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Francisco Tur Hartmann
European Central Bank
Some thoughts on how to get
more competition in the field
of retail payments:
The European experience
Competition panel
Brasilia, 10 September 2014
Some thoughts on how to get more competition in the field of retail payments:
Rubric
The European experience
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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
2
www.ecb.europa.eu ©
Some thoughts on how to get more competition in the field of retail payments:
Rubric
The European experience
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
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3
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Rubric
The
SEPA project
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The Single Euro Payments Area
• 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 euro are directly subject to SEPA provisions
* Elaboration on Eurostat and ECB data (2012)
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The European experience
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Rubric
The SEPA project
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How can SEPA bring about increased competition?
• 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
Some thoughts on how to get more competition in the field of retail payments:
The European experience
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Some thoughts on how to get more competition in the field of retail payments:
Rubric
The European experience
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
ECB-UNRESTRICTED
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www.ecb.europa.eu ©
Rubric
SEPA
building blocks
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Several levels of harmonisation
Agreed set of
instruments
Standardised
infrastructure
Harmonised
business
rules
Legislation
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The European experience
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Rubric
SEPA
building blocks
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SEPA instruments
• 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 260/12 set 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
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Rubric
SEPA
building blocks
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Common technical requirements
• 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
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Rubric
SEPA
building blocks
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SEPA for infrastructures
Examples of European Automated Clearing Houses
(excluding card and cheque clearing systems)
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Rubric
SEPA
building blocks
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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 catalyst promotes standardisation,
interoperability, reachability, transparency of services and pricing
(reference criteria for SEPA compliance of retail payment
infrastructures)
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The European experience
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Rubricbuilding blocks
SEPA
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The two main models developed on the market
1. 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
2. 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
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The European experience
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SEPA
building blocks
Rubric
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Market self-regulation
• 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
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SEPA
building blocks
Rubric
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Harmonised regulatory framework
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
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The European experience
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SEPA
building blocks
Rubric
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Balance between harmonisation and customisation
• 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?
Some thoughts on how to get more competition in the field of retail payments:
The European experience
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Some thoughts on how to get more competition in the field of retail payments:
Rubric
The European experience
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
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www.ecb.europa.eu ©
Rubric
SEPA beyond
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What’s missing still in the cards market
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
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The European experience
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Rubric
SEPA beyond
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Angles of approach to the cards market
Security of card
payments /
prevention of card
fraud
Separation of scheme
management and
processing entities and
establishing a competitive
card processing market
ECB to provide
guidance on:
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
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Rubric
Focus on cards
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KEY MESSAGES
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 cardpresent transactions. Until all SEPA issued cards are chip-only,
and as long as there are large parts of the world where EMVmigration has not taken place in full, non-EMV transactions outside
SEPA should be blocked by default.
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The European experience
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Rubric
Focus on cards
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KEY MESSAGES
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.
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The European experience
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Rubric
Focus on cards
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KEY MESSAGES
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.
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The European experience
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Rubric
Focus on cards
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KEY MESSAGES
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.
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The European experience
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Rubric
Focus on cards
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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-toacquirer 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.
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The European experience
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Rubric
Focus on Regulation on Interchange Fees for Cards
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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
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Rubric
SEPA beyond
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Our wallets are changing … and SEPA may be a
springboard for innovation
PAST
PRESENT
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The European experience
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AND FUTURE?
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Rubric
SEPA beyond
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E-commerce payments
•
•
•
•
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 access existing (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
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Rubric
Focus on PSD2
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How the proposal for PSD2 addresses TPPs (Third Party
payment service Providers)
• 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
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Rubric
SEPA beyond
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Scope for further innovation: “Instant payments”
• 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, ecommerce 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
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Rubric
SEPA beyond
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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-driven focus
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The European experience
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Some thoughts on how to get more competition in the field of retail payments:
Rubric
The European experience
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
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Rubric
Conclusions
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What difference is SEPA making for Europe?
•
•
Same fees for cross-border as for national payments and
harmonised EU legal framework for retail payments across
Europe
Eurosystem reinforces 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
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THANK YOU
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The European experience
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