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In the first of a two-part interview with the Portuguese Central Bank, Rita Soares, its head of payments innovation and policy, spoke to VIXIO about the country’s payment priorities, including instant payments and fraud prevention.
Soares has worked at the Banco de Portugal for over a decade and has played a part in the implementation of key legislative changes for payments, such as the Payment Services Directives, the Payment Account Directive and the Single European Payments Area (SEPA) regulation.
Soares says the bank's current priorities are very much aligned with many of her colleagues in Europe on a variety of payments-related issues.
“The promotion of instant payments is currently a priority, not only in Portugal but also across Europe,” said Soares, pointing out that in 2021, instant payments were the retail payment instrument with the highest annual growth in Portugal.
Yet, these still represent a very small percentage of total retail payment operations in the country, she said. “Fostering the widespread use of instant transfers, not only in remote payments, but also at POS, is a stated goal of our National Strategy for Retail Payments - 2022 horizon.”
The European Commission is due to publish proposals to encourage instant payment use this autumn, with Soares speculating this will include topics such as adherence, price, fraud prevention, and user convenience.
Payment fraud is another issue that is currently on top of Soares's list of priorities.
“The increased use of electronic payments and in particular the growth of e-commerce has been accompanied by a change in fraud techniques and scams to take advantage of new vulnerabilities of these payment instruments,” she said.
In 2021, the total number electronic payment transactions in Portugal increased by 3.7 percent in terms of volume and 14.9 percent by value compared to pre-pandemic 2019 levels, according to Banco de Portugal.
During the same period, card-based purchases increased by eight percent in volume, while contactless jumped from just 10 percent of total POS transactions to 40 percent by the end of 2021.
“The setting up of more stringent security measures, like strong customer authentication, has led fraudsters to resort to new methods, such as social engineering techniques, that manipulate payment users to act inadvertently in the fraudster’s benefit,” she pointed out, echoing regulators in other European countries like France and the UK.
Preventing payment fraud is currently a priority not just for regulators, but other stakeholders as well, she said.
“It is also a priority for payment services providers and requires a coordinated effort to closely monitor the fraud levels and its main tendencies, and act accordingly in terms of regulation, prevention and mitigation mechanisms, and communication to payment users,” she said.
While tackling fraud remains a priority, Soares pointed out that the implementation of SCA appears to have been a success. “The data available on payments’ fraud allows us to conclude that SCA resulted in a decrease in fraud rates in regards to card payments.”
According to data from the first half of 2021, three quarters of fraud transactions on cards in Portugal, both remote and in-person, occur when a fraudster accesses a user's credentials and issues a payment order.
However, according to Soares, the fraud rate for these types of transactions when SCA is applied is half the rate compared to when it is not applied. She also noted that card-based operations outside of the European Economic Area present higher fraud rates, given that the PSD2 SCA requirements are not applicable.
Coincidentally, this is an issue that the European Commission has suggested that it may seek to tackle in a possible PSD3.
“SCA adoption has been a priority for the Banco de Portugal and has contributed to a decrease in fraud rates, regulatory and technical improvements are not sufficient to prevent the existence of fraud in payments,” she said. “It is very important that users are aware of the risks and adopt practices that ensure the highest possible level of safety in payments.”
Beyond SCA, Soares also commented on how the country has adapted to an open banking environment since implementing the various rules and regulations relating to PSD2.
“The implementation of PSD2 in Portugal has been relatively smooth, as the market players have adapted well to the new regulatory framework in place and there have been no major challenges, difficulties or disruptions in its adoption,” she said.
However, Soares acknowledged that open banking is yet to reach its full potential.
“Although the market has adapted well in regards to the availability and correct functioning of the API for communication with the new payment services providers, the usage of these new services is still low,” she said.
“This is related to the existing national practices, as payment initiation and account information services were not, and are still not, part of the Portuguese payment users’ habits.”
In tomorrow's second instalment, VIXIO discusses with the Banco de Portugal consumer payment issues such as IBAN discrimination, crypto-assets and how the central bank is helping the country and the Eurosystem prepare for a digital euro.
