Payments by card: specificities of the French market

The electronic payments ecosystem in France is made up of a wide range of players (banks, cardholders, merchants, laboratories, manufacturers, issuers, processors, card networks, regulators) with a specific payment system based on EMV (Standard Europay Mastercard Visa) technology. The multilateral cooperation agreement signed between the members allows users to access all the approved facilities (EPTs, ATMs, etc.) of the payments system members.

In France, bank card payments are transmitted to the authorisation systems via the CB, Visa or Mastercard card networks; cleared by the CORE clearing system of the French STET initiative, then settled by the settlement service of the Banque de France / European Central Bank / Bank for International Settlements. Some operations can be carried out via the domestic CB network (if the French cardholder carries out transactions in France), or via the international Visa or Mastercard networks (for international payments or for French bank cards that do not have the CB application).

 

In France, a distinction is made between immediate debit cards and credit cards (deferred debit). Somecards have systematic authorisation (online), others are offline. A French card co-branded Visa or Mastercard is accepted all over the world. Foreign bank cards co-branded with Visa or Mastercard are also accepted in France due to the principle of interoperability or agreement between the financial institutions. However, before June 9, 2016, when a French customer paid with their CB bank card supported by Visa or Mastercard, the electronic payment terminal (EPT) automatically selected the domestic network (CB). But since that date and to present day, the cardholder now has the option to choose between CB, Visa and Mastercard (European Regulation 2015/751).

The issues concerning bank card payments are expressed through several challenges (structural, organisational, technological and regulatory (1) ) that are imposed on the players, forcing them to review their organisational structures and chains of operations to make them compliant with European regulations. These challenges have led to a broadening of the scope of electronic banking and the emergence of new forms of banking activities. The bank card can now be used to carry out several types of transactions with varying levels of security: mobile payments (NFC / QR code), contactless proximity, biometric (facial recognition / fingerprint), etc.

In 2019, 54 million debit cards and 39.3 million credit and payment cards were issued, of which CB cards accounted for 27.5 million, or 70% (France Cards & Payments: Opportunities and Risks to 2024 p. 33; 52; 60). According to the same source, 77% of cards in circulation in the French market are co-branded and only 23% are purely international network cards. The top five financial institutions accounted for 86% of transaction value in 2019 (France Cards & Payments: Opportunities and Risks to 2024). In 2018, there were more than 1.8 million electronic payment terminals and almost 55 thousand ATMs in France (Statista, 2021).

Although card payments are still the most widely used payment method in France (2)  and will continue to grow in the years to come, PSD2-related regulations have created a technological and strategic revolution that will allow the various players (new entrants, financial institutions, etc.) to free themselves from the interbank networks and offer innovative services at lower cost. In fact, they will rely on the Internet infrastructure and not on private structures. Based on these new operational models, these new services (mobile payments in proximity, P2P (peer-to-peer), etc.) are developing to serve new use cases with a new user experience (Payments Cards and Mobile, 2021). The ISO 20022-based Request to Pay complements these payment methods as a powerful end-to-end payment tool offering an opportunity for new services and bringing more value to customers.

The proliferation of multiple channels and the increasing dematerialisation of payments could open up new opportunities for acquiring with increased competition on the acquirer side, which will undoubtedly lead to lower fees and better service. All of this will be closely linked to the ability of the solutions to operate together, because it is in the merchant's interest to have as many payment methods as possible on the same device at the lowest cost, so as to optimise the possibility of offering the customers their preferred payment solution.

 

Author: Tite-Voltaire Soupene

(1) Strong authentication (PSD2 Directive, 2018); Card payments (PCI DSS); Interchange fees (EU Regulation 2015/751). 

(2) In 2019, more than half the French population, i.e. 58,6 %, preferred to pay via bank card. (Statista, 2021)

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Ready for the digital euro?

It is intended to supplement cash and be accessible to the population and businesses: the new, digital central bank currency for the euro area or better known as the digital euro. After the first episode of our blog was dedicated to the presentation of the Central Bank Digital Currency (CBDC), in this article we look at possible implications: what are the requirements for the "digital euro" project? What do to financial institutions and financial services providers have to prepare for if the ECB makes this concept a reality?

The ECB, for its part, has already formulated fundamental requirements in its Report on a digital euro. From it, the first trends for the payments and banking sector can be deduced.

• Matching the standard: The provision and processing of the digital euro should be compatible with the existing payment infrastructure – that is, with private payment applications that fit the SEPA and TARGET system.
• Central or decentralised? That is the question: Whether the output and processing is to be realised via a central or decentralised infrastructure (for example, using distributed ledger technology) is still to be decided.
• Security is a must: The fail-safe operation of the processing systems has the highest priority. Services must also be able to withstand cyber attacks.
• Broad acceptance: The digital currency is to be available throughout the euro area, potentially also outside Europe.
• Easier access to means of payment: The digital euro is intended to promote financial inclusion and is also intended for those EU citizens who do not have access to a bank account.
• Right approach to customers: Intermediaries, such as financial institutions, should use their expertise to provide their customers with access to the digital euro and to provide additional services regarding the digital euro.
• Complies with the regulations: Compliance and regulatory aspects must be fulfilled. This ranges from anti-money laundering (AML) to the Payment Services Directive 2 (PSD2).
• User-friendly: Whether via an app or an additional device: for citizens, the digital euro must be easy to understand and intuitive to use. Of course, the digital euro is meant to protect the privacy and not create additional fees. The new means of payment will be used both at the point of sale and for payments on the Internet.

Big agenda without big bang

The requirements make it clear that this is a major joint project between financial institutions, other payment institutions and the ECB, which cannot be implemented in a big bang but must be realised in a long-term, step-by-step process. Nevertheless, a strategic preparation is key. Thus, a number of questions must be answered. If the ECB were to decide on a decentralised infrastructure, how would it be mapped? Can the existing infrastructure be used or are technical preparations necessary? Is a completely new infrastructure needed? Financial institutions should also analyse whether their payment systems are at the necessary maturity level for the settlement of digital central bank funds. If not, it may be necessary to take corrective action. This also applies to the required user interfaces that are necessary so that private consumers and corporate customers can use the digital euro. In addition, the decision-makers should think about the processes and design of these interfaces. It is best to keep in mind the ECB's goal of making the digital euro as easy-to-use as possible for the end consumer. Considerations are also useful for the design of the payment process in off- and online retail. An interesting question here is how the digital euro can be used offline? Last but not least, it is important to consider whether the digital euro can open up new business models. It is certainly beneficial to have a plan ready when the ECB gives the go-ahead.

Author: Anja Kamping

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