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The EU’s push for instant payments looks set to continue dominating Brussels’ payments agenda this year, but will more concrete policies be unveiled?
One of the most prominent policy moves in the realm of payments for the EU recently has been its Retail Payments Strategy, which was unveiled in late 2020 as part of the Digital Finance Package.
This has seen the EU, above all things, make an unsubtle push for more sovereignty in the internal market, so that it no longer has to depend on the services of third-country players.
“It is crucial, for the EU’s open strategic autonomy, to reduce this dependency and to support the emergence of European champions in the payments sector,” Céu Pereira, the European Commission’s policy lead for the strategy, said in an interview at the time of its launch with the European Payments Council.
The strategy’s goals vary. The commission is keen to contribute to the cross-border payments debate, which has caught the attention of global institutions such as the Financial Stability Board.
The push for more homegrown businesses has made it a cheerleader for the European Payments Initiative and, last year, the commission consulted on the Settlement Finality Directive, and whether it is time to bring non-bank players on board.
Yet, beyond the document, not much else happened in 2021. “I have not seen much happen to operationalise the agenda. A lot of work has been done already on gathering data from stakeholders on how this strategy will be realised,” said Robrecht Vandormael, a partner at FTI Consulting.
“Looking into 2022, I expect concrete initiatives, and the flagship of this will revolve around instant payments, and where they would fit into the new normal,” he said.
Instant payments were supposed to become the new normal in 2021, at least the ambitious target set by the European Commission suggested so.
However, this cannot be said to have been the case yet, and the optimism of the commission’s spokespeople at conferences began to wane throughout the year.
"The commission has not acted yet on instant payments. The plan is that there will be an initiative being launched or published before the summer of 2022, although a lot of people were expecting it to be earlier,” said Vandormael.
Although the initiative has not been defined yet, a legislative proposal is expected, he continued. “The reason why it hasn't been published yet is that this is a complex undertaking. That they are intervening in a fast-moving market has to be considered. Market dynamics are changing, results of open banking are coming to the surface now, and even more will come to fruition this year.”
“Intervening in that market with a legislative proposal has to be very balanced and in a sense, neutral in terms of making sure that you don't mix up market dynamics,” he said.
What is more, instant payments are not in a place yet where the ecosystem knows how they should be priced, or who should be footing the bill.
"Instant payments will take some time to become the new normal in the EU, they have huge discrepancies in terms of access and pricing,” said Thibault de Barsy, vice-chairperson of the Payments Association’s EU wing.
Although some banks have been very aggressive and are offering instant payments to their customers for free, others have been more cautious and are asking for additional prices for the use of instant payments, he pointed out. “Member states differ as well. Some central banks favour protecting the margin of the institutions that they supervise and see instant payments as something that should be gradually implemented, and at a slow pace."
"There is a lot of discussion about what the price of instant payments should be. Banks and fintechs want to recuperate the costs of and/or build a profitable business model around it,” agreed Vandormael.
Merchants and consumers, meanwhile, want it for free, he pointed out. “However, somebody in the ecosystem needs to carry the cost of instant payments. Finding that pricing balance is often best left to the market, as regulation could stifle commercial dynamics and incentives that would ultimately hamper the uptake.”
The latest data from the European Payments Council shows that instant payments account for a small part of payments across the EU, or around 9 percent of all SEPA credit transfers in the 12 months to September 2021, or about 2.1bn instant payment transactions.
However, some progress has been made to ensure full reach of instant payments across the EU. In December, the European Central Bank (ECB) announced the first wave of automated clearing houses (ACH) to move their technical accounts from TARGET2 to the TARGET Instant Payment Settlement (TIPS) system
This new arrangement is designed to create greater efficiencies by reducing the need for financial institutions to participate directly in multiple systems and helps ease their liquidity burden.
Alongside this, the ECB has also mandated that all payment service providers in TARGET2 that had adhered to the SCT Inst scheme should become reachable in TIPS, either as a participant or as a reachable party.
According to the ECB: “These measures will ultimately enable European citizens and businesses to send and receive electronic instant payments from and to any country in the EU, both at the point-of-sale and online.”
