Annex 1 - Terms of Reference

Annex 1 – Terms of reference

Background

In November 2022, then the Minister for Finance, Paschal Donohoe T.D., published the Retail Banking Review, which set out a number of recommendations for Government, the Central Bank and industry.

One recommendation was that the Department of Finance should lead on the preparation of a new National Payments Strategy to be ready in 2024.

The recommendation stated that the Strategy should:

• Set out a roadmap for the future evolution of the entire payments system, taking account of developments in digital payments, the use of cheques and other issues;
• Examine how future changes should be made to the legislative Access to Cash criteria[1];
• Consider and consult on whether to legislate pre-emptively to give the Minister for Finance the power to require certain classes of firms, sectors or sub-sectors to accept or facilitate (to an appropriate level) the acceptance of cash and;
• Consider and consult on whether it should be Government policy that public bodies should accept or facilitate the acceptance of cash for the payment of goods, services, taxes, levies, fees or charges.

The Strategy should be informed by, and aligned with, the Retail Payment strategy of the European Commission and the Eurosystem’s Cash Strategy.

Since the development of the NPP over ten years ago, the payments landscape in Ireland, as well as globally, has changed significantly.

In Ireland, the number of banks serving the sector reduced from 12 to 3 as banks were amalgamated or closed down and foreign owned entrants exited the Irish retail market. We have also seen a considerable acceleration in technological developments and the pace of uptake has been accelerated by the Covid-19 pandemic. With that has come a decline in cash usage. Since 2015 the number of ATM transactions declined by 46%[2]. Card payments accounted for 62.4% of the total number of payment transactions in 2021[3].

At EU level, we have seen a number of pieces of financial services legislation developed during that time. There was a move from the first Payment Services Directive to the revised Payment Services Directive (PSD2) which was transposed in 2018. It aimed to make electronic payments easier, faster and safer for both consumers and payment service providers. This Directive is currently under review by the European Commission and it is expected that a legislative proposal for a PSD3 is imminent.

The Digital Finance Package was published in September 2020 and included a suite of measures related to the banking and payments environment. While the Commission’s Communication on a Retail Payments Strategy aimed to facilitate the push towards digital payments by users, the other proposals contained within the Package (and have since been adopted) aimed to ensure that service providers were able to withstand the risks that are posed by new, complex technologies within a rapidly changing environment.

The European Commission’s legislative proposal to mandate SEPA Instant Payments is currently being negotiated at EU level and will set out a legal requirement for all entities within scope to provide SEPA Instant Credit Transfers or “instant payments”.

Both the European Central Bank and the European Commission are also examining the possibility of developing a Euro-Area based Central Bank Digital Currency as a complement to cash, to be known as the digital euro.

The review of PSD2, a legislative proposal on legal tender and a proposal on a digital euro are expected to be published by the European Commission in June 2023.

These developments highlight the work already being done at EU level in the payments sphere and it will be important to consider these areas in the context of the National Payments Strategy in order to determine the gaps between what is being done at EU level and what needs to be done at domestic level.

In addition to the work of the European Commission, the Strategy will also be informed by the work underway at ECB level in relation to payments policy.

Objectives

The overarching goal of the NPS is to enhance and build public trust in and the effectiveness of the payments system, including the following interlocking principles.

Access and Choice – promoting reasonable options for consumers and small business

Security and Resilience - of the payments system and system operators

Innovation and Inclusion – future focus that enhances interoperability and inclusion

Sustainability and Efficiency – solutions that have regard to cost / benefit and the environment

Key components of the Strategy

The National Payments Strategy has three components to consider.

1. Payments roadmap

• The first component of the Strategy will be to look to the future of payments to determine what measures should be implemented or areas considered by the Department, the Central Bank, industry and relevant authorities in the coming years. The Retail Banking Review’s recommendations set out that the Strategy should set out a roadmap for the future evolution of the entire payments system, taking account of developments in digital payments, the use of cheques and other issues.
• When examining the targets set out in the NPP, some areas will need to be considered further in order to determine whether they were successfully implemented and if they are still relevant to the payments sphere today. Cheque usage was a key focus of the NPP but since then, usage of this payment method has declined significantly and is no longer standard practice for payment service users. This should therefore not be the focus of the new National Payments Strategy. One issue that was not considered in the NPP was payments fraud. Within the payments market, fraud is constantly evolving. New forms of payment options and emerging forms of fraud have become more problematic for consumers in recent years and should be an area for further consideration in the Strategy. Strong Customer Authentication (SCA) was the focus of the revised Payment Services Directive in 2018 and was implemented as a means of combatting online fraud. Work is underway at EU level on payment fraud prevention, such as the evaluation of SCA under the European Commission’s review of PSD2 and the inclusion of IBAN name checking with the proposals on Instant Payments. However, as digital payments open up the possibility of fraud carried out using other means such as apps, emails and messages, analysis should be done at national level to examine what the key problems are domestically to see if they can be mitigated.
• Another possible area for consideration under the Strategy is insights derived from research and data collection and sharing. In recent years, it has become clear that there is a gap in the level of data and statistics available on the Irish payments market. The Strategy should consider the forthcoming new data to be published by the Central Bank, and assess the extent to which it addresses the existing data gaps as well as considering further research and analysis on payments.
• The Strategy should look at existing legislation and legislation coming down the line at EU level and consider whether there is a need to build upon these at domestic level. For example, the Commission’s proposal on Instant Payments is currently being negotiated and all entities offering SEPA Credit Transfers will soon be required to offer SEPA Instant Credit Transfers, known as “Instant Payments”. While this is mandated at EU level, there may be merit to building upon the basic framework brought in by this legislation and examining how it could best serve consumer needs. This could include the possibility of using QR codes or similar technologies to make payments – not just Instant Payments but also leveraging other account based transfers such as SEPA direct debits and Request-to-Pay facilities.
• Finally, the Strategy should look to the possibilities for greater access to and use of Open Banking in Ireland. Open Banking stems from PSD2 which allowed greater access to individuals’ data on the basis of consent. In Ireland, we have seen little use of Open Banking and few providers offering services based on access to accounts. This is an area that should be analysed under the Strategy to determine if Government or Central Bank intervention is needed to encourage greater use of Open Banking. In particular, there has been some discussion more broadly of the potential for Open Banking to assist with online purchases and Strong Customer Authentication through the use of consent dashboards. This would not be possible if the domestic retail banks do not allow smooth access to accounts.
• Overall, there will be a need to ensure a balance is met between ensuring that access to cash is preserved and acceptance of cash is facilitated; and encouraging the use and promoting availability of digital payment methods.

2. Acceptance

• The second area of focus for the National Payments Strategy is acceptance of cash. The Strategy should examine whether there should be a legislative requirement put in place domestically in relation to the acceptance of payment methods by certain classes of firms, sectors or sub-sectors. The Strategy should also consider whether it should be Government policy that public bodies should accept or facilitate the acceptance of cash for the payment of goods, services, taxes, levies, fees or charges.

3. Access

• The last area to consider relates to the reasonable access to cash criteria set out in the Access to Cash legislation that is currently being developed by the Department. The Strategy will look at cash levels following the publication of the Bill and evaluate what if any changes should be made to the criteria for “reasonable access”. This aspect will focus on the impact of the introduction of the criteria following publication of the Bill and is a requirement of the Retail Banking Review.