Last Friday the European Euro central banks (ECBS) published their fifth progress report on SEPA: from concept to reality. My direct response after reading it was that the title suggest a realism that the report completely lacks. That's why I would redefine the title as: From concept to reality with the EPC and right back to the concepts with the Eurosystem.
The report contains many pages of statements, desires, objectives, recommendations that are mainly addressed to the payment industry: banks, EPC, national migration organisations, card schemes, processors, 'infrastructures' and can be summarized as 'please hurry up with the EPC-work and do include a lot of extra goodies while you're at it'. It also urges public authorities to ensure that regulation and legal clarity is quickly provided, so that the payment industry quickly knows the rules of the game (and whether or not there may be an interchange fee in the future).
The report claims to be based on a gap analysis between what banks and EPC deliver now vis a vis the requirements of a successful SEPA. As such the report is a 180 degree turn from good old central banking traditions. Usually, the central banks would do some solid analysis and explain that the market would work well and no intervention is necessary. And they would do without the political dimension. But not this time.
The reports is a above all a political document with a number of inconsistent and questionable statements. Of course there is the now well familiar statement on a third card scheme that ESCB considers necessary given the existing 'duopoly'. Quite misplaced one could argue, as the ESCB has nowhere near the competencies of a competition authority.
Also, suddenly the EPC (which does bank-bank standardisation) is required to do an end-to-end security threat analysis for credit-transfers, e-payments. And ACH's are required to abide with a newly developed set of criteria for sepa compliant infrastructures.
There should be a though and quick time schedule for moving to SEPA and those who don't wish to migrate should be forced. And the domestic debit-cards only (remember the Postbank announcement) are no longer allowed to exist after 2010. And while all this happens prices may not rise, which by the way may well be monitored by the central banks.
Another nice one. There is no formal position on interchange fees (Eurosystem is neutral) but the report does day that existing geographic interchange fee structure may only exist in a conversion period, not in the final SEPA-end game. And, by the way, all changes in the interchange fee arrangements may not have as a result that consumers suddenly choose more inefficient means of payments. Meaning that if banks would -hypothetically- eliminate the interchange fee and ask direct fees from both consumer and merchant, this would not be OK for the Eurosystem, because it would drive the customers to cash rather than to electronic payments.
So in sum: this doesn't make any sense any more other than political sense. the European central banks are no longer objectively analysing the world; they just join in the political game and produce papers that they think may get them a good press.
So, would this be the right time to remind the Eurosystem of its formal statute and of the difference between the goal and the means to achieve a goal?
As for the goal, we can read in article 2 of the ESCB statute that the primary objective of the ESCB is to maintain price stability. So that is all the stuff about keeping the interest rate and € exchange rate stable. In doing so, the ESCB shall support the general economic policies in the Community and it shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources....
Now article 3 states that in order to maintain this price stability, the actual tasks of the ESCB are:
- to define and implement the monetary policy of the Community;
- to conduct foreign-exchange operations consistent with the provisions of Article 111 of this Treaty;
- to hold and manage the official foreign reserves of the Member States;
- to promote the smooth operation of payment systems.
One could ask: why all the involvement in retail payments? Whether or not banks do SEPA will not imminently impact the interest rate nor price stability in Europe. So that would justify a bit of distance rather than the current involvement.
But then again, it is of course possible to reverse the order and state that the main objective of the ESCB is to promote smooth operation of payment systems and price stability also. Thus, by making the means an end in itself one could try to justify an ECBS role in retail payments. Still the tax payer may have a hard time understanding how one would really think that the objective to not have price rises in retail payments stems from the ESCB-task of price stability or fits the goal of preserving the value of the euro.
What the tax payer might understand is the concept of commercial expansion or institutional drift (where companies and regulators wish to dominate their respective markets and increase their market beyond original boundaries). And one could argue that the ESCB is now taking things a bit too far now with their continued and expanding involvement in retail payments. They are drifting out from their original territory into the domains of prudential supervisors, the European commission, local legislators and competition authorities. And while some of the involved policy makers at other institutions may raise the eyebrow, nobody is effectively stopping them.
What's also interesting? The ESCB don't apply their own one-SEPA-size fits all-reasoning to their own product: cash. In the cash area they go out of their way to explain that they are unable to harmonize cash rules in Europe:
At the same time, it was underlined that the Eurosystem does not envisage developing a “one size fits all” cash supply system. The different national economic and geographical environments need to be taken into account and the process of convergence will require some flexibility regarding customer requirements, cash infrastructure and transitional periods for implementation.
And finally, the Eurosystem leave the pricing of cash undiscussed. Shouldn't the ESCB be the first to ensure and announce that all over Europe all commercial banks should change their pricing for cash (under priced and free in most countries) in such a manner that we really have an efficient allocation of resources?
Well, I guess the old style ESCB would do so. Unfortunately the new style, politically sensitive ESCB hushes the subject under the carpet.