Payments Innovation: Instant Payments, Mobile Payments and CDBC

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).