EC gives open banking to bigtech via PSD-2 and Apple closes its doors to banks in return ?

Just the other day I attended a session of the Dutch Foreign Bankers Association, all about Fintech disruption and innovation. Guest speaker Jesse McWaters, who is the project lead for the Fintech programme of the World Economic Forum, shared his insights into the tech-revolution and how this impacts the business models in financial industry.

Banks, big tech and big data: the uneven battlefield- thanks to PSD2 
One very important observation that he made had to do with the place of banks in the future value chain. They can choose whether to be a product provider or whether to engage in battling for the end-consumer experience by providing multi-party platforms. In this latter approach, it is a big data game. Both banks and big tech will be battling in the same arena where banks need bigtech data and bigtechs need bank data to complete their 360 views of their customers.

In this respect Mc Waters had an interesting question to us, Europeans. He asked if anyone at the European Commission would have understood the huge impact that PSD2 and obliged open banking will have on the competition balance between banks and big techs in the market. Doesn't this skew the balance in favour of the bigtechs without anything in return for the banks?

My response was that in essence the whole open-banking idea in the PSD2 originated from an EC-monoline bureaucratic approach to solving a competition case between one fintech and the European Payments Council (see newsbulletin).

I also sketched that the implicit rule of the PSD2 appears to be that such access without prior commercial contract would be free, even though an analysis from our Dutch competition authority outlines why there is a good case for putting in place a compensation for banks for the access to the customer data. And no, the access is not reciprocal. Big data companies would not have to open up their accounts full of customer information for banks.

Bunq opening up Apple Pay for Dutch customers but then being foreclosed by Apple 

The interesting thing is that we were having the above exchange of thoughts in a week where Bunq had announced to move its systems fully into the could of Amazon (bigtech). And Bunq had also opened up Applepay for its customers. By tweaking the geography settings, Dutch users could start using their phone for Apple-pay.

The fun for bunq-ers didn't last too long though. Apple used its powerful bigtech position to shut out the Dutch bunqers from using Applepay. And my guess is, that its arguments for doing so would be pretty much the same arguments that Sofort heard when they connected to German banks. It would not be safe, there would be no required commercial contract allowing this access and so on.

Time for reciprocity?
It seems that already some time ago the EC course on Bigtech has been changing. We are beginning to realize that we may need to protect our citizen's data somewhat better and that we should not help them avoid taxation. Hence the announcement this week of a 3% tax for bigtech, to make sure they do not get a free ride here in Europe.

It would be very much in line with this new vision towards bigtech if the European Commission mandates open acces to customers big-tech information for banks or any other licensed entity that have the customers permission to request it.

If the Commission truly seeks to achieve a balanced market with proper competition, it should redress the design errors in the PSD-2 and allow banks to ask fees for access and/or allow them reciprocal access to the customer data.

Paypal Netherlands has 1 million customers

This article in BN/DeStem reveals that Paypal has 1 million Dutch customers. The article compares the features of the bank-based iDEAL payments system and Paypal. Essentially the main difference is that Paypal has international payment/acceptance features (with customers/merchants being able to both received and pay) while iDEAL serves mainly domestic Dutch transactions allowing customers to pay merchants but not to pay each other. Furthermore Paypal is fully webbased, with a lot of software controls to secure payments, whereas most banks secure the iDEAL payment with a bit of hardware or a separate sms-verification effort.

If the personell ads were something to go by the Paypal efforts should not be underestimated. They will be building a base here and will remain to have their international and peer-to-peer advantage, even if iDEAL would become a European standard. So there appears to be quite a sustainable advantage for them.

Currence: Dutch debit card phased out gradually / ECB re-engineers policy history

The Financieele Dagblad reported on a presentation session that occured yesterday as a part of the presentation of the annual report of Currence: scheme owner of Dutch collective payment products PIN (POS-payment), Chipknip (e-purse), direct debit and acceptgiro (bill-payment). Main news is that Currence announces that it seeks to maintain the brand PIN until the future market situation (in particular fees) is clear.

Essentially this is no news, as banks had already outlined that they would not phase out PIN without looking at market developments and consulting retailers. but still this may provide some comfort to Dutch retailers. Interestingly ECB-policy department chief Ruttenberg stated that he noticed a change in banks' behaviour: while they were first eager to phase out the pin-product, they would now seem to think otherwise. He noted a change in attitude there.

Ruttenbergs' statement can be best viewed as a projection in psychological terms. He notcies a change with the banks, which tells us something about what happens to the ECB. Because the real change in attitude is not with banks but with the ECB. In 2004 the ECB had no clue as to the market reality for cards payments. This speech of Tumpell Gugerell essentially discussed anti-fraud measures and standardisation. Then came the rush to implement SEPA. Both ECB and Commission urged the banks to quickly move towards panEuropean products and phase out domestic products by the end of 2010 (see the speech here). At this time the banks strongly complained about this deadline setting by ECB and outlined the business (interchange fees etc) and customer issues (need for a gradual migration rather than big bangs) involved. So the ECB slowly understood that indeed there was something as interchange issues that could stand in the way.

