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Lobbyists representing the payments and fintech industries in the EU have urged the European Central Bank (ECB) to rethink its Eurosystem policy on access to payment systems for payments and e-money institutions.
A coalition of leading trade associations, including the Electronic Money Association (EMA) and European Fintech Association (EFA), has raised concerns with the ECB about the Eurosystem’s new policy on non-bank payment service providers (NBPSPs).
In an open letter to central bank leaders Christine Lagarde, Ulrich Bindseil and Piero Cipollone, the coalition argues that the July 2024 policy could stifle competition and raise costs for NBPSPs in the EU payment market.
They highlight concerns over the refusal to allow NBPSPs to safeguard funds with Eurosystem central banks and the exclusion of settlement funds from safeguarded status when held by central banks.
What are the concerns?
The trade associations warn that excluding electronic money institutions (EMIs) and payment institutions (PIs) from safeguarding facilities could undermine the policy’s goal of financial system safety.
The lobby groups advocate for a measured approach, similar to the digital euro, allowing some safeguarding with restrictions that benefit the payment system and its users.
Another concern is that excluding settlement funds from safeguarded status could make direct participation in the Single Euro Payments Area (SEPA), a future digital euro and other designated payment systems economically unfeasible for e-money and payment firms, which the letter suggests could hamper the viability of these systems for EMIs and PIs.
The trade associations also suggest that the timeline for finding alternative safeguarding and payment processing services is too short and warn that institutions currently relying on the Bank of Lithuania's services, for example, need more than the proposed nine months to transition.
Here, the firms suggest that NBPSPs need a period of 18 to 24 months to allow adequate time for securing new service providers, contracting, integrating, testing and going live.
A deterrent policy?
According to the letter, the ECB’s provisions could deter NBPSPs from directly participating in central bank-operated payment systems, increasing their dependence on commercial banks.
The associations argue that the Eurosystem’s policy conflicts with recent legislative efforts such as the Instant Payments Regulation (IPR) and the draft Payment Services Package, which aim to create a more competitive financial services market by allowing NBPSPs to safeguard funds at central banks.
For example, within the proposed Payment Services Regulation (PSR), it is stated that “payment system operators shall not inhibit access to a payment system more than is necessary to safeguard against specific risks, including where applicable settlement risk, operational risk, credit risk, liquidity risk and business risk or more than is necessary to protect the financial and operational stability of the payment system”.
In contrast, the trade associations state that the ECB policy “risks sending a pre-emptive signal to both Eurosystem and other EU Central Banks that such discretion should only be exercised in the negative”.
The trade association warns that the policy risks discouraging competition, driving up costs and ultimately reducing NBPSPs' ability to offer services.
“We believe the central banks can provide banking services to both the banking sector and the payments sector in equal measure; this should not be an exclusive service to credit institutions, nor does it have to be the sole means of safeguarding for EMIs and PIs,” the letter says.
According to the trade associations, this would provide a means of safeguarding funds, while benefiting from the reduced risk and without having to make commercial disclosures to entities with whom e-money and payments firms are competing directly.
Further, the firms suggest that access to central bank safeguarding can also go some way to mitigate market and credit risk, stating that the value of this was recently demonstrated in the light of the collapse of Silicon Valley Bank and its branch in the UK.
“This had systemic consequences and required central bank intervention to address the risk to an entire class of electronic money and payment institutions based in the UK.”
Immediate problems
In the letter, the firms also highlight what they call immediate concerns with the ECB’s policy.
The coalition calls for a longer transition period for affected firms, especially those using systems such as Lithuania’s CENTROlink, which could face operational disruptions under the current policy timeline.
“The practical implications of the Policy are significant and immediate,” the trade associations suggest, pointing out that, as of December 2023, there were 122 NBPSPs benefiting from CENTROlink System arrangements, and who also operated through accounts held with the Bank of Lithuania.
According to the letter, these firms are likely to need to find alternative banking arrangements in a relatively short period of time, which could trigger business disruption and put users’ payment services at risk.
The letter also notes that users of CENTROlink, the Bank of Lithuania's payment system serving as a gateway for payments and e-money firms' SEPA transactions, will need extra time to find and integrate with a new partner to continue offering SEPA payment services.
“We urge the Eurosystem/ECB to take account of these operational difficulties for NBPSPs and to provide for a significantly longer period for transition.”
The letter concludes by urging the Eurosystem to reconsider its stance and take a more calibrated approach, particularly as the EU prepares for a future that includes digital currencies such as the digital euro.
“We remain committed to working collaboratively and acknowledge the Eurosystem/ECB’s role in meeting its monetary policy and financial stability objectives. We hope this can be achieved whilst balancing the interests of all payment services providers and maintaining effective competition in the financial services marketplace,” the letter says.
Signatories of the letter are the EMA, the European Digital Payment Industry Alliance (EDPIA), the EFA, European Payment Institutions Federation (EPIF), European Third Parties Providers Association (ETPPA), and member state representatives the Fintech Hub LT and the Spanish Fintech & Insurtech association (AEFI).
