Earlier this month, industry experts and professionals from across the payments sector gathered at an exclusive event in Vienna, hosted by The Payments Associations EU & UK in collaboration with PXP Financial and ForumF. An essential calendar date, this was a great chance to catch up with some of payments’ most influential and inspiring leaders and hear their thoughts on the trends impacting the industry.
Attendees were welcomed by our CEO, Kamran Hedjri alongside The Payments Association’s Tony Craddock and Thibault De Barsy, kicking off a day of insightful discussions on the future of payments in the DACH region, cross border payments and Open Banking.
With such a broad array of senior payments leaders in one place, it would be impossible to capture all the interesting and valuable dialogue. So, instead, here is a snapshot of our key takeaways.
Friction still a challenge for cross-border payments
The value of cross-border payments is set to rise to over $250 trillion by 2027, a surge of more than $100 trillion within a decade, but sending money across borders remains filled with friction. In fact, 2%-5% of payments are subject to an inquiry or investigation, leading to delays before payment can be completed. There are several reasons friction occurs, including disparity in regulations between countries, a lack of standardisation and a general lack of understanding of cross-border payments.
The industry goal is, of course, instant payments across all cross-border payment corridors that match the speed of domestic faster payments - which can now be settled in many countries in under 10 seconds. The panel shared insights into how this might be achieved, with the discussion ranging from payment system interoperability to legal, regulatory and supervisory frameworks, and cross-border data exchange.
Cross-border payments can only reach their full potential with coordinated action, programmes such as the UK’s Real-Time Gross Settlement (RTGS) service are a positive step. These enhancements will not only improve domestic payments, but provide the technical capability to deliver some of the enhancements needed for frictionless cross-border payments.
While efforts to improve the system continue, some countries are looking to an alternative that is rapidly gaining popularity – Central Bank Digital Currencies (CBDCs).
Several pilots have been conducted, and they have shown the potential of CBDCs as a way to make payments without using correspondent banks or private sector vehicles to move funds across borders. But for them to improve cross-border payments, central banks must make fundamental decisions on foreign access and how CBDCs connect across jurisdictions.
While these discussions are taking place, businesses should work to improve their awareness of the challenges around cross-border payments, as this will help them remain competitive in a global market. This means working with a payment provider that has experience with cross-border payments and can help them navigate the complexities involved.
Future of CBDCs in DACH and Central Europe
Against the backdrop of cross-border payments friction, it’s no wonder that one of the main topics of the day was the outlook for CBDCs, particularly across the DACH region and Central Europe. The consensus at the Forum was that they are an inevitability we need to prepare for. The future appears bright in Europe, with the European Commission publishing its proposal for regulating the digital euro, giving legal backing to the currency, and making it mandatory for all merchants to accept it.
More than 80% of central banks are considering launching a CBDC or have already done so, and the benefits to the consumer are too great to ignore when it comes to stability, security, and convenience. There is a significant appetite for electronic payments in the EU; payments reached €240 trillion in value in 2021, compared with €184.2 trillion in 2017, according to the European Commission.
Central banks and governments across the DACH region are taking significant strides as the CBDC buzz picks up. Austria continues to be a hub of payments technology and innovation as blockchain adoption grows across its public and private sectors. The country’s central bank, OeNB, has long been developing its wholesale CBDC, Project Delphi, while the Swiss National Bank is set to launch a pilot imminently.
In Germany, the banking community has seen intense debate around the future of CBDCs with the Association of German Banks supporting the digital euro. It also recommended limitations on the amounts stored by retail customers, and that businesses should be banned from using it as a store of value. The conversation continues across Germany’s sizeable financial sector.
Looking across Central Europe, Poland is conducting research into the ‘digital zloty’ and the Central Bank of Hungary announced a CBDC project in August, citing the need to behave like a fintech to ensure seamless payment experiences in the future.
While the general outlook is positive, implementing CBDCs remains complex, calling for careful consideration of technological infrastructure, legal frameworks, security, privacy, and garnering public acceptance. Therefore, further planning, testing and pilot phases will be needed in the coming months.
Changes on the Open Banking horizon
After years of closed banking, Open Banking technology takes centre stage. EU countries have been among the quickest to adopt it, while others are still playing catch up. PSD3, the European Commission’s proposed update to the Payment Services Directive, was a hot topic during this panel discussion.
PSD3 is split into two parts: a revised Payment Services Directive, which deals with the licensing provisions of payment service providers (PSPs), and a new Payment Services Regulation, which will update and replace the other elements of PSD2. Moving these elements from a directive to a regulation should ensure the rules are applied more consistently across the European Union.
The new regulation will strengthen the foundations of Open Banking by introducing stronger functionality and performance rules for the APIs that banks provide to fintech’s, improving payment information sharing, and removing unnecessary checks and ‘steps’ in the data flow.
But it’s not just the EU that has a much-anticipated update for those in the payments space. With the recent recommendations on the next phase of Open Banking from the Joint Regulatory Oversight Committee (JROC), momentum is gathering in the UK too.
In June 2023, the Joint Regulatory Oversight Committee confirmed an ambitious programme to realise the full potential of Open Banking. Two regulator-led working groups will be tasked with developing the frameworks for expanding variable recurring payments and the design of the future open banking entity.
A huge thank you to all that attended this fantastic event, it is your energy and insight which drives the direction of travel for our industry. This is an exciting and pivotal time for payments in Europe, and it will be fascinating to see what strides are made between now and the next Payment Leaders’ Forum.
About PXP Financial
The end-to-end payment platform: PXP Financial provides a single unified payments platform to accept payments online, on mobile and at the point of sale. Powered by inhouse acquiring, a variety of alternative payment methods & financial services, PXP processes over EUR 22.7 billion annually through its unified gateway. Whatever your business needs today or tomorrow, PXP Financials’ innovative payment platform will support your business growth with all the payment services you will ever need from one source, wherever your business takes you. To find out more about PXP Financial family of companies, visit: www.pxpfinancial.com.