Regulatory roadmap for the year ahead
2023 is going to be a year of regulatory change in the worlds of payments and digital markets. With this will emerge potential new opportunities for businesses to optimize their payments, along with new requirements they’ll need to comply with over time.
Across jurisdictions, policymakers will be taking the much needed steps to promote faster, more convenient and safer payment services for end-users. They will also push for more competition between payment systems. Simultaneously, they will look to future-proof regulation to keep pace with the rapidly changing ways in which value is moved by people and businesses.
With all this change on the horizon, merchants will need to be aware how the landscape is evolving and the ways in which they might be impacted. Developing an understanding of the policy details will be critical, but merchants will also need an appreciation of the political environment; as politicians in the US, EU and UK turn their attention to upcoming elections in 2024, key legislative initiatives could be slowed down.
To ensure that merchants are able to keep abreast of some of the most important regulatory developments, Ben Ruffels, Head of Government and Industry Relations at Checkout.com maps out the year ahead. (The timings of specific initiatives mentioned below are accurate as of 27 January 2023 but it is possible they may change as the year progresses.)
More competitive and open digital markets
The EU’s Digital Market Act – which aims to promote a fair and competitive digital sector by reining in the market power of large digital platforms—will take effect from May. The UK government will shortly bring forward a Digital Markets, Competition and Consumer Bill, to give the UK’s competition regulator new powers over the same cohort of big tech firms.
These initiatives promise a more open and competitive digital economy and—in the EU market—the ability for merchants trading through digital platforms to choose their own preferred payment services provider.
Additionally, EU and UK policymakers will be reviewing their respective legal frameworks for payment services. This could reshape how digital payment services are provided and the associated fraud is managed in these markets.
The European Commission has been reviewing the EU’s Payment Services Directive, which underpins Strong Customer Authentication and Open Banking, and will propose reforms in the middle of 2023. The UK government kick-started a review in January of the UK’s own PSD2-related rules, which were retained after Brexit.
Card network fees in regulators’ crosshairs
During the course of 2023, we will see policymakers and regulators hold a magnifying glass to the fees charged by card networks—a perennial concern for merchants.
The UK’s Payment System Regulator (PSR) is running two market reviews, exploring UK-EEA cross-border interchange fees, and scheme and processing fees, with interim conclusions due, respectively, in quarters three and four of this year.
In the US, there will be a renewed push in Congress to give merchants more choice over the credit card networks they can use for transactions. This is on the basis that opening the market up to more competition will put downward pressure on network fees.
Encouragement for alternatives to card payments
Policymakers will continue to foster existing payment options they see as strong alternatives to the global card networks. And regulation will be adapted to ensure appropriate guardrails exist for new and emerging payment methods.
Spreading the benefits of instant bank-to-bank payments is a particular focus across jurisdictions. In the US, the Federal Reserve is working towards a mid-year launch of its new FedNow Service, and EU institutions will be scrutinizing proposed legislation that would increase the availability and use of instant euro payments.
Meanwhile, in the UK, there will be a continuing push to build the so-called New Payments Architecture (NPA)—a new clearing and settlement infrastructure for interbank payments that will replace the UK’s aging Faster Payments system.
The growing use of account-to-account digital payments in the UK has, in recent years, led to a steep increase in the value and volume of so-called “authorised push payment” scams. These are scams where someone is tricked into making a payment to a fraudster.
In recognition of this growing risk to consumers, the UK government is legislating to enhance protection for victims of these scams, through its Financial Services and Markets Bill, which is expected to be passed into law during the first half of this year.
Policymakers across markets are also focused on bringing buy now, pay later services into regulation. New EU legislation is expected to be finalized in the spring and—following an upcoming consultation—New regulations are due from the UK government by the middle of the year.
More support for Open Banking innovation
Broadening the coverage and reach of instant account-to-account payments could, in turn, support Open Banking services based on consumers sharing their financial data with third-party providers. This is another area of focus for policymakers.
In the UK, the government and regulators, working through the Joint Regulatory Oversight Committee, will set out recommendations in the first quarter of 2023 on the future governance and regulatory model for Open Banking.
Meanwhile, the European Commission will publish a legislative proposal on Open Finance in mid-2023—alongside its proposed reforms of PSD2 – with the aim of facilitating more data-sharing in financial services, and new value-adding services for consumers and businesses on the back of this.
Bringing new digital money and assets into regulation
Perhaps the most urgent focus for policymakers across jurisdictions—but also the most complex—is the question of how cryptoassets should be regulated. High profile failures in the sector have focused policymakers’ minds.
EU institutions will start formulating the technical legislation that will implement its new Markets in Crypto Assets (MiCA) Regulation. The UK government will finalize legislation bringing stablecoins into regulation, and consult on its vision for regulating unbacked cryptoassets. In the US Congress, attempts to legislate a regulatory framework for stablecoins are likely, but deep political divisions could stymie progress.
There will also be further work by policymakers and central banks on the possible issuance of Central Bank Digital Currencies—a potential public sector alternative to privately-issued cryptoassets. During 2023, the UK and the EU will clarify their thinking on the potential introduction of digital pounds and digital euros.
Considerations for businesses
All of these initiatives add up to a very heavy agenda for regulatory change, which businesses reliant on payment services will need to think about and navigate carefully.
Continual innovation in payment services brings many benefits for businesses, including lower transaction costs, as well as more options for consumers. This should see a smoother and more convenient experience for those on both sides of transactions. But it also brings complexity, which is increased by ongoing reform of the regulatory environment.
This can seem overwhelming for businesses, and underlines the importance of partnering with payment service providers. The right partnership will help them to remain compliant, while still optimizing their payments to drive revenue.
With so much on the public policy agenda, Checkout.com will be working closely with all of our merchants, to ensure they remain up to date on key developments on the docket for 2023. And, of course, equipping them with payment solutions tailored to the evolving landscape.
To find out more about what's on the horizon for payments, download our guide where we ask experts in the industry what they are expecting.