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An official at the European Central Bank (ECB) has said that payments players should proactively engage with EU regulators to help shape the compliance requirements put upon them.
Eric Tak, head of division for the digital euro at the ECB, told the audience at Merchant Payment Ecosystem (MPE) that if they want regulation with good outcomes, they need to get better at engaging with policymakers.
His comments come as Europe implements the new Instant Payments Regulation (IPR) requirements, and prepares for other legislation, such as the Consumer Credit Directive, the Payment Services Package and the digital euro.
“In the payments industry, we have often missed the opportunity to shape and influence the regulation,” Tak said, discussing his previous role in the private sector.
“For a very long time, we’ve been in denial, rather than engaging with the EBA or the European Commission, and saying ‘we understand what you’re trying to achieve, let us do something to help you make it work’.”
Tak, previously an executive at ING Bank and a former member of the board at the European Payments Council, said that a “worst example” of regulation is the Cross-Border Payments Regulation.
“Rather than regulating it on the acquiring side, we introduced information requirements on the issuing side to tell them what exchange rate is used within 15 minutes of a transaction.”
Tak called on firms to work with the co-legislators and “educate them, rather than complaining about them being bureaucrats in an ivory tower”.
His intervention comes at a time when merchants in particular are sounding the alarm about the potential setbacks of new regulation, including friction in online transactions.
For example, changes to strong customer authentication (SCA) in the updated Payment Services Directive (PSD3) could have negative consequences for many merchants and e-commerce platforms.
In addition, areas such as outsourcing and accessibility could be subject to change under the legislation currently being negotiated.
APP fraud
The topic of authorised push payment (APP) fraud and who should be held accountable was also discussed at MPE.
“To me, the topic of APP fraud is a very surprising one, because we’re trying to strengthen the strongest part of the chain, and putting a lot of requirements on that,” said Tak, alluding to the fact that payment service providers (PSPs) are the ones being held responsible.
Tak pointed out that, typically, regulation of payments begins at the initiation of the payment and not what triggered people to initiate the payment in the first place, “as happens on social platforms”.
“Clearly, we get much more value for our regulatory budget if we address it at the source rather than the part that is relatively ok,” he said.
Donald Kossmann, chief technology officer at Chargebacks911, said that for efficiency, “the regulator needs to clearly define the problem that they are solving”.
“A lot of overregulation comes from solving problems that maybe shouldn’t be solved by regulation,” he said.
Regarding APP fraud, Kossmann added that “not all of it is fraud, some is consumers saying it is fraud”.
“We’re trying to solve a problem in payments that actually should be solved somewhere else, and then we’re giving the wrong incentives and we have to do all sorts of weird things to then compensate for the damage that has been done.”
The undying, underlying problem
As its almost inevitable discussion at MPE shows, how to address APP fraud is a subject that just will not go away for payments players and regulators.
Regulators such as the ECB and the UK’s Payment Systems Regulator (PSR) seem sympathetic to payments firms that are being asked to pay out.
However, governments may not be inclined to kick the hornets nest of US tech firms that clearly have the ear of the unpredictable and erratic President Trump, who could easily decide to begin a trade war with Europe over this topic.
For now, it appears that the big tech firms may swerve the kind of compliance requirements that PSPs face.
Nevertheless, what Tak said stands true — if payments firms want to avoid even more cumbersome expectations, now is the time to ensure they have a presence in cities such as Brussels, Frankfurt and London.
Their input can be invaluable in putting together whatever comes next for payments regulatory oversight in Europe.