Then, somewhere in 2005 or 2006, having banged the panEuropean quick migration drum for some years now, the ECB changed its mind and did no longer demand changeover to international schemes. Rather it pursued the idea of a third Euro-scheme to compete with the other schemes (needless to say that VISA already transformed their business in Europe into a European scheme; a fact that has apparently went by unnoticed in Frankfurt). So the analysis from the Frankfurt towers is now that there might be a business case for such a card scheme and that banks should not rush into migration towards US dominated international schemes take over.

It is quite interesting to note that a mere change of responsibilities and roles within the ECB also leads to a re-interpretation of reality by the ECB-policy makers. They now re-engineer the policy history as if banks wanted to go quick and they as ECB need to slow them banks down and point out a different policy option (setting up a third scheme) which some years before, was absolutely not the desired goal of the ECB.

Updated June 8: see also the speeches by the ESCB and Commission.

GTnews article on conference about SEPA-role for the Public Sector

See the GTWnews article here outlining the content of the conference on SEPA for the public sector. It was done in response to the claims of EPC that also governments should take action. So McCreevy organised it and had some statements such as:
Where are we now with the SEPA project, and what do we need to do next? The good news is that the technical, business and legal foundations of the project have been firmly established. The recent adoption, in a single reading, of the Payments Services Directive (PSD) is in particular a major achievement. Now we need a robust and realistic timeline for completion of the project. And by completion, I mean wide-spread use of SEPA products by retail customers, SMEs, corporates and the public sector.

The PSD will not be implemented in national law until November 2009. This means that the SEPA direct debit products will not be available before that time. Only a few EU member states have so far declared their intention to phase out their domestic payments system and adopt SEPA. Against this background, the latest declaration of the EPC Plenary that they expect a critical mass of users by 2010 is a challenge. Therefore, we need to instil a sense of momentum and dynamism to make SEPA the success we all want it to be. Each stakeholder has to take responsibility for this in their respective domain.

Let me first turn to what I believe the banking sector should do. The banks obviously have the responsibility to design SEPA products that are attractive to customers, competitively priced and retain at least the levels of performance that current national products have. I am sure during the course of today you will have plenty of opportunity to hear what the banks plan and to have your questions answered.

Next, the banks will need to ensure that there are adequate governance structures in place to manage SEPA. The EPC is the only show in town as far as private sector governance of SEPA is concerned. It needs to better involve the users of payment services in its deliberations.

More also needs to be done to invest real authority in the EPC so that it can ensure that all banks are preparing themselves for the SEPA payments market on schedule. Laggards should be gently but firmly told to step up their efforts. The EPC will also need to use its new authority to establish a realistic timeline that all banks will be able to stick to for phasing out their old payments products and migrating their customers to SEPA products. To do this successfully, the EPC must be assured of the backing of banks at the top levels. This is an issue for boardroom discussion.

Well, this looks as if the EPC asked McCreevy to say that they need more power... so that the timelines of 2010 can be achieved. Yet, as stated earlier in this blog, in 2010 there may be some new instruments, but mass usage or domestic migration is unlikely to be underway (with a direct debit only coming on the market in 2010).

EU banks in secret debit card talks..... but why would that make sense

A Reuters message outlines that EU banks supposedly are in secret debit card talks. Meaning that a third scheme would be born for EU-use in particular. The source is a document from Laffety Group which states that the banks are "believed to be unhappy with the possible emergence of MasterCard's Maestro as the dominant provider of debit card network services in Europe. The banks involved include Societe Generale, Deutsche Bank, Dresdner Bank, Commerzbank, Unicredito, ABN AMRO, ING, and Rabobank.

The main concern is that having two schemes is around would be insufficient for competition.... but why and how a third scheme would solve this is not clear. If we look at for example the situation in Australia. There used to be a bank credit-card scheme. But with international schemes coming in (also offered by those banks to allow their customers usage abroad and such) the bank card was in less demand than the international card schemes. Which is what will happen in Europe with this supposedly new scheme as well of course.

Imagine that a number of banks set up a EU-brand.. how are they gonna get that brand to work in the rest of the world? It is hard to figure out why this EU-brand would be preferred in Europes countries. Customers are increasingly travelling and mobile all over the world, so what would be the use of trying to build this third EU brand for EU-use. This would only work if the ambition and investment would go so far to completely replace one of the two brands internationally...

