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Creating a Single Market for Payment Services: The Role of Industry and Regulators

This presentation discusses the current state of payment market integration, the vision for a single market, the role of industry in self-regulation, and how regulators can support this goal. It also examines the Payment Services Directive and its implications. The potential savings and benefits for consumers, merchants, corporations, banks, and society as a whole are explored.

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Creating a Single Market for Payment Services: The Role of Industry and Regulators

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  1. _Akzente für die Zukunft Payment Services Directive Zuzana KalivodovaNational ExpertEuropean CommissionInternal Market and Services DGRetail Issues, Consumer Policy and Payment Systems zuzana.kalivodova@ec.europa.eu - +32-2-299.58.01-  +32-2-295.07.50http://ec.europa.eu/internal_market/payments/index_en.htmPayment Services DirectiveBudapest, 17 November 2006The views expressed are those of the author and do not necessarily reflect those of the Commission. 1

  2. Points to cover • Present state of payments market integration • The vision • Role of industry – Self-regulationis the key • How can regulators help? Payment Services Directive • ECOFIN conclusions • Conclusions 2

  3. I.Present state of payments market integration • Studies estimates the Cost impact of the payment sytem to society to high 2-3% GDP (cash is the maim cost driver and accounts for as much as 60-70% of the total cost of the payment system) • No Single Market in payments (25 different national payment systems) despite • creation of Single Market in 1992 • introduction of single currency in 1999 • Does this matter we have no single market for payments? 3

  4. I.Present state of payments market integration • Regulation 2560/2001 had kick-starting effect • BUT itleft banks to bear the extra costs (introduced the principle of equal charges for cross-border electronic payment transactions and credit transfers up to EUR 12 500 – EUR 50 000 from 1/1/2006) • Some national payment systems are quite efficient • BUT huge differences between the countries of a factore 1:8 (e.g. price of providing basic payment services related to a bank account varies from EUR 34 a year for the customer in the Netherlands to EUR 252 in Italy) 4

  5. I.Present state of payments market integration • Efficiency of cross-border payments is substantially lower • BUT should be at par with the best performing national markets • Well-functioning national standards exist • BUT protected national markets and competition stops at the border 5

  6. I.Present state of payments market integration What savings could be made with a true Single Market? Huge saving potential • increase of the share of electronic payments + reduce of the cash = reduction of overall social cost of payment services (all countries at lowest = € 5.3 bn) • Best practice in payments (e.g. Finland/Norway) 50% cost cut in 10 years • Efficient electronic payment (20% above best = € 10.0 bn) 6

  7. I.Present state of payments market integration • Saving potential for consumers • Ratio current account 8:1 (EUR 240 – EUR 35) • More choice and competition 7

  8. I.Present state of payments market integration • Saving potential for merchant • Merchant acquiring costs/costs of cards • Vary 20:1 for debit cards • Vary 9:1 for credit cards • e.g. PIN debit average BE = 5 cent – ES = 1 euro • Many complaints and competition investigations ongoing. Draft DG Competition report. 8

  9. I.Present state of payments market integration • Huge saving potential for large corporates + SMEs • Economies from 1 single treasury department (not 25) plus locate in MS with cheapest offer/best product (€? bn savings) • Full automation of supply chain and e-invoicing • e-invoice EUR 5 / manual EUR 50-80 • EUR 100 bn even if to levels of less than Finland today • dematerialisation of supply chain – even more 9

  10. I.Present state of payments market integration • Huge saving potential for banks • Payments can be 40% of banks costs but less than 20% revenue  rationalise and modernise • Consolidation infrastructure/processing EUR 10 bn even if average 20% worse than current best • Unit cost of payments only 20% higher than most efficient best = EUR 9 bn • Increase share debit cards EUR 5 bn 10

  11. I.Present state of payments market integration • Huge saving potential for a society as a whole • Cost of payments can be halved in 10 years • 2%  1% GDP (e.g. Norway, Finland) (excludes e-invoicing savings) • i.e. 1% GDP saving every year • Example of Lisbon economy 11

  12. I.Present state of payments market integration • Savings for all, BUT warnings • Some banks lose • Efficient gain market share + gain savings • Pockets of protectionism reject change and lose. No longer possible to live off rents from lack of Single Market 12

  13. II.The vision • Commission & ECB Joint Statement, May 2006 • integrated market: no distinction cross-border/national • one single a/c in euro area enough • improved efficiencies (competition & economies) • forward-looking – best practices/level up and e-invoicing basis • milestones • support of users as early adoption (especially public sector) • support EPC process/self-regulation 13

  14. III.Role of industry – self-regulation is the key • Industry response to political pressure and problems  EPC  SEPA • Remove commercial and technical barriers • Develop schemes and product frameworks to ensure alignment of business models across EU • Adopt common standards for EU Euro payments • Ensure SEPA compliance of infrastructures 14

