The European Union is seeking ways to strengthen the role of the euro and bolster its global relevance. As part of this, the European Commission is looking at the development of EU-wide instant payments, which will help increase the autonomy of payment solutions in Europe and challenge the dominance of American and Asian apps and cards that Europeans use for their cross-border payments.
Electronic payments in euro can still take as long as a business day to complete – sometimes even longer, for instance on the weekend or public holidays. With instant payments, the money is made available on the account of the recipient within less than 10 seconds, 24 hours a day, 365 days a year. Instant payments can be carried out for example between a consumer and a retailer, but also between individuals as well as between businesses.
Market infrastructure that can ensure a pan-European reach is available, notably the European Central Bank’s TARGET Instant Payments Settlement System (TIPS) that was launched in November 2018. This infrastructure gives banks that are connected to it the possibility of processing credit transfers in euro in near real-time. With this in place – and many new payment solutions emerging (like apps on smartphones) – instant payments are becoming available via smartphones, PCs and for in-store payments. However, European banks have been slow to join these systems and most instant payment solutions available in the EU are still only offered at national level.
Attempts have been made in the past to create a strong EU ‘brand’ in the field of payments, but these have been largely unsuccessful. Even Maestro, which was initially a European initiative, was eventually sold to Mastercard, a US company. Consequently, the European payments market is dominated by international card schemes. So, the development of a robust European payments system would strengthen the EU’s political sovereignty.
Furthermore, payments contain a great deal of data, much of which can reveal a lot about people’s lives and buying habits. This data is extremely attractive to giant international platforms that thrive on processing and selling data. Right now, European card payment transactions – and the data that goes with them – are increasingly settled outside the EU. With a European instant-payment system, these settlements could be kept within the EU, and would be subject to the higher-standard EU data protection and privacy laws.
There remain a number of challenges to the up-take of instant payments. The problem of fraud, for instance, is a critical issue. In general, the level of fraud for credit transfers it fairly low, especially compared to cards. However, when there is fraud it can be more problematic, because the transfer is so quick. In these cases, ‘instant credit’ can quickly mean ‘instant fraud’. So, real-time payments will have to mean real-time controls. Another issue is the fact that in order to have an instant payment, banks at both ends of the transaction must have adhered to the Instant SEPA Credit Transfers scheme, which was developed by the European Payments Council and became operational in 2017. Finally, there is the fact that, while banks see the benefits of instant payments, many are unsure about which business model to choose. For example, which end-user solution should they develop – P2P, P2B, B2B? And what is the right pricing level?
Given the political importance of instant payments for the EU, more robust action may be needed in the future. As a first step, the Commission will carry out a full review of the take-up of instant payments in mid-2020. Any potential policy intervention would have to be thoroughly assessed first.
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