REGULATORY SCRUTINY BOARD OPINION SEPA Instant Credit Transfers Regulation

EUROPEAN COMMISSION
7.9.2022
SEC(2022) 546
REGULATORY SCRUTINY BOARD OPINION
{COM(2022) 546}
{SWD(2022) 546, 547}
SEPA Instant Credit Transfers Regulation
Offentligt
KOM (2022) 0546 - SEK-dokument
Europaudvalget 2022
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This opinion concerns a draft impact assessment which may differ from the final version.
Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 02/352. E-mail: regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB/
Opinion
Title: Impact assessment / SEPA Instant Credit Transfers Regulation
Overall 2nd
opinion: POSITIVE
(A) Policy context
Instant Payments (IPs) are credit transfers passing from the account of the payer to that of
the payee in a matter of seconds. They can happen any time, day or night, any day of the
year. This distinguishes them from regular transfers, which take a business day or more to
carry out. IPs are a major technological innovation in payments, as they allow funds to be
immediately available for consumers and businesses, rather than being locked in the
‘backoffice’ of the financial system for a day or two.
The infrastructure for IPs in euro already exists for EU payment service providers (PSPs).
However, the uptake of euro IPs in the EU is patchy: in certain Member States, euro IPs
are very popular, while in others they are virtually unavailable. The volume of euro IPs
currently stands at 11% of all credit transfers.
Euro IPs have the potential to bring significant benefits to citizens and businesses in the
EU. Against this background, this report examines the case for EU legislative action and
analyses the impacts of available solutions.
(B) Summary of findings
The Board notes the significant improvements made to the report responding to the
shortcomings identified in the Board’s previous opinion.
The Board gives a positive opinion. The Board also considers that the report should
further improve with respect to the following aspect:
(1) The report is not sufficiently clear about the distributional impacts, in particular
on consumers and PSPs.
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(C) What to improve
(1) Although the report has substantially improved the impact analysis by adding new
annexes, this is not sufficiently reflected in the main body of the text. The main report
should clearly set out the key points to allow the reader a comprehensive picture of the
projected impacts on all affected stakeholder groups. In particular, this should include the
analysis of the impacts on cross-subsidisation and how this may translate into a possible
increase in general fee levels for consumers. The main report should also be more explicit
about the negative impacts of the reduction in the payment ‘float’ in terms of higher daily
liquidity requirements and loss of earnings for PSPs.
(2) The report should set out clearly the impacts on non-Euro area Member States. The
relation between the Cross Border Payment and the IP Regulations should be presented
and the consequences for the IP price regime should be more apparent. The mitigating
factors for non-Euro area PSPs should be elaborated to clarify whether the presented costs
and actions have already been held or carried out or are still envisaged. The estimates of
the share of the affected non-Euro area PSPs should be qualified with the significance of
euro transactions vis-à-vis non-euro countries.
(3) The section on the one in one out approach should be completed and further clarified.
It should include the adjustment costs and their mitigation. The report should state that fees
are not covered by the one in one out approach.
(D) Conclusion
The DG must take these recommendations into account before launching the
interservice consultation.
If there are any changes in the choice or design of the preferred option in the final
version of the report, the DG may need to further adjust the attached quantification
tables to reflect this.
Full title SEPA Instant Credit Transfers Regulation
Reference number PLAN/2021/10249
Submitted to RSB on 11 July 2022
Date of RSB meeting Written procedure
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ANNEX: Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on
which the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the content
of these tables may be different from those in the final version of the impact assessment
report, as published by the Commission.
2. SUMMARY OF COSTS AND BENEFITS
The tables below summarise the costs and benefits described above, based on the package
of preferred options
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EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB/
Opinion
Title: Impact assessment / SEPA Instant Credit Transfers Regulation
Overall opinion: NEGATIVE
(A) Policy context
Instant Payments (IPs) are credit transfers passing from the account of the payer to that of
the payee in a matter of seconds. They can happen any time, day or night, any day of the
year. This distinguishes them from regular transfers, which take a business day or more to
carry out. IPs are a major technological innovation in payments, as they allow funds to be
immediately available for consumers and businesses, rather than being locked in the ‘back-
office’ of the financial system for a day or two.
The infrastructure for IPs in euro already exists for EU payment service providers (PSPs).
However, the uptake of euro IPs in the EU is patchy: in certain Member States, euro IPs
are very popular while in others they are virtually unavailable. The volume of euro IPs
currently stands at 11% of all credit transfers.
Euro IPs have the potential to bring significant benefits to citizens and businesses in the
EU. Against this background, this report examines the case for EU legislative action and
analyses the impacts of available solutions.
(B) Summary of findings
The Board notes the information provided in advance of the meeting and
commitments to make changes to the report.
