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The EU’s digital payments framework is neither accountable nor supported by data, and problems persist with open banking and IBAN discrimination, the European Court of Auditors (ECA) has warned in a highly critical new report.
The ECA’s report has highlighted what it sees as critical gaps in the bloc’s regulatory framework, including the absence of periodic reviews of price interventions, such as interchange fee caps, and challenges in the realm of open banking data sharing.
For many in the market, especially fintechs and merchants, these concerns will be unsurprising, given that trade associations have been sounding the alarm for years.
However, the extent to which the ECA has criticised the EU’s approach to digital payments is significant.
The report accuses the EU of a lack of knowledge about how effective some of its biggest interventions, such as the Interchange Fee Regulation (IFR), have been.
It also critiques the delayed, and ineffective, implementation of the European Commission’s Retail Payments Strategy.
“We found that the basic legal acts on digital payments do not stipulate clear criteria for assessing whether price interventions are justified, or how long they should apply. There are also no requirements for periodic reviews,” said Ildikó Gáll-Pelcz, the ECA member in charge of the audit.
“For some of the interventions linked to card payments, the European Commission could not demonstrate that the positive effects for consumers clearly outweigh the negative ones.”
Price interventions poorly thought out
In the report, the ECA points out that EU price interventions, such as interchange fee caps and surcharge bans, lack provisions for periodic reviews.
It suggests that these measures, intended to protect consumers and reduce competition distortions, suffer because there is no legal requirement to reassess their adequacy over time.
The auditory body has also warned that the absence of comprehensive, reliable data further complicates the ability to evaluate interventions’ effectiveness.
It notes that on-disclosure agreements between payment providers, merchants and issuers exacerbate this issue, and render it more difficult to determine whether the benefits of these interventions outweigh their costs.
“Keeping in mind the intrusive nature of price interventions, this may create the risk of inappropriate measures not being detected and remaining in place, ultimately harming consumers, merchants or PSPs [payment service providers],” the report warns.
Moreover, when it comes to surcharging, the ECA appears to doubt the approach taken by the commission, citing poorly thought out analysis.
“The commission’s analysis of the surcharge ban lacked an in-depth consideration of the consequences for competition between different payments methods and distribution channels (e-commerce or point of sale),” the report says.
It adds that providers of more expensive, widely used payment instruments, such as credit cards, have no incentive to reduce the fees they charge merchants due to the lack of transparency, which ultimately has an impact on the price of goods or services.
The ECA has suggested that the commission establish clear criteria for implementing price controls and conduct periodic reviews to ensure they remain effective and relevant.
It has also said that this process needs to include measures to address transparency issues caused by non-disclosure agreements.
The auditor has called for the commission to achieve these steps by the end of 2027, with the first review to occur by the end of 2028.
Open banking data sharing not backed up by evidence
In the area of open banking, the ECA cautions that the mandate for free account data sharing enabled via the revised Payment Services Directive (PSD2), which was intended to spur innovation and competition, may have had unintended consequences.
For example, the lack of financial incentives for data holders and an insufficient standardisation have slowed progress in delivering high-quality open banking services for the trading bloc.
The ECA said that the authority’s assessment of these issues lacked quantitative analysis, leaving gaps in understanding the impact of current policies.
For example, the commission estimated that, by 2021, fewer than 5 percent of consumers in the EU were using open banking, a lower figure than former member state the UK, which had 7 percent uptake in December 2021 and 11 percent in October 2023.
Moreover, the report says that this data collection from the commission is unreliable. “Without reliable data, the commission is unable to assess the uptake of open banking or to verify its initial assumptions underlying the initial design of open banking.”
And the report holds little hope for the EU’s future regulatory model with PSD3 or the Payment Services Regulation (PSR), despite the firmer oversight of open banking standards that are promised by the legislation.
“While these requirements are likely to address known obstacles in open banking, they are not flexible enough to respond to future challenges in a highly dynamic area and may require further legislative changes,” the ECA concluded.
The report also calls for the development of an effective data monitoring strategy to inform policy decisions, including specifying what data is needed, its sources and how frequently it should be collected.
According to the ECA, this strategy should be implemented by the end of 2027, as with the price intervention work.
In addition, the body has called for the commission to define EU-wide performance indicators and set measurable targets for payment speed, cost, accessibility and transparency, recommending a tighter deadline of end-2025.
Persistent IBAN discrimination
The report also touches upon the issue of IBAN discrimination, pointing out that it is widespread, despite supposedly being outlawed by the Single Euro Payments Area (SEPA) Regulation.
This issue is well known to the EU, having been acknowledged by former EU commissioner Mairead McGuinness before she left her position in Autumn 2024.
The SEPA Regulation, in effect since 2014, prohibits discrimination based on the geographical location of payment accounts within the SEPA.
However, IBAN discrimination remains a persistent issue, as users continue to face barriers when making cross-border euro payments.
This is despite commitments by the commission to address this problem in its 2017 review of the SEPA Regulation and subsequent retail payments strategy, industry concerns from firms such as Wise.
User complaints highlight the ineffectiveness of current measures.
The ECA points out that nearly 3,500 cases of IBAN discrimination were reported between February 2021 and September 2023 via the Accept My IBAN platform, a private initiative established by players such as Wise.
It forwards complaints to national authorities, with France and Spain accounting for the majority of these reports.
However, the total number of cases likely underrepresents the problem due to low public awareness and the availability of alternative reporting channels.
Penalties for non-compliance with the SEPA Regulation vary significantly across member states, undermining enforcement.
France introduced penalties of up to €375,000 in 2021 and saw a marked reduction in cases following awareness campaigns and compliance checks, but other countries maintain much lower penalties, ranging from €250 to €10,000.
Maximum fines in some member states, meanwhile, include up to €10m or 10 percent of annual turnover for companies.
Although the SEPA Regulation requires penalties to be effective, it does not mandate the commission to assess their adequacy.
The ECA warns that this lack of standardisation contributes to uneven enforcement and continued IBAN discrimination, highlighting the need for stronger oversight and harmonised penalties across the trading bloc.
It has urged the commission to strengthen enforcement of the SEPA Regulation, stating that this should be addressed by the end of 2027.
The commission’s response
When approached by Vixio for comment, a spokesperson for the commission defended its interventions, stating that it “concurs with ECA’s position that regulatory price interventions should be exceptional”.
However, the spokesperson said that the commission believes that these price interventions “address important deficiencies in the digital payments market and thus benefit both merchants and consumers, reducing costs and increasing choice”.
With regard to data collection, “the commission follows a thorough strategy which, in addition to regular exchanges with stakeholders, may include public consultations, calls for advice to the European Supervisory Agencies (ESAs) or externally commissioned studies”.
The spokesperson added that in “the area of competition rules, the commission possesses all the adequate legal powers and tools to collect information from stakeholders for the purpose of its antitrust investigations”.
They concluded that the “commission is continuously assessing the impact of these price interventions, including as part of the review of the relevant legislation”.
“The respective legal instruments containing price interventions do provide for reviews of their impact and set the timeframe of such reviews,” they said.
“We consider that they should take place at realistic and regular intervals, determined on a case-by-case basis, thus enabling the collection of comprehensive market information.”
