EU warns over reliance on overseas payment systems

The European Central Bank and the European Banking Authority have highlighted a rising dependence by European banks and businesses on payment and clearing services based outside the EU. Officials and recent papers from regulators point to concentration risks in a few foreign providers of key payment services.

Regulators identified three main areas of exposure: international payment messaging used for cross-border transfers, card processing dominated by a small number of global networks, and correspondent banking links used for settlements in foreign currencies, particularly the U.S. dollar. The authorities say those links handle large volumes of euro and other currency flows while operating largely beyond EU jurisdiction.

Reports and stress tests in recent months showed that a disruption at a major non-EU operator or a change in access policy by third-country authorities could quickly affect euro-area banks’ ability to settle payments. Regulators also raised concerns about data protection and supervisory limits when critical processing steps take place outside EU reach.

To address the dependence, European authorities have outlined a range of measures. Proposals include additional support for EU-run infrastructures such as TARGET2 for wholesale settlement and TIPS for instant euro payments, stronger oversight of critical cross-border links, steps to promote domestic card-processing alternatives, and efforts to expand local currency corridors and alternative settlement arrangements. Policy discussions have also touched on legislative safeguards to protect continuity of access to messaging services and incentives for banks to diversify technical and contractual providers.

Market participants say technical and commercial hurdles will slow change. Building alternative payment rails or expanding EU systems requires investment, work on interoperability and time for banks, merchants and international partners to adopt new arrangements. Established card networks and messaging services benefit from long-standing connectivity and scale, which creates barriers for new providers. Small and medium-sized firms are expected to face transitional costs if banks reconfigure back-end processing.

In the short term, supervisory guidance calls for clearer mapping of third-party dependencies, stronger contractual protections with external providers and more active monitoring of concentration risks. Banks are being asked to test contingency plans that assume loss of access to a major external payment provider and to report mitigation measures to national supervisors.

Industry groups have advised an approach that balances infrastructure development with market efficiency. Private-sector initiatives to widen alternative settlement corridors and the adoption of technologies such as tokenisation and ISO 20022 were cited as potential ways to improve interoperability, while regulatory steps should account for costs and market readiness.

The attention from regulators follows long-standing EU efforts to integrate payments through SEPA and harmonised rulebooks. Globalisation of finance and the dominance of a few non-EU providers in some layers of the payment chain have prompted closer scrutiny after recent geopolitical and operational shocks.