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Competition panel Brasilia, 10 September 2014

ECB-UNRESTRICTED. Some thoughts on how to get more competition in the field of retail payments: The European experience. Francisco Tur Hartmann European Central Bank. Competition panel Brasilia, 10 September 2014. Some thoughts on how to get more competition in the field of retail payments:

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Competition panel Brasilia, 10 September 2014

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  1. ECB-UNRESTRICTED Some thoughts on how to get more competition in the field of retail payments:The European experience Francisco Tur Hartmann European Central Bank Competition panel Brasilia, 10 September 2014

  2. Some thoughts on how to get more competition in the field of retail payments: The European experience ECB-UNRESTRICTED Overview 1 The SEPA project 2 SEPA building blocks 3 SEPA beyond 4 Conclusions Some thoughts on how to get more competition in the field of retail payments: The European experience

  3. Some thoughts on how to get more competition in the field of retail payments: The European experience ECB-UNRESTRICTED 1 The SEPA project 2 SEPA building blocks 3 SEPA beyond 4 Conclusions Some thoughts on how to get more competition in the field of retail payments: The European experience

  4. As of 2014 SEPA comprises 34 countries: EU-28 + Iceland, Liechtenstein, Monaco, Norway, San Marino, Switzerland Around 520 million inhabitants (euro area 332 million), together making 94 billion payments (euro area 64 billion)* Around 9,300 institutions offer payment services All EU payments in euroare directly subject to SEPA provisions The SEPA project ECB-UNRESTRICTED The Single Euro Payments Area * Elaboration on Eurostat and ECB data (2012) Some thoughts on how to get more competition in the field of retail payments: The European experience

  5. Consumers, companies, merchants • Any account holder reachable in SEPA easily & efficiently • Harmonised terms and conditions of payments • Increased choice of payment service providers • Banks, clearing & settlement infrastructures • Can offer their services SEPA-wide • Can reduce costs due to straight-through-processing and transparently compete on service and price • Banks and non-bank service providers • Can develop innovative services based on agreed standards, e.g. internet & mobile payments, e-invoicing The SEPA project ECB-UNRESTRICTED How can SEPA bring about increased competition? Some thoughts on how to get more competition in the field of retail payments: The European experience

  6. Some thoughts on how to get more competition in the field of retail payments: The European experience ECB-UNRESTRICTED 1 The SEPA project 2 SEPA building blocks 3 SEPA beyond 4 Conclusions Some thoughts on how to get more competition in the field of retail payments: The European experience

  7. SEPA building blocks ECB-UNRESTRICTED ECB-UNRESTRICTED Several levels of harmonisation Standardised infrastructure Agreed set of instruments Legislation Harmonised business rules Some thoughts on how to get more competition in the field of retail payments: The European experience

  8. SEPA credit transfer SCT • Provides users with a single means of transferring funds, regardless of whether within a single country or cross-border SEPA direct debit SDD • Makes it possible, for the first time, to charge directly an account in one European country for services provided by a company based in another EU regulation 260/12set the 1 Feb 2014 (with a grace period until 1 August 2014) as the end date for euro area countries to migrate their credit transfers and direct debits to SEPA (2016 for non euro countries) • SEPA for cards • Should enable consumers to use the same cards they use in their own country for purchases everywhere in Europe more conveniently. For merchants, accepting cards will become easier and more attractive E-payments, m-payments and innovative payment solutions in general are expected to build on the existing SEPA instruments SEPA building blocks ECB-UNRESTRICTED SEPA instruments Some thoughts on how to get more competition in the field of retail payments: The European experience

  9. International Bank Account Number (IBAN) Business Identifier Code (BIC, to be phased out) ISO20022 XML EMV chip on all payment cards Functional and security standards for cards and terminals SEPA building blocks ECB-UNRESTRICTED ECB-UNRESTRICTED Common technical requirements Some thoughts on how to get more competition in the field of retail payments: The European experience

  10. SEPA building blocks ECB-UNRESTRICTED SEPA for infrastructures Examples of European Automated Clearing Houses (excluding card and cheque clearing systems) Some thoughts on how to get more competition in the field of retail payments: The European experience

