More and more processes are taking place digitally and are simplifying our everyday lives. Digital ecosystems are also enabling new services and products in the financial sector, allowing new markets to be opened up and growth potential to be exploited. Digital services and products are firmly anchored in payment transactions and are used by consumers and companies on a daily basis.

However, the possibilities of digitalization are far from exhausted. Efficient regulation is needed to ensure the security and data protection of companies and customers.

Digital euro - means of payment yes, payment method no

According to the ECB, the digital euro is intended to bring payment with central bank money into the digital age and strengthen the sovereignty of the EU. For public banks, it is crucial that the ECB designs the digital euro as a pure means of payment. It must not be designed as a complete, sovereign payment method that competes with private sector payment systems. Furthermore, it must be ensured that the introduction of a digital euro in the retail sector does not lead to extensive outflows of deposits. This could destabilize the financial markets and restrict lending. The outflow of liquidity must therefore be limited by a holding limit in the low three-digit range. Interest on the digital euro must be ruled out in order to avoid a permanent loss of liquidity.

The role of banks and the stability of financial markets must not be jeopardized. A digital euro must therefore only be defined by a few necessary basic functions of a means of payment. These include opening, maintaining and closing an account as well as simple payments. The design of innovative services, on the other hand, must be left to the market players. An acceptance and offer obligation may only be limited to legally defined basic services.

Open Finance regulations thwart market initiatives

The European Commission has set itself the goal of developing the existing Open Banking into an Open Finance approach. Its legislative proposals for a Payment Services Regulation (PSR), the Payment Services Directive 3 (PSD3) and its extension in the Framework for Financial Data Access (FIDA) should be viewed in this light. With FIDA, the European Commission aims to facilitate both access and transfer of data of a wide range of financial information for customers in order  to promote customer-driven data exchange between financial institutions ("open finance" approach). Special Financial Information Service Providers (FISPs) are also to be granted access to data under certain circumstances in the future.

We do not believe that the intended clarity of the new regulations has been achieved in every respect: we criticize the expansion of the prescribed business transactions envisaged in the PSR, as they counteract the open banking initiatives and further increase the complexity of regulation.

Under the PSD3 proposal, payment and e-money institutions will now have access to central bank money. This can create risks for the market if significantly fewer regulated players can carry out the same activities in critical infrastructures. In principle, it must always apply that a comparable risk also requires the same supervisory requirements. This does not currently appear to be the case here!

FIDA sets the regulatory framework for open finance and focuses on the conditions for the exchange of data between financial market players. However, the scope of the data to be included in FIDA is still too ambitious and vague in the legislative proposal for it to be successfully implemented under the given framework conditions. A gradual, evolutionary approach to collecting different types of data and a staggered implementation would significantly increase the chances of a successful introduction of FIDA and limit potential risks.

The introduction of new players, such as Special Financial Information Service Providers (FISPs), must not exacerbate cross-sector asymmetries, which are already sufficiently present due to BigTechs. We also call for the relationship between the application of FIDA and other EU legislation to be clarified and sharpened.

Digital identities and eIDAS threaten the secure infrastructure in payment transactions

Electronic identification systems (eIDs) are the starting point for the digitalization of administrative services. They guarantee both people and companies universal access to secure and trustworthy electronic identification.

The European Commission has already submitted a proposal for an Electronic Identification, Authentication and Trust Services 2.0 Regulation (eIDAS 2.0) in 2021. In addition to universal access to secure and trustworthy electronic identification and authentication, the introduction of an EU Digital Identity Wallet (EUDIW) is now to be an elementary component of the revised regulation. This will serve as a central repository for digital identity data from a wide range of areas (e.g. ID card data, driving licenses, tax or professional qualifications and certificates). 

We support the reform of eIDAS and consider the introduction of the EUDIW to be an important step towards making the use of digital identities consumer-friendly and ensuring widespread use. However, we warn against the effects of strictly linking the regulation to payment transaction specifics. If widespread card and payment specifications were included in the new EUDIW infrastructure, enormous investments would be required not only in the financial sector, but also for the entire acceptance network. The investments would only be offset by a small added value for customers. This could also lead to disproportionately high costs for merchants and service providers.  There would also be a risk that acceptance of the digital euro would be impaired if it always had to be offered and accepted via an app using EUDIW authentication.

Artificial intelligence and machine learning must not limit innovation

Artificial intelligence (AI) and machine learning (ML) are powerful, flexible tools in all areas of banking. The use cases for AI and ML support customers and companies from the application to the planning of capital requirements. Public banks in Germany are among the pioneers in testing these tools to make banking more customer-friendly, efficient and secure. However, the switch to AI and ML systems often requires long-term investments and far-reaching process changes that can only be implemented within a secure regulatory framework. The trilogue on the EU's current AI Act was successfully concluded on 08.12.23, albeit against the votes of France, Italy and Germany, which had sought a lower risk classification of foundation models (such as ChatGPT). AI tools will develop their full potential in the banking business if the regulatory framework is reliably defined and still offers sufficient flexibility for innovation.