However, the Board gives a negative opinion, because the report contains the
following significant shortcomings:
(1) The report does not make a sufficiently clear case for intervention. The market
failures are not sufficiently explained and not formulated into a compelling,
evidence-based intervention logic. The report should be clearer on the scale and
relative importance of PSPs revenue generation resulting from the use of the
payment float for short term investment.
(2) The consequences for PSPs and broader risks for financial stability of the
envisaged reduction in ‘float’ are neither sufficiently clear nor analysed. The
report does not explain the distributional impacts on consumers, PSPs and
businesses, including SMEs. It does not demonstrate that the proposed regulation
of IPs would increase fraud prevention or deterrence.
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(3) The arguments for the scope extending to non-euro Member States is not set out
sufficiently clearly. The impacts of the measures envisaged for non-euro Member
States are not sufficiently assessed and their proportionality not clearly
demonstrated.
(C) What to improve
(1) The primary justification for this intervention is cited as ‘the clear network
externalities in the sector’. This argument needs to be set out in more precise terms backed
by clear evidence, as in some Member States IPs have been yet introduced, despite the
“network externalities” argument, while in other Member States demand is not picking up
despite high levels of IPs penetration. The analysis should better demonstrate that due to
these externalities the market will, without intervention, find suboptimal equilibria.
(2) The report needs to show more clearly that the current low uptake in the market of euro
IPs is the result of a lack of availability and not the result of other market barriers, such as
specific consumer payment preferences or profit-maximising strategies of IPs within a
weak competitive market environment. In particular, the report should be clearer on the
rationale behind actual IPs pricing in some Member States, and its role on actual and
potential demand by consumers. In doing so, it should clarify the scale and importance of
PSPs revenue generation resulting from using the payment float for short term investment
and whether this may prevent PSPs in some Member States from following active IPs
market penetration strategies. Furthermore, the report should demonstrate that the
envisaged intervention will allow the market to overall enhance welfare.
(3) The consequences of a reduced ‘float’ for PSPs and for wider financial stability need
to be acknowledged and analysed. The report needs to explain the distributional effects
across PSPs and how this links up with the envisaged regulation of IPs. It should also put
forward more convincing arguments on exactly how consumers will benefit from the wider
availability of euro IPs.
(4) The report needs to explain the situation vis-à-vis non-euro Member States. It should
explain, clearly, why they are in scope. It should also explain how the initiative will affect
them and how a Regulation requiring their PSPs to make investments in payments
infrastructure for transactions in euro can be proportionate for PSPs in these Member
States. It also needs to justify how the envisaged longer timeframe for implementation in
non-euro Member States constitutes compensation for costs incurred.
(5) The report should improve the presentation of options. It should explain better why
further alternative options, or combinations of sub-options, have not been considered. It
should be clear on those options discarded upfront and the reasons why. For instance, the
report should explain why an option on exclusively regulating the reception of euro IPs has
not been retained, while leaving the gradual sending of euro IPs up to the market, as an
endogenous result of operators’ incentives. The analysis of options on sanction screening
and on fraud and errors should be strengthened and its essential analytical elements
included in the core report, while keeping background description and purely technical
details in the annex. The report should clarify how the proposed ‘anchoring pricing’
between euro IPs and other regular payments, based on a sort of cap pricing rationale,
would not generate nonlinear pricing dynamics.
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(6) The costs and benefits for consumers and merchants should be identified more
comprehensively and set out more clearly. While consumers may be price-sensitive, the
report will need to discuss how consumers might be affected through cost pass-on through
potential cross-subsidisation. Furthermore, the risks for consumers of being victims of
fraud and mistakes needs to be addressed more convincingly and supported by evidence, as
IPs systems may actually increase frauds or at least consumers’ exposure to the same, due
to the reduced time of intervention to stop and to recall undue payments. Therefore, the
report should consider formulating effective remedies against new risks of frauds under the
IPs system. The SMEs impacts should be set out more clearly.
(7) The report should be clearer on the relevant competition issues. Lack of competition
may be a driver of the problem as IPs may have incentives not to fiercely compete on IPs.
At the same time the intervention may in certain ways restrict price competition (by
regulating price of services). The argument that this will stimulate competition and
innovation needs to be better presented.
(8) The report should include a more granular description of the PSP sector in the EU. It
should also better build on the case studies of the many jurisdictions worldwide who
already have adopted broad IP systems while recognising the differences in the EU’s case,
given that not all EU Member States are members of the eurozone.
(9) The report should add a dedicated section on the one in, one out approach and be clear
on the quantitative estimates of the costs and savings in scope.
Some more technical comments have been sent directly to the author DG.
(D) Conclusion
The DG must revise the report in accordance with the Board’s findings and resubmit
it for a final RSB opinion.
Full title SEPA Instant Credit Transfers Regulation
Reference number PLAN/2021/10249
Submitted to RSB on 27/04 2022
Date of RSB meeting 24/05 2022
Electronically signed on 07/09/2022 17:18 (UTC+02) in accordance with Article 11 of Commission Decision (EU) 2021/2121