  11. How is SEPA affecting infrastructures? SEPA is pushing for changes in the organisation of clearing and settlement of retail payments in Europe Infrastructures represent an enabling factor for the realisation of SEPA Two main models: European Automated Clearing House Association (EACHA) and STEP2 Increasing integration is expected, but it may take time: • market-driven process • heterogeneous starting points in different countries • End-date regulation may accelerate such integration The Eurosystem as a catalystpromotes standardisation, interoperability, reachability, transparency of services and pricing (reference criteria for SEPA compliance of retail payment infrastructures) SEPA building blocks ECB-UNRESTRICTED Some thoughts on how to get more competition in the field of retail payments: The European experience

  12. SEPA building blocks ECB-UNRESTRICTED The two main models developed on the market • interoperability framework for SEPA-compliant payments processing by EACHA (European Automated Clearing House Association, 25 members) • technical framework to facilitate the interoperability of infrastructures, particularly as regards message formats, message flows, routing provisions, network and connectivity provisions and the mechanism for the settlement of inter-ACH transactions • clearing and settlement of SEPA payments in STEP2 • retail payment infrastructures connected to STEP2 as “technical facilitators” to allow their participants to send and receive payments from STEP2 • they need a direct participant (bank or central bank) in STEP2 to act as a settlement agent Both models should be able to deliver an efficient and competitive underlying infrastructure for retail payments Some thoughts on how to get more competition in the field of retail payments: The European experience

  13. The retail payments industry is a network industry In network industries there is the need to cooperate to be able to compete SEPA payments are competitively provided based on agreed rulebooks and frameworks The EPC (European Payments Council) and the EACHA (European Automated Clearing House Association) are prominent examples of cooperative initiatives among payment service providers and infrastructure providers in Europe, respectively The EPC scheme rulebooks and the EACHA interoperability framework exemplify self-regulation in the field SEPA building blocks ECB-UNRESTRICTED Market self-regulation Some thoughts on how to get more competition in the field of retail payments: The European experience

  14. EU legislation aimed at creating a level playing field for incumbents and new entrants on the retail payments market Regulation 2560/2001 on cross-border payments in euro (replaced by Regulation 924/2009) • Eliminates the differences in charges for cross-border and national payments in euro • Applies to payments in euro, in all EU Member States • Principle: charges for payment transactions in euro have to be the same whether the payment is a national or a cross-border payment Payment Services Directive 2007/64 (under review) • Harmonised terms and conditions • Harmonised transparency and information requirements • New category of service providers: payment institutions Regulation 260/2012 establishing EU-wide requirements for credit transfers and direct debits in euro • Sets end dates for migrating credit transfers and direct debits in euro SEPA building blocks ECB-UNRESTRICTED ECB-UNRESTRICTED ECB-UNRESTRICTED Harmonised regulatory framework Some thoughts on how to get more competition in the field of retail payments: The European experience

  15. The EPC payment schemes contain mandatory as well as optional elements Implementation of the ISO20022 standard may vary at country level AOSs (Additional Optional Services) allow adapting the schemes to the needs of different user communities EU legislation entails exemptions and transitional derogations, and may leave some leeway for national implementation Does this foster increased competition? To what extent can this risk to reproduce national fragmentation? SEPA building blocks ECB-UNRESTRICTED ECB-UNRESTRICTED Balance between harmonisation and customisation Some thoughts on how to get more competition in the field of retail payments: The European experience

  16. Some thoughts on how to get more competition in the field of retail payments: The European experience ECB-UNRESTRICTED 1 The SEPA project 2 SEPA building blocks 3 SEPA beyond 4 Conclusions Some thoughts on how to get more competition in the field of retail payments: The European experience

  17. SEPA beyond Cardholder’s perspective: card payments are not accepted as much as one would expect given the efficiency, safety and convenience compared to cash card payments are less accepted or even absent in specific sectors some cards, even though SEPA-compliant, are not accepted at locations where other SEPA-compliant cards are being accepted Perspective of a merchant: decision to accept card payments will be influenced by expected unit costs, but there can also be technical restrictions merchants do not always have a great choice of acquirers, and cannot easily choose to use a foreign acquirer international retailers face different business practices and rules within SEPA, different functional and security requirements for their payment terminals ECB-UNRESTRICTED What’s missing still in the cards market Some thoughts on how to get more competition in the field of retail payments: The European experience

