Competition in online payment services to be put to vote by MEPs

Proposal could boost e-commerce in Europe.

MEPs on Thursday (3 April) are expected to back a proposal that could open up the online payments market to several small European companies, to the potential detriment of Europe’s banking sector and the established card schemes.

The online and mobile payments sector has grown considerably in the last decade. Almost a third of European Union citizens now make purchases online, according to the European Commission. New players have emerged, offering services that are less cumbersome than those of banks and less expensive than card schemes such as Visa or Mastercard. Examples of these new entrants include Sofort of Germany and Trustly of Sweden. Consumers provide their bank details to these payment services companies, which can then use their accounts to make payments.

The Commission proposed amendments to the existing 2005 payment services directive in July 2013 to clarify how EU law would apply to these services. The Commission wants to ensure that banks and other market operators do not use their existing market power to block new entrants by creating artificial barriers. They could, for example, refuse to make their service interoperable or withhold important technical information.

MEPs on the committee for economic and monetary affairs in February backed the proposal, tightening up the rules on consumer protection and requiring payment providers to be transparent about their charges. “Bringing these new services within the framework of EU law is good for competition and good for legal certainty,” Diogo Feio, a centre-right Portuguese MEP told European Voice.

Competition

The Commission is keen to improve competition in the market for online payments as it believes that this could play an important role in boosting e-commerce across Europe. In particular, companies such as Sofort or Trustly help the many consumers that do not have a credit or debit card to shop online.

The Commission is also conscious that there are very few European payment providers on the market. Both Visa and Mastercard are US companies, as is Pay Pal, the leading online payment provider. The Commission has already expressed concerns that various banks have sought to block Sofort, which is also a rival to the banks’ own online payment services.

In September 2011 it launched an antitrust investigation into the European Payments Council, which develops standards for Europe’s banking industry. The Commission closed the case in June 2013 after the EPC dropped a project to standardise e-payments that potentially could have required all service providers to be linked to a bank.

Several banks have been lobbying hard against the proposal. In particular, they warn that allowing consumers to provide their bank log-on details to such companies could fuel identity theft and fraud. They are also concerned that they could be held liable for losses to consumers as a result of any mistakes by payment- service providers.

The banks’ position is backed by the European Central Bank, which delivered an opinion to member states in February in which it expressed reservations about the proposal. Member states have yet to agree a common position on the proposal.