EU Payments Regulation Gets Thumbs Up From Start-Ups, But Compliance Burden Is Causing Problems

July 5, 2022
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A new survey by Stripe has revealed that a majority of start-up companies are satisfied with the opportunities that the revised Payment Services Directive (PSD2) has provided them, believing that it has enhanced competition opportunities in the trading bloc.

A new survey by Stripe has revealed that a majority of start-up companies are satisfied with the opportunities that the revised Payment Services Directive (PSD2) has provided them, believing that it has enhanced competition opportunities in the trading bloc.

Open banking payments enabled by the PSD2 are cited by 62 percent of start-ups as an example of smart regulation they would like to see replicated elsewhere.

Similarly, 70 percent see either the Single European Payments Area or PSD2 as a big advancement, highlighting the perceived benefits of the EU regulatory approach in terms of driving innovation and competition in the payments sector.

The new report, published by Irish-American payments firm Stripe, consists of in-depth interviews with clients, including Alma, a French buy now, pay later firm, and Swedish healthtech Kry.

These interviews were combined with an online survey consisting of feedback from a further 172 Stripe users.

This feedback is timely as EU regulators set about making adjustments to the PSD2.

“The regulation, inspired by the UK’s progressive regulation on financial services, introduced a clear, sector-specific framework that helped foster innovation in the industry, and was a key driver in accelerating Europe’s fintech boom, creating EU fintech champions,” the report says.

With this in mind, start-ups want to see similar sector-specific frameworks implemented across different sectors to drive competition, innovation and ease of operation, the report comments.

Stripe cites feedback from one UK-based technology company: “Look at online banking and how that has changed fintech in terms of the open banking protocol, how fintech has emerged because of that. I’d love to see something like that for healthcare because financial data is also very sensitive.”

Meanwhile, a France-headquartered fintech company said: “Thanks to PSD2, fintech, finance and technology work very well in Europe compared to the United States, while the United States crushes us in many areas.”

One of those areas, it seems, is Europe’s capability to become a tech leader.

Only 20 percent of start-ups think Europe will be the global tech leader in the next decade, the report reveals. “Based on what respondents are saying, it is clear more needs to be done to reduce friction, ease the regulatory burden and accelerate growth, when market conditions improve.”

In terms of recommendations to remedy this, Stripe’s report advocates further harmonisation. For example, for companies with small legal and finance departments, fragmentation presents a particular challenge and comes at an even greater cost.

In regards to different regions in Europe, the Baltic states — Estonia, Latvia, and Lithuania — have been praised for their innovative approaches by respondents.

“I have the impression that in countries like Lithuania and Estonia, they better understand the problems of start-ups,” one crypto service provider in France said.

The EU has also been advised to simplify their policymaking process if they want start-ups to have more of a say.

One respondent argued that the EU and other authorities should “make it easier for us to be involved,” citing the example of a start-up needing to read through a 200-page policy proposal.

“Then the only way to respond is by answering 100 questions, each of which requires a lot of time and thought,” the feedback continued. “The average start-up doesn’t have the manpower to do that. It’s too big an investment for a start-up.”

Meanwhile, 47 percent of respondents said that regulation is fit for purpose for large companies, but not for start-ups, and 35 percent warned that regulation has become outdated in the context of a digital economy.

Some 25 percent of respondents also said they were considering starting their business in the US, rather than Europe, with 30 percent believing that the US has an innovative approach to regulation due to fewer regulatory and bureaucratic hurdles.

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