  18. SEPA beyond ECB-UNRESTRICTED Angles of approach to the cards market Security of card payments / prevention of card fraud ECB to provide guidance on: Separation of scheme management and processing entities and establishing a competitive card processing market Standardisation efforts (setting requirements, writing specifications and their implementation) Harmonising business practices and rules Some thoughts on how to get more competition in the field of retail payments: The European experience

  19. Focus on cards Security of card payments / prevention of card fraud SecuRe Pay recommendations for stricter security measures for card-not-present transactions via the internet and their implementation by payment service providers and the governance authorities of payment schemes no later than 1 February 2015. Full migration to EMV (cards, terminals and transactions) for card-present transactions. Until all SEPA issued cards are chip-only, and as long as there are large parts of the world where EMV-migration has not taken place in full, non-EMV transactions outside SEPA should be blocked by default. ECB-UNRESTRICTED KEY MESSAGES Some thoughts on how to get more competition in the field of retail payments: The European experience

  20. Focus on cards Separation of scheme management and processing entities and establishing a competitive card processing market Separation is a core element in increasing competition and efficiency in card payments. The principle of separation should apply at the corporate level, including in particular operational separation, information separation, financial/accounting separation, commercial separation and ideally also legal separation. Eurosystem reiterates its invitation to the industry to establish a SEPA card processing framework and a technical interoperability framework and strongly encourages all interested stakeholders to produce tangible results. ECB-UNRESTRICTED KEY MESSAGES Some thoughts on how to get more competition in the field of retail payments: The European experience

  21. Focus on cards Harmonising business practices and rules - pricing and fees Neutral stance on interchange fees, as this is for competition authorities or legislative instances, but should not lead to negative price signals towards payers / payees. Clarity is welcomed. Surcharging and/or rebating could be an instrument to steer users towards more efficient payment instruments, but should not be applied undifferentiated or misused to the payer’s disadvantage. More transparency of fees is better for competition and efficiency. “Core and basic” card payment services are cashless alternative to banknotes and should be offered separately from other services. No more country-specific licences for issuing and acquiring. Scheme-internal fee differentiation based on geographic criteria for cross-border transactions within SEPA should disappear. ECB-UNRESTRICTED KEY MESSAGES Some thoughts on how to get more competition in the field of retail payments: The European experience

  22. Focus on cards Harmonising business practices and rules - steering practices Issuers should be free to decide which schemes/brands they want to issue on one and the same card; co-branding can contribute to reach, but not used as excuse to maintain national fragmentation. Merchants should have freedom to accept only those card schemes and/or brands best suited to their need. Differentiating / declining commercial cards if they involve higher fees than consumer cards. Merchants to decide not to accept cards that provide a low level of security or if the acquirer does not guarantee the full payment of authorised transactions. Customer and merchant agree jointly on conditions of payment. Practical solutions are needed, but should not replace or override the legal principle. ECB-UNRESTRICTED KEY MESSAGES Some thoughts on how to get more competition in the field of retail payments: The European experience

  23. Focus on cards ECB-UNRESTRICTED KEY MESSAGES Standardisation efforts (requirements, specifications and their implementation) • Eurosystem welcomes inclusive work to standardise functional and security requirements. The world is larger than SEPA, but European requirements can go beyond, and be more ambitious, than in other parts of the world. • Support for ISO 20022 for card messages in the terminal-to-acquirer and acquirer-to-issuer domains. • The “labelling” process is step towards further harmonisation in functional standardisation and “technical interoperability” of specifications (i.e. ability to communicate) is an essential part. • A harmonised security evaluation and certification process for cards and terminals lowers market entry barrier for manufacturers. Some thoughts on how to get more competition in the field of retail payments: The European experience

  24. Focus on Regulation on Interchange Fees for Cards ECB-UNRESTRICTED Main points of the European Commission’s proposal • Price cap: • Cap on debit card interchange of 0.2% and on credit card interchange of 0.3% of transaction value • Cap applies 2 months (cross-border) and 24 months (all) after entering into force of Regulation • Card scheme business rules: • Abolishment of territorial restrictions to licensing • Separation of card schemes and processing entities • Free co-badging and brand choice • Unblending of fees • Abolishment of “Honour all Cards” rule Some thoughts on how to get more competition in the field of retail payments: The European experience

