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Game of Regulations

 

Game of Regulations

How regulations are defining the game in the payments industry

Regulations seem to connote something unpleasant. I remember the one time I played football, and when the referee wasn’t paying attention, a member of the opposing team kicked me in the shin. I looked to the referee to cry ‘foul’ and when that didn’t happen I yelled at the referee saying, “You weren’t even looking”. Guess what. I got shown the yellow card. Fuming, I attacked him saying “That’s just plain unfair”. That’s when I got shown the red card. In that moment, I truly believed that the referee knew nothing and only the players actually playing had the correct view of things.

I stand corrected today. Had that referee not been there to check my temper, the playground would have erupted in a scene with a lot of punches and black eyes. The fact that any game, any serious game, needs a referee cannot be denied.

Perhaps that is why the payments industry is one of the verticals in banking that is constantly coming up with new regulatory initiatives. Payments being a commodity, the rules of the game are forever evolving. Regulations within the industry mainly focus on four key areas:

  • Improving customer convenience
  • Enhancing the transparency and security of payments
  • Increasing fraud protection
  • Boosting innovation

Emerging homogeneity in regional games

Different geographies have differing priorities depending on the state of evolution of their market economies. For instance in North America and Europe, markets that have achieved much sophistication, most new payment initiatives focus on transparency, improving customer convenience and increasing competition. APAC on the other hand, continues to have a large number of unbanked households and thus the agenda there is to bring in new participants into the financial system and focus on standardization of payments. In Africa, the regulatory landscape in the payments industry is still emerging as the market is quite fragmented and diverse.

Despite regional peculiarities, an increase in the overlap of initiatives is being witnessed across the globe. This often places the payment services providers at a crossroads. Which regulation should they concentrate their budgets on? The best combat strategy for them is to weigh and measure each new regulation in any particular market so that they can better equip themselves for similar regulations in other countries. For instance, the Dodd-Frank Act 1073 (Reg E) finds resonance with two European regulations – the European Markets Infrastructure Regulations (EMIR) and EU Financial Transactions Tax.

Regulations similar to the U.S. Foreign Account Tax Compliance Act (FATCA) can be expected to be introduced in Europe. FATCA is likely to have an effect on the payment product offerings that banks bring to market as they will need to improve their processes and systems to know their customers better.

How Europe is playing the game

Europe continues to be dominated by SEPA. The core objectives of SEPA are to drive innovation and promote competition and essentially to improve the efficiency of cross-border payments. However, as Europe was in a state of flux during 2012 and several countries including Greece, Portugal and Cyprus faced sovereign debt crisis, there have been low levels of SEPA migration. In the absence of 100% compliance by member states, the purpose of SEPA stands defeated. The progress of SEPA migration is thus expected to continue well into 2014.

The European Payments Council has adopted the ISO 20022 message standards for SEPA instruments. As the ISO 20022 framework covers all domains of the financial industry including payments, cards, trade services, FX and securities, several central banks across the world have begun to define strategies to migrate their RTGS platforms to the ISO 20022 message formats.

With an aim to make bank accounts more accessible to its European citizens, the European Commission, in May 2013, published a proposal – the European Current Account Switching Service. Its objective is to allow customers across the European Union to access bank account services readily, compare payment account fees and establish a simply process for customers to switch their bank accounts. As a related initiative, UK has introduced the current account switching facility to consumers.

It’s all the same game really

As is evident, many initiatives have a global relevance and even if they are implemented in a particular country, they are set to have an impact on markets beyond their borders. Banks and financial institutions realize that the entire world of payments is interconnected. It is thus best for them to consider regulations in a holistic way as most of them overlap geographically and tend to have a cascading effect.

So whether you call it football, soccer or rugby, or whether you have a referee, an umpire or a regulator to keep it going, it’s all the same game really. Just like payments. 

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Date Modified: 

Sunday, June 15, 2014
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