Towards a level-playing field between Banks and non-Banks in the European market for electronic payments

Since the nineties of the last century, credit institutions (hereinafter ‘Banks’) have developed a variety of different electronic payment (hereinafter ‘Payment’) solutions, which enable payment service users (hereinafter ‘PSUs’) to transfer funds electronically. Further to the offering of these solutions, Banks were also responsible for the execution of the relevant steps in the processing of Payments, including authorisation and clearing and settlement. Shortly thereafter, other service providers started entering the market as a competitor of Banks. Having a larger group of payment service providers (hereinafter ‘PSPs’) offering payment services is assumed to offer social welfare benefits such as: (i) a reduction in the costs of payment services for PSUs; and (ii) a positive stimulus for innovation in the Payments market. To establish a European Payments market that enhances social welfare, it is therefore essential to have sound competition between Banks and non-Banks. Achieving a ‘level playing field’ between Banks and nonBanks is a requisite for achieving such sound competition in the Payments market. It is therefore as important as ever to have a better understanding of the extent to which the European financial services regulatory framework for the Payments market contributes to the establishment of such level playing field and whether it is necessary to make further improvements to this framework to enhance the level playing field. In legal literature, the concept of a level playing field is most often interpreted as having relatively low barriers to market entry for non-Banks. More specifically, a level playing field is believed to exist if PSPs are subject to market entry requirements that are proportionate to the size and complexity of their business model. This study applies a holistic interpretation of the concept level playing field that takes into account six intermediate objectives by which the regulations of the European financial services regulatory framework for Banks and non-Banks have been categorised. These intermediate objectives are: 1. facilitating market access by non-Banks to provide payment services; 2. safeguarding the security of the Payments market; 3. safeguarding the integrity of the Payments market; 4. enhancing PSU protection in case of an unauthorised or erroneous Payments; 5. allowing non-Banks access to payment systems; and 6. facilitating collaboration between competing PSPs to develop standards for the Payments market that reflect the interests of both Banks and non-Banks. The premise of this study is that the rules and regulations covering all of these intermediate objectives are of relevance to determine the extent to which there is a level playing field between Banks and non-Banks as they all entail regulations that may enhance or hamper non-Bank market participation. According to this study, the legal implications of the regulations covering the abovementioned objectives need to be in proportion to these objectives in order to enhance the level playing field between Banks and non-Banks.