  25. SEPA beyond ECB-UNRESTRICTED Our wallets are changing … and SEPA may be a springboard for innovation PAST PRESENT AND FUTURE? Some thoughts on how to get more competition in the field of retail payments: The European experience

  26. SEPA beyond ECB-UNRESTRICTED E-commercepayments • Various providers are active, but only few developments - and certainly not at Europe-wide or worldwide scale - of efficient, safe and reliable e-commerce payment solutions • New type of providers that accessexisting(internet-enabled) payment accounts held with banks; example in Germany: Sofort • European Commission has proposed (PSD2) to regulate such services and license their providers • “Access”: a confirmation that a payment order is irrevocable for the customer and will be executed if funds are still available, or that availability of funds for the payment order is already insufficient Some thoughts on how to get more competition in the field of retail payments: The European experience 26

  27. Creation of a new type of regulated entity, the Third Party payment service Provider (TPP) A TPP can now access a payment account held with a PSP with consent from the payer A TPP will use a payment initiation service to allow for PSP account access A payer will have the right to use a TPP to obtain payment services PSPs cannot refuse payments initiated by a TPP for a payer Of key importance for e-commerce as it enhances competition by leveraging online banking and SCT (and SDD) as alternatives to credit/debit cards Focus on PSD2 ECB-UNRESTRICTED How the proposal for PSD2 addresses TPPs (Third Party payment service Providers) Some thoughts on how to get more competition in the field of retail payments: The European experience

  28. SEPA beyond E-commerce has prompted demand for increased speed of payment To answer that demand, several solutions are in place or planned at global level and in Europe (especially outside the euro area) Such solutions: • are understood to be mainly based on credit transfers, available 24/7/365 and resulting in the immediate or close to immediate crediting of the payee’s account • can generally provide an alternative to cash, cheques, card payments and could even become a competitor to international remittances • have a potential for any kind of proximity and remote payment - be it a P2P, C2B, B2B, e-commerce or government payment - and will blur any distinction between such different kinds of payments The ECB observes that the market is moving towards increased speed of payment and encourages progress in this direction Innovative instant payment solutions should leverage the harmonisation achieved with SEPA in order to avoid reproducing national fragmentation ECB-UNRESTRICTED Scope for further innovation: “Instant payments” Some thoughts on how to get more competition in the field of retail payments: The European experience

  29. SEPA beyond ECB-UNRESTRICTED SEPA governance and the role of the Euro Retail Payments Board (ERPB) A board chaired by the ECB with the aim to: • Address retail payment issues in their broadest sense at European level by means of a European dialogue between banks, other payment service providers and end-users of payment services • to contribute to and to facilitate the creation of an integrated, competitive and innovative market for euro retail payments in the EU based on a level playing field • Start of a new phase in the European retail payments integration process after the SEPA migration Approach: cooperative approach reinforced by the Europe-wide reach of the ERPB, combined with the output-drivenfocus Some thoughts on how to get more competition in the field of retail payments: The European experience

  30. Some thoughts on how to get more competition in the field of retail payments: The European experience ECB-UNRESTRICTED 1 The SEPA project 2 SEPA building blocks 3 SEPA beyond 4 Conclusions Some thoughts on how to get more competition in the field of retail payments: The European experience

  31. Conclusions Same fees for cross-border as for national payments and harmonised EU legal framework for retail payments across Europe Eurosystemreinforces efforts for SEPA for cards – a harmonised, competitive and innovative European card payment area Advances in technology and changes in users’ needs push for innovation and speed in retail payments ERPB to facilitate the creation of an integrated, competitive, innovative and level-playing field market for euro retail payments in the EU Payments are becoming less local and more global… and the ECB aims to “ensure efficient and sound clearing and payment systems” within the EU and with other countries ECB-UNRESTRICTED What difference is SEPA making for Europe? Some thoughts on how to get more competition in the field of retail payments: The European experience

  32. ECB-UNRESTRICTED THANK YOU Some thoughts on how to get more competition in the field of retail payments: The European experience

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