  15. III.Role of industry – self-regulation is the key • Ensure timely implementation in a competitive environment Key dates • 2008 (availability of SEPA products) • 2010 (migration of national systems to SEPA) • NOT just cross-border  fundamental change in payments landscape • Commission, ECB and ECOFIN support - objectives allow realisation SM potential - self-regulation the preferred path 15

  16. IV.How can regulators help? • Commission proposal for the Payment Services Directive • Objectives and principles • Facilitate SEPA by removing legal barriers for development of pan-European payment services • Improve competition (remove market entry barriers and guarantee fair market access) • Facilitate STP/efficiency • Promote consumer confidence in modern payment instruments and protection • Full harmonisation – no gold plating • Min. regulation and max. self-regulation (=responsibility to industry) 16

  17. IV.How can regulators help? • 3 Pillars: • Market acces / new providers / prudential rules • (Increase competition) • Transparency / imformation requirements • (Allow customers to exercise choice) • Rights and obligations of users + providers • (Harmonise legal requirements) 17

  18. IV.How can regulators help? What PSD gives to user – essence of a payment • End-to-end liability for payment service provider • Full amount credited without any deduction to beneficiary • Mandatory D+1 execution time • all credit transfers (euro plus national payments) • No value dating • Condition for refunding when a payment transaction has been authorised What PSD gives to provider – possibly for STP • bright line for revocation • unique identifier 18

  19. V.ECOFIN Conclusions • SUPPORTS the aim of the Single Euro Payments Area (SEPA): to achieve an integrated market for payment services in euro which is subject to effective competition and where there is no distinction between cross-border and national payments in euro within the EU; • CONSIDERS that the highest priority must be given to meeting users’ needs by the payment services developed under the SEPA, which requires continual involvement at national level of all interested parties; 19

  20. V.ECOFIN Conclusions • EXPRESSES appreciation of the substantial work undertaken by industry to achieve this aim and encourages it to make progress in the areas where work remains to be completed; • NOTES that the completion of SEPA calls for the removal of all technical, legal and commercial barriers between the current national payment markets; 20

  21. V.ECOFIN Conclusions • NOTES that continued attention is needed to ensure that SEPA-payment services, including their supporting technology and procedures, do not represent a deterioration compared to the national cost and service level in the most efficient Member States and that SEPA products and services are offered in a competitive environment; • STRESSES the importance of ensuring a level-playing field as regards the application of competition principles to all market participants, including new entrants to the payment services market, and INVITES the Commission to continue without delay, its work on this subject; 21

  22. V.ECOFIN Conclusions • UNDERTAKES to work, together with the European Parliament, towards a swift adoption of the Proposal for a Directive on Payments Services; • WELCOMES that the Commission intends to come forward with the final report regarding the sector enquiry into competition in the retail banking market (which includes payment cards) before the end of the year; 22

  23. V.ECOFIN Conclusions • In order to facilitate commitment to an early use of SEPA, INVITES Member States to carry out cost and benefit analysis, where necessary, to check that SEPA products are better or at least equivalent to existing products in terms of price and quality, including as regards the security of payments and INVITES the industry to provide information to this end; 23

  24. V.ECOFIN Conclusions • INVITES Finance Ministries of Member States to monitor progress on SEPA at national level, with all interested parties; as well as the Commission and the ECB to continue monitoring the overall development, together with the Financial Services Committee and the Economic and Financial Committee, and report back to the Council if progress is not satisfactory and at the latest in 2008; 24

  25. V.ECOFIN Conclusions • INVITES the Commission to assess the economic and competition impacts of the SEPA taking into account its planned time schedule; and; • INVITES the Commission to continue its work on the next steps regarding the issues raised in its consultative paper on SEPA, including the responses to the public consultation, without delay. 25

  26. VI.Where are we in the negotiation • COUNCIL • High priority for Finnish Presidency • Latest documents published by the Council • Proposal/Presidency compromise text (12285/06 of 28 August 2006) • Addendum to note from Presidency (13061/06 of 25 September 2006) • Note from the Presidency (13061/06 of 25 September 2006) • http://register.consilium.europa.eu 26

  27. VI.Where are we in the negotiation EUROPEAN PARLIAMENT • Leading Committee: ECON (rapporteur Mr Jean Pièrre Gauzes • Report voted on 12 September (285 amendments) • http://www.europarl.europa.eu/omk/sipade3?PUBREF=-//EP//NONSGML+REPORT+A6-2006-0298+0+DOC+PDF+V0//EN&L=EN&LEVEL=1&NAV=S&LSTDOC=Y&LSTDOC=N All parties working hard for rapid adoption through a first reading adoption 27

  28. VI.Conclusions • SEPA potential for economies huge • Rapid adoption of Payment Services Directive: top priority • Self-regulatory action by Industry for other barriers preferred approach – but • SEPA too important to fail 28

  29. Thank you very much for your attention! Your questions are welcomed! If you should need further information please contact: Zuzana Kalivodova Internal Market and Services DG +32-2-299.58.01  zuzana.kalivodova@ec.europa.eu 29

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