Background and rationale for the consultation
The last national policy in this area was set out in the National Payments Plan (NPP) in 2013. The consultation paper explains that the Irish and European payments landscape is currently undergoing a period of significant change and rapid innovation, with new market players and business models providing a range of innovative services. The pace of change was increased by the COVID-19 pandemic, which not only changed people's habits but also accelerated existing trends such as the shift to digital payments.
The government's Retail Banking Review (RBR), published in November 2022, recommended the development of a National Payments Strategy (NPS) setting out a roadmap for the future evolution of the entire payments system and taking into account developments in digital payments, as well as guiding how future changes should be made to access to cash criteria and other issues. The RBR also recommended that the Department of Finance develop access to cash legislation and prepare Heads of a Bill in 2023 for this area of work.
Terms of Reference (ToR) for a NPS were published in June 2023, shortly before the European Commission published legislative proposals for a third Payment Services Directive (PSD3), a Payment Services Regulation (PSR), and a legislative proposal on the legal tender of euro banknotes and coins and the digital euro proposal. The ToR set out that the NPS should be informed by, and aligned with, the European Commission's Retail Payments Strategy for the EU and the Eurosystem’s Cash Strategy.
According to the ToR, the objective of the NPS is to ‘enhance and build public trust in, and the effectiveness of the payments system’, based on the following interlocking principles:
- Access and Choice – promoting reasonable options for consumers and small businesses;
- Security and Resilience - of the payments system and system operators;
- Innovation and Inclusion – future focus that enhances interoperability and inclusion; and
- Sustainability and Efficiency – solutions that have regard to cost / benefit and the environment.
Some key takeaways from the consultation
- Scope: The consultation paper explains that the scope of the NPS is focused primarily on the experiences of, and outcome for, consumers and small businesses within the retail payment system.
- Principles: The consultation considers the four principles underpinning the NPS, including:
- Access and Choice: An important focus of the NPS will be ensuring that Irish consumers and small businesses have access to a variety of payment methods in line with their European peers, specifically in instant payments, open banking and new request to pay mechanisms. It will also look at what can be done to enhance choice in respect of non-card payment options within digital payments.
- Security and Resilience: Given that fraudulent activity within the Irish payments system can negatively impact its trustworthiness, and therefore its resilience, the NPS will focus on digital fraud and potential measures to reduce and mitigate it as it evolves.
- Innovation and Inclusion: The consultation highlights Ireland's strategic advantage in the innovation space, being home to 'a very strong ecosystem of multinational and indigenous technology companies, as well as research and academic institutions focused on digital technologies'. The NPS is seeking to understand and mitigate existing obstacles to further innovation at the national level in order to enable more and better outcomes for consumers and SMEs, eg better interoperability between payment system participants. The NPS is also looking to support and encourage at a domestic level the various pan-European initiatives currently underway as well as those that will be developed over the NPS's timeframe to ensure Ireland remains 'a digital front-runner in Europe and contributes to the enhancement of European strategic autonomy within the EU'. While innovation is key, the consultation also describes digital payments inclusion as being 'of vital importance'. Vulnerable groups must be able to participate fully in the economic life of Irish society, and how this is done will be examined in more detail in the NPS.
- Sustainability and Efficiency: The consultation states that sustainability has to be 'central to the future of payments' to make sure that national and international climate and energy commitments underpin their development and implementation in a rapidly decarbonising world as we approach net zero carbon in 2050. On efficiency, with declining national cash usage the consultation points out that there is a need to rationalise the cash cycle and its associated infrastructure to ensure that it serves the users of cash while also ensuring the cash cycle is managed as efficiently as possible. The NPS will also consider the climate impact of the cash cycle and potential improvements to ensure its sustainability.
- Payments roadmap: Following the RBR's recommendation that the NPS should set out a 'roadmap for the future evolution of the entire payments system', among other things the consultation paper looks at:
- important payments issues which are particularly relevant in an Irish context, such as a review of the 2013 NPP and an assessment of payment data published by the Central Bank of Ireland (CBI);
- payment fraud and the extent to which the European Commission’s PSR and PSD3 legislative proposals address prominent payment fraud issues in Ireland;
- the current state of play in the provision of instant payments in Ireland, specifically seeking views on how best to counter the current low take-up in Ireland;
- the issue of open banking, with questions aimed at helping to identify existing barriers in an Irish context;
- the digital euro as a future feature of the payments landscape; and
- the role of cryptoassets in the Irish payments landscape.
- Access to cash: Again in accordance with the RBR's recommendations, the consultation considers access to cash issues, including cash usage in Ireland and the access to cash legislation currently being developed by the Department of Finance. In particular, the consultation explains that the NPS has been asked to assess the impact of the “reasonable access” criteria in that legislation, and to look at how they might evolve in the future. The criteria will focus on: (i) distance to cash access/lodgement point and (ii) population density at a certain geographic level. According to the consultation, the NPS will take a forward-looking approach to consider what future cash usage levels could mean for reasonable access to cash and should the criteria change as a result. By way of comparison, the UK Financial Conduct Authority (FCA) has recently published a consultation proposing new rules to maintain reasonable access to cash for personal and business customers across the UK, and the Bank of England is consulting on three codes of practice for wholesale cash distribution market oversight.
- Acceptance of cash: The NPS will look at the acceptance of cash across the economy, considering (among other things) whether legislative requirements should be put in place domestically to give powers to the Minister to designate certain classes of firms, sectors or sub-sectors that must accept cash for in-person transactions.
- NPS timeline: Lessons from the three-year NPP suggest that any future payments strategy should cover a longer timeline but be adaptable to changing circumstances. It is therefore likely that the NPS will run until 2030 as this aligns with current EU legislative proposals already in progress including the PSR, PSD3 and the digital euro.
Next steps
The consultation closes on 14 February 2024 and the NPS is due to be published in 2024.
If you would like to discuss any of the points raised by the National Payments Strategy consultation, please get in touch with one of the people listed above or your usual Hogan Lovells contact.
For the latest on the European Commission's PSD3 and PSR legislative proposals, take a look at this Engage article: 'PSD3: Putting citizens at the heart of EU payments'.
The UK government has recently published the results of a Future of Payments Review 2023, where the leading recommendation is for the government to develop a National Payments Vision and Strategy. For more on this development, take a look at this Engage article: 'UK Future of Payments Review Report calls for National Payments Vision and Strategy'.
Authored by Eimear O'Brien and Virginia Montgomery.
