The future of European payments: Faster, cheaper, more digital and more European; with no one left behind

Abstract

This paper describes key trends in the payments markets (namely, declining use of cash, digitisation, the growth of payment fraud, and geopolitical tensions) and how these translate into risks, both perceived and real. The paper then describes how the European Union (EU) legislator is addressing these risks, for example, through the proposed EU Payment Services Regulation and the Instant Payments Regulation, which will introduce such measures as conditional reversal of liability for authorised push payment fraud and confirmation of payee services to enhance fraud prevention and protect consumers, along with efforts to increase the availability and acceptance of cash in order to preserve financial inclusion for vulnerable groups that rely on cash payments. The paper also discusses how the proposed digital euro would function as a backup for payment systems during disruptions, as well as a solution to counter the potential dominance of a third-country central bank digital currency or stablecoin. The paper discusses how many of the legislative measures will require private sector entities to invest in capabilities they would not otherwise invest of their own accord and to cooperate in order to accomplish the public goals set forth by the EU legislator. Put differently, the product development agenda for payment service providers over the coming years will, to a large extent, be driven by the legislator rather than businesses. Some of the required investments will probably be lossmaking, while others could be profitable but may cannibalise existing business. The legislative developments will, therefore, require the identification of both risks and commercial opportunities.