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Experts believe that the proposal to amend the SEPA regulation and put in place a legislative framework for a digital euro are likely to take priority as the EU’s political institutions get to their final stretch of the current parliament.
As the European Commission and European Parliament near the end of their terms, there is still plenty of work to be done on payments-related legislative proposals.
The EU’s institutions need to negotiate and finalise the anti-money laundering package, although there are already rumblings that it may not be in place for some time due to delays, as well as the instant payments proposal that dropped in autumn last year.
These, however, are proposals that actually have a text on the table. Meanwhile, the digital euro legislation has not been published and it seems unrealistic that potential revisions to the Payment Services Directive (PSD2) will make it through this parliament.
"In 2023, there are desired outcomes, but also the more likely outcomes,” said Andrei Cazacu, EU policy chief at TrueLayer. “I think that we will get the instant payments proposal done this year, but I'm more concerned about PSD2.”
The hard part starts after the commission puts out the proposal, he pointed out. “It will be challenging to get this over the line before the EU elections in Spring 2024. Then, there will be a new commission, and a new parliament.”
“There is a risk that PSD2 may not get over the hurdle, and there are a lot more pressing issues such as Russia's war on Ukraine, Qatargate and Solvency II,” he suggested. “I think that we will get the instant payments package through and I remain hopeful about PSD2."
Meanwhile, Alessia Benevelli, payments and banking advisor at the WSBI-ESBG (World Savings and Retail Banking Institute - European Savings and Retail Banking Group), acknowledged that the PSD2 review is a very big file, but like Cazacu, said that the prediction is that it will come through.
“The commission will work on this until Spring 2024, and the last opportunity is really Q2, 2023.”
After this, it depends if lawmakers can approve smoothly.
“It is difficult to say what will be in it,” she told VIXIO. “You have the EBA, TPPs, and banks asking for different things.”
Open finance is also happening in parallel, which creates more issues. “I wonder whether part of the current PSD2 could be switched into this instead. This may mean that the review is not an easy fix and could mean a new PSD3 or other form of regulation. There is not much time to do this if it is a top priority."
Instant payments will be another big issue, she suggested. “It is difficult to be sure how quickly this will be sorted. It is just four articles, and surely could be a fast process.”
“This is a top priority for the commission but I'm unsure about parliament, unless the rapporteur is very interested, it may take a while until it is approved and agreed.”
Lobbyists throughout Brussels will be particularly invested in this, and Benevelli suggested that it will set a precedent.
“If parliament and the commission says you can't charge a premium," she said, referring to proposals that will mean payment firms cannot charge more for instant payments than they already do for a standard SEPA credit transfer, and "does this mean high-speed train tickets should have the same price as regular train tickets?”.
In addition, SEPA Instant Credit Transfers (SCT Inst) is not just a faster regular transfer, she noted. “There are different use cases, and SCT Inst can't be reversed. These transfers should be used when consumers need to credit the money urgently.”
“We have seen the experience in the UK, with lots of fraud, and I wonder whether it should be used for every transaction. It is a premium service, with different rails, in a very fast way."
Digital euro
What is perhaps most pressing is the future of the digital euro. 2023 is crunchtime and the European Central Bank (ECB) will need to make a formal decision on what happens next.
The European Commission is working alongside this on its file, which is set to create the legal base for a central bank digital currency (CBDC) in the eurozone.
"2023 will be a very interesting year for the digital euro,” predicted Jens Olsson, a Stockholm-based fintech advisor. “We expect some interesting actions already in the beginning of the year whilst the key milestones are set for later 2023.”
Although there is plenty of work left until we see something more tangible, key questions will be answered, legislation and discussions are expected, he said.
He told VIXIO that it will be very interesting to see how the ECB’s CBDC can be integrated into the concept of open banking and open finance.
“From a glance at it, the different concepts tie well together but it all comes down to the details, such as which type of intermediaries can access, how funding and defunding can be automated and whether it will be smart or programmable money. Many of these questions are still unanswered and pending further investigation.”
Late last year, the project’s rulebook Scheme manager, Christian Schafer, was appointed, and work is expected to commence on the digital euro rulebook.
"The digital euro will definitely be a big topic,” agreed Benevelli. “This year is the year, however, we may need to decrease our expectations.”
It seems it will be based upon Article 133 of the Treaty for the Functioning of the EU, she pointed out.
The article in question says that “without prejudice to the powers of the European Central Bank, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall lay down the measures necessary for the use of the euro as the single currency”.
“This is not something groundbreaking,” noted Benevelli. “The proposal itself will probably try to give as much room as possible to the ECB."
