Voice of the Industry

EU payments regulations: from Europe to the whole world

Wednesday 13 January 2021 07:15 CET | Editor: Anda Kania | Voice of the industry

Chris Winter, VP for Global Acceptance at Discover Global Network, shares his expert view on the way European regulations could go beyond Europe and impact global payments

Europe’s regulatory initiatives have long spearheaded change for much of the payments industry. From instituting tighter interchange rules to accelerating cross-border payments to implementing new measures to secure transactions, regulators in the EU have set the pace for much of the world. The impact of these initiatives – aimed at unifying the continent and setting the stage for open banking – continues to play out, dominating concerns for that region’s issuers, acquirers, merchants, consumers and others. And like previous moves, much of what Europe is currently pursuing could make its way to the rest of the world.

A long time coming

For more than 20 years, EU officials have sought to unify the monetary system throughout its now-27 member countries through a series of industry-changing guidelines.

With an initiative that began in 1999, European officials implemented the Single Euro Payments Area (SEPA) in 2008 to create a seamless market for cross-border payments and bank transfers in euros. In 2017, SEPA Instant Credit Transfer Scheme was launched, and today counts 2,263 PSPs (56% of the total) from 22 countries in Europe.

As part of the SEPA effort, the first Payment Services Directive was issued with the intention of making “cross-border payments as easy, efficient and secure as ‘national’ payments within a Member State,” according to the European Commission.

At present, one of the most debated EU regulations disrupting the payment ecosystem is the revised Payment Services Directive (PSD2), which aims to increase the security of electronic payments for both consumers and businesses. Strong Customer Authentication (SCA) and Open Banking are two initiatives advanced under the PSD2 umbrella, with direct influence over the global payments industry and other entities around the world.

SCA all over the shop

SCA is arguably the most pressing and challenging aspect of PSD2. Originally slated to go into effect in 2019, it was delayed until Dec. 31, 2020, after facing pushback from the financial services industry and merchants. Currently in effect, a few countries have either delayed or softened its introduction further.

SCA requires that electronic payments are performed with multi-factor authentication, which implies at least two of the following means:

  • something you know: e.g., password, passcode, PIN, pattern, answer to a secret question;
  • something you have: e.g., smartphone, token, wearable, smart card;
  • something you are: e.g., fingerprint, facial recognition, iris scan, voice recognition.

Although exemptions apply for certain transactions, including low-value purchases, recurring payments, trusted beneficiaries, and secure corporate transactions, the difficulty in implementing these standards has made the industry nervous about meeting regulatory deadlines. Decreased conversion rates, transaction declines, and the inability of some third-party processors to continue their services are just some of the potential challenges if service providers (merchants, acquirers and issuers) do not use the exemptions and are not fully prepared for SCA requirements. 

One of the key methods emerging to address SCA requirements is the adoption of EMV®3-D Secure v.2.2 (EMV 3DS v.2.2), an updated version of the EMV 3-D Secure Protocol and Core Functions Specification developed by EMVCo that helps make the application of SCA easier at the time of the transaction, thus improving the purchase experience. 3-D Secure products are issued in various brand names, including an enhanced Discover® ProtectBuy® for Discover® Global Network partners. 

Discover Global Network is encouraging its partners to move to the EMV 3DS v.2.2 protocol as soon as possible, especially given the potential impact on merchants throughout the EU.

The payments ecosystem involves a high number of dependencies and parties must work together to implement SCA. The constraints the current crisis places on the roll-out of SCA technology severely limits the time available for participants to test together, which is essential to a safer and controlled implementation. Discover Global Network has put programmes in place to proactively monitor transactions to detect any change in approval rates for its merchants and issuers. 

Open Banking goes beyond Europe

Open Banking is a regulatory standard implemented under PSD2 via which bank accounts are interconnected through a common API mechanism, allowing for authorised third-party access to bank accounts for account information services (AIS) and payment initiation services (PIS). Driven by the great digitisation of financial services, Open Banking is now seen as an opportunity for consumers and businesses of any size to have more control over their transactional data.

In the retail (banking) sector, open banking services may help aggregation platforms to view customer financials across multiple providers via a single dashboard, or it can allow marketplace platforms to display product comparison between third parties.

According to Vincent Brennan, Deputy Chairman of the Euro Banking Association, this trend opens avenues to put customers more in control as to which products and services they consume in relation to their bank accounts; and from which service providers they wish to buy the respective product or service.  

Initially launched in Europe, Open Banking is now growing at a global scale, with the US, Mexico, Brazil, Australia, Singapore and Nigeria, as primary countries adopting this initiative. Besides the technological and financial innovation reaching markets worldwide, Open Banking in emerging economies also represents an opportunity for more financial inclusion.

A global impact for years to come

Given the impact of these recent EU moves, industry observers are keeping a close eye on the continent for hints of what might be coming to their shores. Still, while some of these significant challenges for the payments industry could easily go global, the potential benefits they could bring also should not be overlooked. Greater open banking capabilities, increased convenience for consumers, and much of today’s innovation in the industry can be tied directly to the impact of EU regulatory action.

As every event in history is a lesson for us, there will likely be conclusions made on how the payments industry reacted, and how payments industry players helped merchants or consumers during the COVID-19 crisis. And regulatory bodies may come up with new regulations, should they think it’s needed, to help the industry have best practices in place moving forward when we face the same or similar situation.

Looking ahead, although there is no crystal ball to reveal what the future holds, certainly regulation is, and will be, part of the payments business, and it will be further driven by innovation factors such as emerging fintech technologies, alternative payment methods trends, customer insights, and the security of consumers’ digital information. So it’s fair to say that regulation can also be turned into a competitive advantage for a business environment that is readily able to adapt to new laws and new market realities. And Discover® Global Network has the required resources to adapt and help our partners and customers understand payments compliance and meet the market needs.   

*EMV® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMVCo, LLC.

About Chris Winter

Having spent over 30 years in the Payments Industry, Chris is well placed to provide some context and commentary to the multitude of regulatory and commercial challenges facing the Payments business. Chris’ career spans time spent at leading Issuing and Acquiring institutions, Global Processing Companies as well as with 2 of the largest Payment Schemes in the world. Chris is based in London where he works as the Vice President for Global Acceptance at Discover.


About Discover Global Network

Discover Global Network, the global payments brand of Discover Financial Services, processes millions of cardholder transactions each day. With industry expertise, innovative technology and a closed-loop infrastructure, Discover Global Network provides effective, customized solutions that evolve as needs change. Discover Global Network has alliances with more than 18 payment networks around the world and is led by three Discover businesses: Discover Network, with millions of retail and cash access locations; PULSE®, one of the leading ATM/debit networks in the U.S.; and Diners Club International®, a global payments network with acceptance in more than 200 countries around the world. 

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

Keywords: Discover Global Network, regulation, PSD2, Open Banking, online payments, Strong Customer Authentication
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce

Industry Events