Vice-President Valdis Dombrovskis

Speech at the Afore Consulting - 3rd Annual Fintech Conference

Brussels, 26 February 2019


Ladies and Gentlemen,

It is a pleasure to be back for the 3rd annual Fintech Conference, so thank you to Afore Consulting for the invitation. By gathering us all here for open discussions, events like this are crucial for answering the complex policy questions raised by Fintech.

It is now almost a year since the launch of the European Commission's Fintech Action Plan. Since then, we have been working closely with supervisors and market participants on implementation, so today I will give you some updates on our progress.

Then, I want to look more in-depth at the issue of payments technology. There is currently an ongoing debate on how Europe can preserve its competiveness in the face of international technological competition.  And it has become clear that for certain strategic technologies, the capacity to drive cutting-edge innovation will determine our sovereignty as a continent.

Payments is one of those strategic technologies.  And it is currently undergoing a Fintech transformation, with companies like Klarna, Transferwise, and Adyen leading their field here in Europe.

But this is just the beginning.  As instant and mobile payments accelerate, Europe should be leading the development of new and open market standards. So in my speech today I also want to focus on two areas where Europe is taking this leading role: the revised payment services directive, known as PSD2, and cross-border instant payments.

Before I get to that, let me first turn to the Fintech Action Plan.

* * *

Increasingly, finance is centring not just around money, but also technology and data. This creates new dynamics, such as the growing importance of a large user base for network effects and big data analytics. Here, Europe has a unique asset in the form of our single market of 500 million people. But this – on its own - is not enough for Fintechs to scale up in Europe.

We also need to crack down on regulatory barriers between Member States, to have a genuine single market for Fintech in Europe. For example, we proposed to allow EU crowdfunding platforms to operate across the EU based on a single license. This proposal is currently with the European Parliament and the Member States, and I urge them to step up efforts to adopt it.

And we need to support companies to adopt the latest technologies, by working with supervisors and regulators to build new skills and attitudes. For example, we have set up an EU Fintech Lab, which brings together supervisors, technology providers and financial institutions to deep-dive into specific technologies. So far, the labs have focussed on cloud outsourcing and artificial intelligence, with a third lab planned for before the summer.

Last year, the Commission asked the European Supervisory Authorities to report on regulatory sandboxes and innovation hubs in Member States. This work is now ready, and the results are encouraging. European countries have opened 21 innovation hubs and 5 regulatory sandboxes to help companies roll out innovative services in the financial sector. And these initiatives are working very well.

So the next step is to make this work equally well at the EU level. And this is why, together with the European Supervisory Authorities, the Commission will launch on 2. April a European Network of Innovation Facilitators. This network will allow supervisors to learn from each other through continuous information sharing. And it will enable companies to reach EU scale more easily, by creating referral mechanism when firms need to go beyond their national markets.

In addition, we must focus on security. For example, just yesterday we learned that cyber-attacks on the UK financial services sector have risen fivefold in 2018.

And finally, we have to make sure that our financial sector rules do not inadvertently hinder useful innovation. On crypto assets and initial coin offerings, we are now carefully studying the advice prepared by ESMA and EBA to consider whether action at EU level is warranted. Both authorities conclude that, under certain circumstances, EU financial rules may apply to some crypto assets, although this raises complex questions.

Crypto-assets that do not meet the definition of a financial instrument still present many of the same issues regarding consumer protection, market integrity and a level playing-field. ESMA and EBA believe there is basis for the Commission to undertake a cost-benefit analysis to assess if EU level regulatory action is needed.

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Another area that will be transformed by new technology is payments. Thanks to mobile technology, and the advent of instant payments, a new generation of payment services will soon be upon us. Every citizen and every business makes payments many times a day, so we will all be affected by this.

This transformation will bring many benefits:

  • it will simplify cross-border business and travel,
  • it will help to further integrate our single market,
  • and it will have important strategic implications for Europe in a world that is rapidly becoming more multipolar. By developing its own payment technology, Europe could increase its capacity to stand on its own feet in the world. The Commission’s Communication on the international role of the euro adopted last December made this very clear.

Let me ask you, how many here know that Maestro was initially a European company sold to Mastercard? And did you know that chips used on cards in most countries of the world were invented in France?

In a few years, we want Europe to set new global standards for payments technology. Other parts of the world like China are building their payment systems directly on a digital basis. So we should seize our current opportunity and accelerate our efforts to digitalise our payments.

* * *

And already we have taken a strong leadership role, with the entry into application of the revised Payment Services Directive, or PSD2, one year ago. In combination with the new General Data Protection Regulation, PSD2 has brought new payment services and their providers into the regulated sphere. This gives them a clear legal framework and ensures strong customer protection, which is unique in the world. 

Already, national authorities have authorised around 200 legal entities for providing account information services and payment initiation services. At the same time, more and more banks want to provide these services themselves, or in partnership with Fintechs.

As of 14 September of this year, banks will have to make available an interface for fully secured communication with authorized third-party providers. And we will make every effort to ensure that well-functioning communication interfaces, or APIs, are ready and tested in time for this deadline. We need high quality APIs to allow EU-wide payment solutions to develop.

* * *

The second area where Europe is advancing fast is in instant payments. In a digital world where messages and data can be transferred instantly, it is inevitable that European consumers want instant payments. And thanks to the TARGET Instant Payments Settlement System, or TIPS, which was launched last year, we now have the opportunity to make such services widespread.

In fact, we may be on the verge of a pan-European, fast bank-to-bank payment network. This could have the capacity to disrupt existing payment solutions - including cards - , at least for euro denominated payments.

Our objective could be that within a few years, citizens can use instant payments in Euro across borders like they use cash, bank transfers or cards today. But of course, this requires common standards, and a commitment by market operators to use them.

The Commission has already put in place EU-level regulation, and supported infrastructure to allow pan-European payment solutions to emerge. It is now for the market to develop these solutions, and speed is of the essence. But the Commission can help, for example by supporting the development of interoperability standards among different Member State technologies.

Finally, we are reflecting on whether a stronger regulatory push would be needed to speed up this process. And the review of the Payments Account Directive still this year could be an opportunity to pursue concrete actions.

Ladies and gentlemen,

With Instant Payments and the PSD2, Europe has launched two ambitious initiatives. Now we need to work together to create a fully digital European payments system that is open and fair for existing and new operators. This way, Europe can move together towards the new era of payments, rather than starting again from fragmented national schemes that will require years to overcome. I hope Europe’s banks and Fintechs will seize these opportunities. And I wish you a productive and interesting conference today.

Thank you very much.