Competition means that market players must constantly develop and improve their services and products to avoid falling behind their competitors. This often leads to efficiency in the form of lower prices and better solutions.

In recent years, companies with new attractive payment services have established themselves on the Swedish payment market. For example, Klarna and Trustly offer solutions where customers can pay via online bank or by invoice for online purchases. Those who want to pay by card can often register their card details with the retailer or a payment service company, and then a purchase is just a click away.

Network effects lead to efficient solutions but can hamper competition

There is a tradition among Swedish banks of creating jointly owned systems such as Bankomat, Swish, BankID and P27. This has led to efficiency gains and convenient solutions for consumers. In many other countries, it does not work as smoothly. For example, in other countries, it can be difficult or expensive to withdraw money from another bank’s ATMs.

Cooperation between banks allows them to exploit economies of scale and network effects, but also leads to market concentration. In combination with other barriers to entry, it may hamper competition in the payments market.

Second EU Payment Services Directive will improve competition

Digital payments are essentially about moving money between bank accounts. The provider of the payment service may be different from the bank where the customer has an account. If banks can restrict payment service providers’ access to these accounts, they can limit competition.

The EU’s second Payment Services Directive (PSD2) was incorporated into Swedish law in May 2018. The law aims, among other things, to promote competition in the payments market by giving payment service providers the opportunity to access their customers’ payment accounts. This allows them to initiate payments and compile account information. For example, a payment service provider can offer a payment service by connecting to the customer’s bank and initiating a payment with the customer’s consent. This needs to be made possible to enable non-bank providers to offer payment services.

The European Commission conducted a review of PSD2 in 2022 and may present a new proposal for EU legislation in 2023.

Access to certain payment infrastructure governed by EU directives

The EU Finality Directive determines who can be a participant in a settlement system, such as the Riksbank’s RIX system or Bankgirot’s BiR system. The purpose of the Finality Directive is to make it clear when a payment has been settled, i.e. when money has changed hands. It minimises the risk of legal disputes if a party to the payment should go bankrupt while the payment is being processed.

The European Commission is now reviewing the Finality Directive. One issue included in the review is which agents will be able to participate in settlement systems in the future. At present, it is largely only banks that are allowed to participate in a settlement system. A broader circle could include, for example, payment institutions. Broadening the scope could help to increase competition, but it could also increase the risks in the payment system and therefore needs to be analysed in detail.