Different approaches to the regulation of new payments technologies is creating confusion and uncertainty for payments companies and consumers within different regions and between countries.
This uncertainty risks impeding innovation and slowing down the acceptance of new systems such as faster payments, or technologies based on open banking initiatives.
The World Payments Report 2018 from CapGemini and BNP Paribas has found significant variations between the regulatory regimes of some regions – even where the goal is to harmonise regulation in that region. While successful regulatory initiatives exist, such as the EU’s PSD2 Directive, there are also examples of widespread non-compliance with international regulatory regimes.
One example of variable compliance is the EU’s SCT Inst scheme for Faster Payments. SCT Inst aims to facilitate Faster Payments (FP) between European economies and allow for the integration of national FP networks.
Although many national schemes, including those of Italy, Spain, Portugal, France, Belgium and the Netherlands are updating their systems to comply with SCT Inst, only 20 percent of the banks in those countries have achieved compliance – a factor which risks impeding faster payments growth across Europe.
According to BNP Paribas and Capgemini, there is an identifiable dynamic between innovation in payments technologies on the one hand, and the attempt to understand and regulate these innovations on the other.
Further complicating the picture is the fact that different regions of the world regulate the same waves of innovation to different levels and with different intent.
To simplify the regulatory landscape for larger corporates and speed up new technology adoption, BNP/Capgemini recommend aligning individual countries’ regulatory regimes through the establishment of interoperability standards, while also reducing the number of global and international regulatory initiatives and bodies.
Several Asian markets, including Singapore, Thailand, Indonesia, China and Cambodia, have embarked on the harmonisation of those countries’ payments standards with a view to improving the systemic efficiency of their markets and safeguarding customers from fraud. This collaborative approach differs from that of the EU, for instance, where standards are typically created centrally then mandated from the centre to individual markets.
The approaches adopted by the US and UK show how a change in emphasis can also affect regulatory outcomes. BNP/Capgemini argue that the UK has successfully emphasised enabling new technologies and innovation via regulatory initiatives such as the FinTech sandbox and the New Payments System Operator initiative.
In the US, by contrast, the focus is on risk reduction and standardisation through AML and financial stability rules. These different approaches have an effect on how rapidly payments innovations are adopted in these economies – although new US regulations for open banking and real-time payments are expected to considerably enhance that country’s regulatory flexibility.
To help explain this dynamic, the report’s authors have created a graphic showing markets which adopt a “proactive” (i.e. forward-looking) approach to new payments technologies, versus those which react. The graph also demonstrates which markets respond to the need for better regulation before it’s required, versus those that respond only when necessary.
The below graph shows both India and China becoming more dynamic in their approach to the regulation of new payments technologies, with Sweden, Singapore, Australia and the UK among those markets most receptive to innovation and new technologies from a regulatory point of view.
Sweden’s highly flexible approach may result from its long tradition of non-cash payments, while Brazil’s status as a regulatory laggard among major markets stems from that country’s attempt to introduce new payments methods on older technology infrastructures.
The biggest challenge for payments arising from this regulatory variation is the time and effort invested in global compliance by the industry – time and effort which, the report argues, diverts resources from focusing on customers and the development of innovative new technologies such as those based on distributed ledger technologies (DLT) or blockchain. (See cover feature, “Out of the Blocks?” page 12).
Finally, this report identifies what it calls “Key Regulatory and Industry Initiatives”, or KRIIs, arguing that these can as often be mutually contradictory as they are reinforcing. This happens because intentions overlap, hindering the regulation’s clarity and, by extension, the development of the payments ecosystem.
BNP/Capgemini offer examples of where well-considered initiatives can enhance each other – as is the case, they argue, with Europe’s PSD2 regulations for open banking and eIDAS for Digital Identification. Taken together, these two sets of regulations help to foster growth in Europe’s digital economy.
On the other hand, overlaps in scope can create challenges for everyone. In Europe, the authors identify PSD2 as conflicting with the EU’s GDPR legislation, since freeing access to customer data (PSD2) is at odds with the data protection aims of GDPR.
Globally, the study finds regulation relating to crypto-currencies uneven and often conflicting, and points out that this kind of regulation risks reducing clarity in an already poorly-understood area.
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