The European retail payments strategy – a small reminder of what’s to come

Most of us should have heard it: those interested in payments were not able to miss the European retail payments strategy (RPS) that the EU Commission published on 24/09/2020 and that details the framework conditions for the future orientation of payments in Europe. The paper is worth a read and contains specific recommendations for action and ideas. Of course, a strategy is not yet a law. It is not yet a matter of concrete regulations or implementation dates. However, one can predict which changes will become relevant for payments sooner or later. Specifically, it is about the next 2-4 years.
The retail payments strategy comprises four pillars with 17 measures:

The first pillar deals with digital and instant payment procedures. Here, one aspect is of particular importance. If the circulation of instant payments (SCT Inst) is not sufficient across Europe by the end of 2021 (which is the current trend), there will be a legal obligation to provide and accept SCT Inst. However, the EU Commission would like to see an "SCT Inst return option" to give consumers similar rights to a credit card payment (chargeback) when they make a transfer. There will also be a European standard for the use and acceptance of payments by means of QR code, and a digital identity will be promoted. The acceptance of cashless payments is also to be expanded.

The second pillar is about an innovative and competitive payment market. Here, an important aspect that needs to be mentioned is the PSD2. Two years after the last amendments came into force, the hoped-for success is not yet fully visible. Various interpretations form a multitude of obstacles that also exist within individual countries. A review of the current implementation is planned by the end of 2021. The results and experiences are to be incorporated into a proposal for an open banking framework by mid-2022. Whether this will then be called PSD3 or given another name will not be decisive.

The third pillar is about efficient and interoperable payment systems. Here, the focus is on the technical infrastructure that should be available across Europe. Cross-border European payments, including from member states with different national currencies, should be possible in real time.

The fourth pillar comprises efficient international payments. Efficient payments include the traceability of payments that is already being implemented with SWIFT gpi. The use of standardised and modern formats also contributes to this and is already being promoted by the worldwide transition to ISO 20022. Payments to third countries should generally be made faster and more comfortable.

It remains exciting to see which concrete measures will follow. We all know that regulation can never keep up with market developments. When the PSD2 was adopted, for example, hardly anyone had any idea of the diversity that biometrics, voice assistants and paying items (rings, watches, bracelets) would already occupy in everyday life. The legislator can only control the market by means of framework conditions. The retail payments strategy does present some interesting framework conditions, more on its content will follow soon.

The original EU retail payments strategy can be found here:

Author: Swaantje Anneke Völkel

The digital euro should be like cash: secure and anonymous

Why do consumers use notes and coins to pay? Cash primarily ensures anonymity and privacy during the payment process. In Germany in particular, cash is of great importance as a means of payment, not least because of these core characteristics. However, the corona virus crisis has led to a shift in payment habits: contactless payments are experiencing a real boom. In its latest publication "Report on a digital euro" the ECB emphasized that although cash is, in Germany, still the most widely used means of payment, there is a clear trend towards more use of digital and innovative forms of payment. This change in payment behaviour can be seen not only in Germany, but across Europe. 

Digitisation needs digital money

The euro area must be prepared for the future and be able to react to short-term changes. The introduction of a “central bank digital currency” (CBDC) could be an important stepping stone to take digitisation and innovation in the European society to a new level. The ECB defines this digital euro as an electronic representation of central bank money that is to be made available to both citizens and businesses. Cash is supplemented by the CBDC as a further means of payment.

The design is still to be specified

The ECB has not yet decided on the design. In addition to considering which models are possible, the ECB has defined its (key) requirements for such a CBDC in the above-mentioned report. In the report, the ECB describes the conditions under which the introduction of a digital euro is necessary and the possible approaches to its design.

Feedback wanted

Broad acceptance of the digital euro is essential. In order to assess how the CBDC should be designed and which use cases are best suited, the ECB has sought public opinion on a digital central bank currency in Europe through an online consultation. Citizens, institutions and experts had the opportunity to submit their views and proposals for solutions. The feedback was enormous and shows the great interest in the topic: more than 8,000 responses were received by the ECB, and the first results have already been published. Accordingly, more than one in three of the participants demand a digital euro that protects the privacy of payment transactions. There is also a strong desire for security and a pan-European reach in a CBDC. It should therefore reflect the core characteristics of cash payments.

Decision by mid-year

Further results of the survey will follow in spring. On their basis and the results from the previous internal investigation phase, the ECB intends to make decisions by 2021 on the start of the digital euro project.

In an online interview on "Reuters Next," ECB President Christine Lagarde said she expects the digital euro to be introduced in the coming years, therefore, the new currency could soon be a reality.

Further information:

European Central Bank: Report on a digital euro, Brussels, October 2020

European Central Bank: ECB digital euro consultation ends with record level of public feedback, 13/01/2021

Author: Anja Kamping