Digital platforms in the banking and payments sectors

 In Digital platforms, EBA, Payment Services, Payments

The European Banking Authority (EBA) published on 21 September 2021 a Report on the use of “digital platforms” in the EU banking and payments sector. This Report is relevant to both, (i) credit institutions (i.e. banks) and (ii) payment and electronic money institutions. It provides a good insight into the EBA’s immediate plans regarding digital platforms.

For the purposes of the Report a digital platform is defined as a technical infrastructure that enables at least one financial institution directly (or indirectly using a regulated or unregulated intermediary) to market to customers, and/or conclude with customers contracts for financial products and services, with the exception of the following, which are excluded from the scope of this definition:

  • mobile banking apps or online banking tools used by a financial institution to offer regulated financial services in a fully digitalised way displacing the need for customers to enter a physical branch or use a telephone service and without changing the nature of how financial institutions operate and deliver value (i.e. pure financial institution operated digital distribution channels);
  • platforms used only by (and for) ‘crowdfunding service providers’ within the scope of Regulation (EU) 2020/1503;
  • platforms used only by (and for) P2P lending;
  • platforms that provide only account information services (AISs) within the meaning of point (16) of Article 4 of PSD2 are also out of the scope of the analysis in this report.

The ‘financial institution’ referred to above includes, for the purposes of the Report, a credit institution, payment institution, electronic money institution, or firm carrying out the activity of credit provision (lending activity) pursuant to the national law of an EEA State.

The ‘mobile banking apps or online banking tools’, which are excluded from the definition of digital platform, refer presumably to apps and tools of credit institutions, given the usage of the wording ‘banking’ (as opposed to apps and tools of the e-money institutions for example), but this is something that would benefit from further clarity as the EBA’s work on this topic and the taxonomy progresses.

In its Report the EBA identified the rapid growth in the use of digital platforms to ‘bridge’ customers and financial institutions, a trend which the EBA expects will grow. In its analysis, the EBA has categorised these digital platforms in 4 core clusters and ‘enablers’, whilst recognising that in practice, a wide range of business models exist within the EU market with some platforms sharing the attributes of two or more of the categories identified here below:

  • Cluster 1. Comparators: platforms comparing products offered by multiple financial institutions;
  • Cluster 2. Financial Institutions: platforms provided by financial institutions also providing access to third party products and services;
  • Cluster 3. Banking/Payment as a side service: platforms with the provision of non-financial products and services as the dominant activity and financial products and services offered as a side service;
  • Cluster 4. Ecosystems: platforms acting as a single point of entry to multiple third-party providers’ financial and non-financial products;
  • Enablers: platforms enabling access to payments and other services and leveraging data for service extension.

Following this analysis of the digital platforms, the EBA did not identify an immediate need for legislative action. It has, however, highlighted in its Report that the supervisors (referring to the competent national regulators) are facing challenges in monitoring market developments. Consequently, the EBA has set out in the Report steps to enhance supervisory capacity to monitor these market developments.

These include:

  • developing common questionnaires for regulated financial institutions on digital platforms and enabler use for the purposes of information-gathering; and
  • sharing information about financial institutions’ reliance on digital platforms and enablers in order to facilitate coordinated EU-wide monitoring.

The regulated financial institutions in the EU can expect to receive these questionnaires from its regulators in the near future.

Quite importantly, the EBA also highlighted in this Report its previous recommendations for the European Commission to update its interpretative communications relating to when a digital activity should be considered as cross-border. This refers, more precisely,  to a previous report of the EBA published back in October 2019, which identified potential impediments to the cross-border provision of banking and payment services, an important topic of great interest to multinational payments companies and banks.

If you are a credit institution, payment, or e-money institution, you are likely to be affected by these new developments.  If you need assistance (i) in responding to your regulator’s questionnaire on this or other topics, (ii) with the legal design of your own digital platform, or (iii) if you would like otherwise to discuss how the above topics affect your company, please do not hesitate to contact us.