Strengthening electronic payments

Have you ever encountered any obstacles when seeking to effect an electronic payment? Well, now is the time to air your views. In an effort to ensure the smooth functioning of electronic payments across Europe, the European Commission has recently launched a Green Paper with the objective of gathering stakeholder’s views on the electronic payments market.

Consumers are prevented from using national debit cards abroad due to fragmented standardisation- Mariosa Vella Cardona

The way in which most Europeans effect payment for goods bought or services rendered, has over the past years experienced a radical change. Effecting payments over the internet or paying by means of a card has become the norm for many of us. The Commission’s Green Paper focuses on three types of electronic payments, namely, card payments, that is, all payments made with a debit or credit card, whether at the point-of-sale or remotely, internet payments including online payments made with payment cards or online banking as well as mobile payments covering all payments made with a mobile device.

The aim of the Green Paper is to identify the obstacles that could prevent European integration in these payment markets. It gives stakeholders the chance to make their voice heard and possibly provide solutions to identified problems. A number of issues have been identified by the Commission in its paper. The focus rests mainly on market access and entry for existing and new service providers, payment security and data protection, transparent and efficient pricing of payment services, technical standardisation and inter-operability between service providers.

The scope of the paper is to stimulate debate and therefore it identifies problems with the current system rather than provide solutions to same. Thus, for example, one particular problem highlighted by the Commission relates to the fact that the European cards payment market is largely fragmented along national borders with a small number of domestic schemes and only two main international players. Domestic debit card schemes are often not accepted outside their country of origin. Inter-bank fees, also known as Multilateral Interchange Fees, commonly agreed between payment service providers are also predominant in this market. These fees determine to a large extent the charges traders pay their banks for accepting the card to make a transaction. In turn, traders pass on these charges to all consumers, and not simply to those making use of the service, by adjusting the retail price of the goods or services sold.

The Commission believes that making the total cost of using different payment instruments fully transparent to all payment service users could change consumer behaviour and reduce the costs of transactions for all parties. Similarly, the adoption of common standards which ensure technical interoperability would do much towards ensuring more competition in Europe and mobility for consumers. In its paper, the Commission points out that one of the reasons as to why consumers are prevented from using their national debit cards abroad is precisely due to fragmented standardisation.

The Green Paper also raises questions about a primary concern for consumers, namely that of payment security. Surveys show that a lack of trust in the security of internet payments is one of the key reasons for consumers not to use e-commerce.

The increasing use of “Chip and PIN” cards instead of signature-based cards or PIN with a magnetic stripe has already significantly reduced fraud at the point-of-sale and at ATM withdrawals. However, remote card payments and other remote payment methods, such as e- and m-payments, are still subject to increasing fraud rates.

A potential remedy identified by the Commission in its paper would be the adoption of two-factor authentication, that is, the use of a PIN in combination with a one-time transaction code received through an SMS or token device. However, the Commission itself doubts the practicality of such a solution, particularly for low-value transactions.

Stakeholders now have until April 11 to make their voice heard. On the basis of the feedback received, the Commission will then decide what further action needs to be taken.

There is no negating that the creation of a more efficient, modern and safer means of payments would be beneficial for all and sundry, be it consumers, traders or payment providers. Indeed, the objectives set out in this paper compliment the other objective that the Commission has already set out to achieve, namely a Single Euro Payment Area which will replace 32 separate payment regimes with a single one, thus enabling faster and cheaper cross-border payments throughout the EU. The achievement of both objectives would truly signify that European citizens can fully partake of the benefits accruing from living and working in a single market.

mariosa@vellacardona.com

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is the deputy chairperson of the Malta Competition and Consumer Affairs Authority as well as a member of the National Commission for the Promotion of Equality.