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Thursday 22 August 2019


ECB weighs up instant card payment rails

Written by Hannah McGrath

The European Central Bank (ECB) is weighing up the prospect of linking national card schemes to instant payment rails, effectively mounting a challenge to the dominance of Visa and Mastercard in the payments market.

In a speech to the American European Community Association in Brussels yesterday, Yves Mersch, an ECB board member, outlined the idea for a single Euro payment area (SEPA) arrangement for cards, which has been mooted as a way of injecting competition into a payments market where the so-called ‘Visa/Mastercard duopoly’ conducts more than 80 per cent of all EU card transactions.

He told the audience: “Although payment cards are the most widely used payment instrument in Europe, a true SEPA for cards has not yet been achieved. For example, cardholders cannot use their national payment cards to make payments across Europe unless they go through a global card payment scheme that can execute such intra-European payments.

“The industry sees the implementation of a European infrastructure for instant payments as an opportunity to instantly clear and settle card transactions, which would offer a possible way of supporting the interlinking and interoperability of national card schemes.”

Mersch also touched upon the potential opened up by the second Payment Services Directive (PSD2) and Open Banking regulation as drivers of innovation in the industry, but warned of the need for greater vigilance from payments providers and financial institutions when handling consumers’ financial data.

“We must bear in mind that increased digitalisation means that more and more of our daily actions are leaving an electronic trail, data on our actions - including our payment transactions - are not only captured automatically, they are also stored.

“This means that they can easily be reused for other purposes or, as recent events have shown, misused,” stated Mersch. “In the context of work in Europe on retail payments, protecting users’ rights and enhancing the right to data privacy is vital when it comes to developing innovative payment solutions and strengthening users’ trust in them.”

He cited work being done by the Euro Retail Payments Board (ERPB) - the strategic body that brings together the supply and demand sides of the euro retail payments markets - to devise a secure and automated solution based on Application Programming Interfaces (APIs), calling for a Europe-wide integration in order for the roll-out of payments APIs to be successful.

Turning his attention to the potential of instant payments to transform consumer experience beyond traditional credit transfers, Mersch highlighted point of sale (PoS) or point of interaction with the customer (PoI) as a “promising” area for innovation as a cost-efficient alternative to cards.

“Such solutions are currently emerging across Europe,” he said, adding: “It is important to ensure that they have pan-European reach, so that end users can make and receive payments without restriction across national borders.

“To this end, the ERPB set up a working group to analyse in detail the barriers to pan-European reach and usability and ways to overcome them.”

He concluded: “Digitalisation has brought a great deal of change to the payments market,
and there is more on its way. The GDPR and PSD2 have been introduced to protect EU citizens and to support competition in payments.

“For its part, the Eurosystem is helping to drive innovation and integration in retail payments, not least by providing instant settlement services through TIPS and setting up the ERPB as a forum for high-level market agreements. The main areas for further development are standardised APIs, instant payments at the point of sale, and the interoperability of national card schemes.”

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