The European Union has been actively exploring ways to foster the development of a more competitive and innovative retail payment landscape in the EU. A significant development in this regard took place on 28 June when the European Commission proposed a package of measures, including revising the existing Payment Services Directive 2 (PSD2) with a proposal for a directive of Payment Services 3 (PSD3), and a proposal for a payment Services Regulation (PSR). On the same day, the European Commission also published a proposal for a regulation for the establishment of the digital euro. Ecommerce Europe expect these initiatives to have a significant impact on digital transactions and the daily activities of e-commerce merchants.
The European Commission’s Proposal for Payment Services Regulation
The review of PSD2 conducted in 2022 has led the Commission to propose legislative amendments to the directive set out in two proposals, including a proposal for a Payment Services Regulation. The proposal aims to provides the legal framework of all retail payments in the EU by promoting more competition, creating a more integrated European payments market, and enhancing consumer protection and security. Among other aspects, PSR will aim at:
- Strengthening user protection and confidence in payments. The review of PSD2 found that users (consumers as well as merchants), continue to be exposed to (new) fraud risk. To address this, the proposal lays down a number of provisions, notably calling on the revision of the rules for Strong Customer Authentication (SCA), and also creates new sets of rules on PSPs liability when issues with payment authorisation arise.
- Improving competitiveness. The review of PSD2 revealed that many barriers remain in the EU payment market which strongly limit users’ choice of payment methods. The limited impact of PSD2 on competition resulted in online merchants not benefiting from the growth of new open-banking solutions which would have brough more competition to the market. A revision of the rules is therefore welcomed as PSR is expected to address some of the existing barriers for these actors.
Next steps: The co-legislators, European Parliament and Council of ministers, are currently working on their respective positions. At the European Parliament, the Economic and Monetary Affairs Committee is responsible for the file, and the rapporteur, Ondrej Kovarik (Czechia, Renew), has not yet published its draft report.
A framework for the future Digital Euro
The European Central Bank (ECB) has been exploring the potential issuance of a digital euro for a few years now. This “central bank digital currency” would be available to the public within the euro area. It would be exactly like cash, with the same guarantee directly backed by the ECB, only in a digital version. Therefore, the idea is not to replace cash but rather to complement banknotes and coins.
The European Commission published what could be the framework for this future CBDC (central bank digital currency) on 28 June 2023. The Proposal for a Regulation lays down the main rules around the issuance, distribution, remuneration of the future digital euro.
- Fostering competition and efficiency in the European payment sector. The plan would be to establish a pan-European payment solution, which could strengthen European independence from private non-European payment providers on which we are currently heavily relying for cross-border payments in the EU. The digital euro would be a single means of payment usable throughout the euro area, regardless of where payers are located and which commercial bank or PSP they use, and would provide an accessible form of digital payments for EU citizens.
- Providing a new means of payments for goods and services. The digital euro scheme would offer a payment instrument that would be used omni-channel and cross-border throughout the Euro Area. As such, e-merchants will be key players in the roll out of the digital currency as acceptors of the digital euro. However, the Commission’s proposal suggests giving legal tender status to the digital euro, therefore obliging all merchants in the euro area to accept payments in digital euro. Regarding the cost of the digital euro, the proposal suggests that merchant fees for accepting digital euro should not exceed the fees for comparable means of payment. However, it remains to be seen how it will be implemented in practice and the potential cost online merchants may have to bear following the issuance of the digital euro.
Next steps: If the proposal is adopted by the Parliament and Council (which is not expected to take place before the European Election), the decision to issue the digital euro will fall within the sole competence of the ECB, acting in full independence, in accordance with the Treaties. The digital euro may still take some years before it is issued. Earliest go-live can be expected for 2026.