The Queen of Disruption

Margrethe Vestager

The Queen of disruption

I also believe that it makes sense now and then to trawl through the rules to see if something has been too intrusive, too radical or too detailed. Yet when looking at what regulation has meant for financial stability and the development of the banks as businesses, I think regulation has played a very, very important role. Also to ensure confidence, because one of the triggering factors for the financial crisis was that the banks lost confidence in each other, and the outside world lost confidence in the banks.

It is therefore crucial to have regulations that allow banks to trust each other. And also that you have a wellfunctioning sector which manages money and payments in a way that you know what the others are doing, and what the others are covered by. A country without a payments system breaks down in a very short time.

MJR: Is there such a thing as an EU vision for Europe’s financial sector?

MV: Well, it is very basic. The financial sector, like all other sectors, must be a business where investors get a suitable return. But it must also be a sector that is useful for the rest of the economy because the financial sector is a vital pillar.

I think one of the most neglected debate topics in Europe is how the lack of access to capital impairs growth. As a result, Juncker’s investment fund has decided to provide access to funding for 250-300,000 small businesses and start-ups through national programs. But of course, we should not only bet on public capital or publicly-funded capital. We need a more diversified capital market.

The financial industry must also be a proactive sector that helps to promote modern and innovative solutions. Some of the problems with an old-fashioned cash-based payment system are the fact

that cash is quite dangerous to carry around, they are very expensive, and fraud, corruption, and moonlighting are very often associated with a cash-based economy. Therefore, there are some significant societal gains in dealing with payments digitally instead.

It’s so exciting that the monopoly on payments has been broken. I want to see even more innovative solutions in the market.”

MJR: Another part of the development in the payment market, in which you have played a rather active role, is about harmonisation, openness, fair competition, etc. Now we are approaching the theme of PSD2 and the new requirements for banks, among other things, to open their payment accounts for third parties. Can you tell me about the ideas behind that directive?

MV: The first payment directive - PSD1 – came into effect in 2007. And in 2013 the then EU Commission, led by José Manuel Barroso, proposed the Revised Directive on Payment Services. The reason forPSD2 was that the first directive proved insufficient. National standards developed which resulted in a fragmented market. The idea behind PSD2, which I think succeeded in the legislation text, was to create the foundation for a genuinely European market with better consumer protection and with increased room for innovation in this area. It provides new business opportunities; creates development throughout our digital sector; and gives consumers other options because payments become more secure and many of the transaction costs we know from our analogue reality are getting smaller.

MJR: I could imagine that if you ask Visa and MasterCard, they will say that regulatory initiatives like the PSD2 and the multilateral interchange fees (MIF) regulation were made to impede large American companies like them. Do they have a point?

MJR: Yes, a lot of things are happening in the fintech industry all over Europe, and I guess you could say that PSD2 is a helping hand to the fintech companies because it gives them the opportunity of becoming Third Party Providers?

MV: It is also the legislation that ensures that consumers can trust the services in the market, and trust the companies that become third parties, because it is a regulated area and not just The Wild West.

The fintech area is special in this way because it is driven by innovation - business innovation as well as technological innovation – while the regulation ensures that it is not a lawless area. This is not something you see very often.

PSD2 brings a fragmented market back together and as such opens for great possibilities for all.”

MJR: It has often been said that fintech companies want to disrupt the banks, but the most disruptive player in the European financial world in recent years seems to have been the EU Commission – not least because of PSD2. Does this make sense in your opinion?

MV: Yes, that makes sense. But even more interesting is that it is an example of an area where there has been a political will to shape the future because of some previous experience.

It is the elected representatives from all nations, and ministers from all member states, who have said they want this. We are ready for this challenge because payment is an essential societal area, which we believe should be done in a different way in the future. There are not many examples of this in our history of legislation, and the banks should seize this opportunity to do something new.

MJR: Could you imagine that Europe had agreed on something like PSD2 if there had not been an EU?

MV: No, this could not be done without the EU and the opportunities the EU creates. The opportunities for innovative companies in small member states would not have been so far-reachingwithout the EU. PSD2 brings a fragmented market back together and as such opens for great possibilities for all.

I think it’s so exciting that the monopoly on payments has been broken. I want to see even more innovative solutions in the market. And the fact that it is happening in a proper and regulated way makes it extremely interesting.

MJR: Do you plan a PSD3 soon?

MV: We have to make this one a reality first. I want things to be done properly. In my experience, it requires twice as much leadership bringing legislation to life than it requires adopting entirely new legislation.

MJR: So there’s plenty to do now?

MV: Yes, and we need to see how it all plays out.//

Margrethe Vestager’s cases as EU Commissioner for Competition include “decisions under EU state aid rules where companies such as Apple have been granted undue tax benefits which allowed the company to pay substantially less tax than other businesses. When it comes to antitrust issues, companies can be big but should not abuse their market position by restricting competition.”