In October 2020, the European Central Bank (ECB) received a request from the Council of the European Union for an opinion on a proposal for a regulation of the European Parliament and the Council on cross-border payments in the Union.
As a response on the challenges of COVID and growing-up digital payments on 25 January 2021, Christine Lagarde, the President of the ECB, signed the document “OPINION OF THE EUROPEAN CENTRAL BANK of 25 January 2021 on a proposal for a regulation on cross-border payments in the Union (CON2021/3)”.
What’s included?
The proposed regulation aims to enhance the current transparency and information requirements and affects payment service providers and parties providing currency conversion services at an ATM or at the point of sale. They would be required to express the total currency conversion charges as a percentage mark-up over the latest available Euro foreign exchange reference rates issued by the ECB.
According to the document:
- To achieve comparability, currency conversion charges for all card-based payments should be expressed in the same way – as percentage mark-ups over the latest available rate of the selected benchmark.
- Benchmarks should be selected from those provided by an administrator located in the Union.
- Payment service providers and parties providing currency conversion services should consistently use the single benchmark administrator they have selected. The mark-up, and the foreign exchange benchmark rate used, should be disclosed to the payer before initiating the payment transaction.
What it could mean for payment institutions
This amendment will have an impact on the pricing policy in banks and payment institutions that provide these services in the EU. This is because they will need to make changes to their budgeting procedures and profit-making models. There is also likely to be an impact on profitability due to the adjustment in fees for currency conversion services related to the Euro.
As intended, this change would enable regulators to continue to ensure the safety and comparability of the payment market infrastructure. However, companies would need to adapt to ensure they can maintain their financial performance while protecting the interests of their customers.