The eighth World Payments Report (WPR) has just come out and, last week, we provided a summary of the first section on non-cash trends. Here’s a summary of section two: regulatory trends.
Ability to Innovate is Challenged Amid Sea of Key Regulatory and Industry Initiatives
Regulators have continued to implement the Key Regulatory and Industry Initiatives (KRIIs) discussed in WPR 2011, and new initiatives have been introduced.
The Eurozone debt crisis has accelerated the impetus behind certain KRII objectives, such as Basel III, and that urgency is prompting European banks to comply faster than originally expected.
This is challenging their ability to innovate since meeting the considerable imperative to comply dominates time, energy, and financial resources, leaving less bandwidth for innovation.
Payment service providers (PSPs), especially banks, are feeling intense pressure from the regulatory focus in payments, not least because regulations impact one another, and continuously evolve, thus require constant monitoring and attention.
Regionally focused KRIIs have a tendency to be replicated in other regions, so regulators and banks need to ensure that individual regulations are not designed and implemented in a vacuum.
While individual KRIIs can potentially be net positive or negative for innovation, payments innovation often emerges as KRIIs converge.
This is certainly the case for payments processing and servicing, as well as standardization and security—areas in which innovation has regularly emerged as a direct result, or a byproduct, of KRIIs.
Going forward, KRIIs aimed directly at driving innovation, with changes visible to the customer, have great potential to result in substantive change.
Contactless cards / NFC initiatives offer a prime example.
An increasing number of smart phones are being equipped with NFC technology, suggesting the market is becoming ready to drive usage of NFC technology in the payments industry.
The bank and non-bank players piloting NFC innovations include major names like Google, PayPal, MasterCard, Visa, and Apple.
The combination of industry initiatives, core bank infrastructure and non-bank players has and will be a powerful force of transformation in payments.
Even SEPA, long focused on compliance, may perhaps soon be viewed more for its innovation potential.
As the legal certainty around SEPA migration grows stronger, PSPs can start to look beyond the migration phase, and toward the SEPA platform to promote competition, efficiency, and innovation.
The SEPA migration deadline is fast-approaching and significant preparation is required, so firms need to act soon if they have yet to commence their preparations.
The deadline for migrating to SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD) has been set at February 1st, 2014, shifting the focus on SEPA migration from ‘when?’ to ‘how?’ While SCT adoption rates have been steadily increasing since the launch date, SDDs have shown little progress thus far.
Ongoing uncertainty around key aspects of SEPA requirements raises the possibility that SEPA benefits may not be fully realized.
Outstanding issues include the need for a common interpretation of SEPA requirements, certainty around exceptions being requested in Member State transition options, and assurances that technical interoperability can indeed be achieved.
The industry is already looking for ways to leverage SEPA as a platform, and use the standardization that SCT and SDD offer to drive innovation.
You can order a copy of the full report from EFMA, and the summary of each section is below:
- Part One, the Non-Cash Trends
- Part Two, the Regulatory Trends
- Part Three: SEPA
- Part Four: Innovation