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Tech-enabled payment processes: policy implications of new developments

What challenges does a shift towards new payment processes imply for EU financial services policy?


Chirag Patel

Executive Vice President Global Head of Payments, Banco Santander,

video & audio recordings


Payments, in the EU as in the rest of the world, are increasingly being disrupted by new technologies, new business models, and new service providers. What challenges does this shift imply for EU financial services policy?

This event featured a conversation concerning new developments of tech-enabled payment processes and their consequences on European financial service policy.

Chirag Patel, Executive Vice President Global Head of Payments for Banco Santander, started the discussion by pointing out that payments can be a driver of loyalty. Traditional banks have in the past delivered a terrible customer experience with regard to international payments. Banco Santnader now tries to think about the customer experience and to embrace start-ups and technology. The VP also argued that putting companies into boxes like big-tech or fintech is not that useful. While different companies that are more fintech or big-tech may have different skill sets, and banks should work with these groups, the playing field must be level. On the topic of LIBRA, the “Facebook cryptocurrency”, the VP Does not view at as a way to solve financial inclusion or financial education. The value proposition of LIBRA was also not clear to the VP. The VP views foreign investors buying up payment companies as strategic move to gain a way of accessing customers and interacting with customers.

Etienne Goosse, Director General for European Payments Council, asserted that payments are a matter of European sovereignty. The Director echoed some of the points made by Chirag Patel, mainly that the customer needs and journeys are important to payments. Goosse sees the focus on customer journeys as a (good) revolution, and before this revolution payments were about pipes, standards, and messages. On the topic of LIBRA, Goose does not view the stated goal of LIBRA to increase financial inclusion as an act of charity, but rather the Director suspects other motives are more likely. On the statistic that The 51% of payment service providers adhere to the asset instant scheme, the Director argued the number is actually higher if one measures it by volume of transactions.
Jörn-Jakob Röber, Head of Public Affairs for Trustly, stared with an explanation of what Trustly does which is to provide online payment solutions and account to account payments. Trustly works closely with banks and sees them as partners not competitors. On customer data, Röber stated that consumers should have the right to share or not share their data. On regulation of fintech companies, Röber stated that throwing the whole regulatory rule book at fintechs would stifle new players from the start, but of course there should be some regulation.

Johannes Vermeire, CEO and Co-founder for POM, explained what POM does which is to try to bring peace of mind in the space of payments. The CEO observed that fintches and banks work together more nowadays. Vermeire echoed a sentiment made Röber that It is not easy for fintechs to meet the regulatory requirements that banks face. The CEO stated China and the USA investment a lot more in fintechs, and the amount of regulation in Europe hinders fintechs in Europe.

Nicolas Véron, Senior Fellow of Bruegel, explained that LIBRA is a form of payment that has not been implemented yet. The Senior Fellow pointed out that big-tech poses a challenge for financial regulators. Big-tech can accumulate enormous market power in terms of access to data and exploitation of data. Financial regulators must find the balance of letting these new players both fintech and big-tech into the financial space but not too much or too little. A difficult task. Supervision architecture is also another difficult challenge due to the national level that supervisory architecture is currently at, and the supervisory architecture must be ready to deal with global supervision. On the topic of regulation, Véron views banks as special and it is logical that they are regulated differently than other actors (fintech, start-ups, big-tech). Therefore, a given activity should be not be regulated the same way if it is undertaken by a bank or by a non-bank. Banks have the unique role of taking deposits, underpinning trust in society, trust in payments, lending, creating money, and transmitting the monetary policy of central banks. There are justified reasons for not having a level playing field. Véron stated that If Europe had a financial system that was less uniquely reliant on banking intermediation, maybe Europe would have a more vibrant economy. This also plays into the why Europe, compared to the USA and China, does not have big-tech companies. The lack of big-tech companies is just not about regulation but also research infrastructure, labour laws, and financial systems.

An interesting comment from the audience was that there is evidence from the USA that lowering the threshold for making a payment also increases financial vulnerability. Surveys in the USA have found that millennials that use their phone to make payment are more likely to overdraw, and there is a negative correlation between financial literacy and the use of phone payments.

Notes by Akira Soto