COMPLIANCE & REGULATION
RULES OF THE GAME Regulation has been as much of a catalyst for fintech innovation as it has been an impediment. We talked to two industry figures on the challenges, and the opportunities, created by regulators in Europe and the UK
Across the global payments landscape, regulators have been acting as a catalyst for development, intervening to foster greater competition, protect consumers and promote financial innovation through new technology.
Nowhere is this more the case than in Europe, where, in recent years, regulatory intervention and infrastructure renewal have been challenging incumbents and re-shaping established relationships and methods. At the same time, there has been growing recognition that the intrinsic risks within many financial systems need to be tackled. The successful implementation of reforms in different
countries has been uneven, though, and planned outcomes have not always been achieved, with projects often unexpectedly slow to complete. For some, the planning and implementation of payments infrastructure development is a difficult task due to ingrained legacy systems, or the complexity of, and varying approaches to, reform. For others, payment system reform is simply unfamiliar territory. Turning the legislators’ theory into practice is, therefore, not always easy. We’ve seen this played out with multiple extensions to go-live dates for various key pieces of legislation, including, most recently, Strong Customer Authentication (SCA) as part of the revised Payments Services Directive (PSD2). Although not a regulator, SWIFT’s delay of the ISO 20022 migration date for crossborder payments, by 12 months, to the end of 2022, as banks struggled with decommissioning and preparing existing infrastructure for transition, is another example. Here, we look at the conflict between security and fast, frictionless payments, the differing mindsets of incumbent banks and challengers when it comes to payments regulations, and the ‘myth’ of regulatory alignment in Europe, from the perspective of an advisor on EU and UK regulation and a payment services provider’s lived reality.
THE PAYMENT SERVICES PROVIDER Ray Brash is CEO and Chairman of PPS, the EU digital banking and payment services provider. A joint venture between Edenred and Mastercard, PPS provides the underlying payment structure for several challenger banks.
EU payments regulation The EU’s agenda to open up competition in payments has been a theme for the past decade. Partly through regulation, Europe has opened up the market with things like the Payment Services www.fintechf.com
Directive, which was designed to level up the permissions, required for payment entities, broaden the definition of payment institutions, and allow players such as e-money institutions to participate in the financial services space. Since then, we’ve seen headline initiatives, like open banking. On the other hand, you have the issue of consumer protection. Regulators want consumers to have choice, but also be protected against financial crime. However, regulators don’t necessarily understand how consumers use payments. That holds back innovation, to some extent. So, you’ve got this two steps forward, one step back scenario.
Regulating the ‘new kids’ Nevertheless, fintechs see regulation as a massive opportunity – as we did when we realised, as an e-money institution, that we could go places that traditional banks and payment institutions couldn’t. We could generate business by adopting the regulation and understanding it. Banks have a lot of compliance debt; legacy processes around regulation that have been so embedded into their organisations that they find it difficult to adapt to new rules. But most fintechs we work with, when there’s a change of regulation, such as when the contactless limits changed through COVID-19, are well and truly on it. Issue 20 | TheFintechMagazine
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