payment accounts exclusively through dedicated interfaces (APIs).
The Interchange Fee Regulation (IFR) aimed at fostering the competition in the market of EU card payments by introducing caps for hitherto high interchange fees for consumer debit and credit cards, therefore setting harmonized ceilings for interchange fees for consumer cards in the EEA. Overall, major positive results have been achieved through the implementation of the IFR. Notably, interchange fees for consumer cards declined and this decline was reflected in reduced merchants’ charges for card payments, resulting ultimately in improved services to consumers or lower consumer prices. Additionally, market integration improved through the increase in cross-border acquiring activities, although their uptake remains quite limited. The Commission, as part of the mandatory review of the IFR, has published a report concluding, inter alia, that major positive results have been achieved through the implementation of the IFR, including but not limited to reduced merchants’ charges resulting ultimately in improved services to consumers or lower consumer prices and enhanced market integration. Given the positive impact of the IFR and the need for more time to see the full effects of the Regulation, the report is not accompanied by a revised legislative proposal.
