Navigating the payments regulation landscape

When a Central Bank digital currency is launched in Europe, merchants will want to accept it. The transition will be about planning for new regulation as much as adapting to the new technology.

The launch of a digital currency in Europe is in train. Merchants and merchant payment solutions providers need to get ready to accept this currency. This means technological adaptation, but it also means understanding the regulations that will be associated with the currency, and any new compliance requirements.

The biggest issue facing the merchant payments industry is this ever-expanding amount of regulation. A key concern for merchant payment solutions providers and their merchant customers is adequately planning for regulatory change.

Regulators aren’t truly engaged with the merchant payments ecosystem, and they need to be before new laws are introduced - only then can the full implications be understood. And, merchants need to commit to staying abreast of emerging legislation to understand the impacts on transactions, as well as their compliance obligations.

Increased complexity

Some regulatory initiatives don't appear as though they directly affect merchants when in fact they do, and this is creating complexity. Much of the focus of new regulation is on data - control, management, and protection of personal data - i.e. who is responsible for what. For example, the Data Act or Data Privacy laws aren’t necessarily payments specific but they still impact ways of operating.

Another issue is that there is some urgency in terms of changing legislation, while the proposed timelines are impractical for the complex merchant payments ecosystem and all its layers to deal with.

Lessons learned

Many merchants have been pulled up short by not engaging or knowing enough about the proposed regulatory agenda. Lessons are being learned about how to bring merchants into future legislative discussions.

The recent Secure Customer Authentication (SCA) is a prime example of a piece of legislation that was intended to be implemented on the same day across Europe. The legislation was only considered pertinent to regulated entities. However, its impact went far beyond that. In fact, some reports suggest payments in some sectors have been driven offline as a result of SCA.

Staying abreast of change

We are all on a journey of digital transformation, keen to reduce cash and increase choice. Merchants need to be engaging with this transformation and the new digital economy. This means keeping abreast of regulatory changes proactively and preparing in advance.

In order to navigate this new and changing compliance landscape, it’s crucial merchants stay up to date by joining or remaining on mailing lists that share policy news and information. The European Commission has various websites they use to update the financial services community on regulatory change for example.

There are also trade bodies across Europe and in the UK that pick up and share regulatory developments. From a UK perspective, the Payment Systems Regulator (PSR) produces interesting reports and reflections around changes in digital payments.

Industry conferences are also a good source of knowledge. For smaller merchants, who don’t have the resources to engage directly, it’s advisable to go through industry bodies. Paying close attention to your channels is crucial, as well as listening to policy makers and building trusted relationships as far up the value chain as possible.

Ultimately, increasing awareness of legislation helps keep on top of change and keeps fraudulent activity at bay, which helps increase conversion rates and improve customer retention, so it’s in a merchant’s best interests to stay ahead.

A closer understanding

A greater balance is starting to emerge between regulators and merchants over planned changes and understanding how those changes impact operations.

Regulatory bodies are coming to a better understanding of the merchant ecosystem and how new laws will affect it. They are reaching out beyond regulated entities into the wider ecosystem to include other stakeholders, which is crucial to determining all the consequences - good and bad - of new legislation.

At a European level, there is a Payment Systems Market Expert Group, which has representation from technological providers and the merchant community. Several key players in the UK are also currently in discussions about setting up a forum to bring together participants from across the payment community.

The MPE 2022 conference on July 5-7 in Berlin is for merchant payments stakeholders to discuss upcoming regulation; reviewing topics such as the EU Retail Payment Strategy, the European Payment Strategy, digital currencies, and PSD2 compliance.

Get in touch

PassFort is a Moody’s Analytics company. We are the only provider able to offer an end-to-end compliance automation solution that is flexible enough to change whenever new regulations are introduced.

We also provide the insight needed to continually improve your compliance and risk management programs, along with KYC and AML solutions that automate compliance workflows and integrate best-in-class data.

Please get in touch to discuss your compliance program - we would love to help.