Which would be a silly ambition because in that case, this third EU-bred brand is a triplication of previous scheme efforts. So all in all, this doesn't make a lot of sense, other than that it might help a bit in the negotiations of EU-banks with Visa and Mastercard.

Payment Services Directive agreed in European Parliament

The EU-websites are sometimes incomprehensible to browse, but ALDE has some news detail to confirm that today the Payment Services Directive was approved in the first reading of European Parliament. With the ALDE comment:
This is not a price regulation directive, but it should make payments cheaper through greater competition and through greater transparency.

The official press announcement of EP can be found here and is a bit worrying:
MEPs have adopted a legal framework designed to make cashless payments – such as card transactions, bank transfers and direct debits – simpler and cheaper, paving the way for the creation a single Euro payments area. A deal with the Council means the legislation will enter force at this first reading stage, giving the banking industry the time it needs to meet its 2010 target.
...
The European payments industry – banks, clearing organisations and others – have committed themselves, with the EU’s support, to changing all of this by 2010. The single euro payment area project should mean that bank transfers, direct debits and similar payments will be made through a new European system, with domestic and cross-border transactions being made in the same way at the same speed. It will also mean payment card systems converging on a common standard, so that cards from all over Europe will be accepted all over Europe, without extra fees or technical barriers.

What worries me is the conception of a new European system. We may need quite some time explaining and educating that there is not going to be a new European system as such. In the old days banks used to build those 'systems' and clearing houses for domestic markets. But nowadayes banks agree on core standards and interoperability agreements, leaving the market to determine at which processor and through which technical system and clearing house the payments will go.

Another concern is timing. Banks will in the next years have to change systems to new European standards for credit-transfer and direct debit. But the PSD is supposed to be implemented in member states at the end of 2009. So the two efforts will coincide. With the implementation of PSD-changes taking precedence (as a firm legal obligation) over the self-planned gradual change-over to European products, we may expect the actual roll-out of panEuropean products to go less quickly than initially planned.

Which is in itself not a problem for the market. We should recognize that the 2010 deadline quoted by parliament was formulated somewhere in 2002 (most likely chosen on the basis of the assumption that in 2008 the PSD would already be implemented). So my guess is that we will have a wide panEuropean availability of new products, based on EPC-standards, by 2012.

WestLandesbank and Click&Buy to make use of EPC-standards for cross-border payments

Finally there is some good news on SEPA, the single euro payments area. WestLB AG and Click&Buy most properly recognized that the standardised EPC-formats for payments can be made to good use in the future. So they published a press-release on that with the completely incorrect title: WestLB AG and ClickandBuy Simplify European Payments

Quite amusing as none of these companies were anywhere near the European Payments Council lately (where it all started) but still, it goes to show that the EPC-standards can be put to good use. Or as they would phrase it:
WestLB AG and ClickandBuy today launched the first Europe-wide pilot project on the future Single Euro Payments Area (SEPA). Until now companies and private persons in each member country have had to comply with a variety of legal frameworks in the payments field. Going forward, payments can be effected more easily and more cheaply throughout Europe via SEPA. Under the model project, WestLB and ClickandBuy will simplify European payments settlement at an early stage. The aim is to significantly reduce the administrative costs of companies operating throughout Europe.

Nice articles on SEPA at GT-news

I hadn't visited the GT-news site for a while but was pleasantly surprised with a number of good articles on SEPA. The site does require registration but doesn't charge. So those who register may appreciate articles such as:
- SEPA Direct Debit Delay: Time to Review Your SEPA Strategy!
- SEPA: The 2010 Challenge
and read realistic assessments like:
SEPA is only a small step in a long journey. Unless other conditions for doing business within the eurozone, such as tax and legal harmonization, and reducing administrative burdens are met, it will be very difficult to convince clients to convert to the new payment products and achieve the critical mass by 2010.

Hear hear !

Visa commissioned report on cross-border payments

Visa spent some money and commissioned Dr. Yoon S. Park, an expert on global financial markets and Professor of International Finance at the School of Business at George Washington University, to examine the current challenges of the cross-border payments process and how a combination of forces are influencing the future of payment processing. See his report here.

In itself quite a nice study that identifies the following trends:
1: Transnational payment systems are growing
2: Government-led initiatives and mandates are increasing
3: Risk and liquidity are being closely managed
4: Multinational banks and businesses are expanding
5: Operational efficiencies are being sought through outsourcing.

Case examples by trend 2 relate to the interference and further regulation of payment regulations such as OFAC rules and the FATF-rules to send payers information with a payment message as an anti-terrorist measure. Indeed a pain, but some necessary evil. Interestingly on page 15, professor Park describes SEPA as another case example:
SEPA is a government-led initiative as defined by the European Payments Council that is having a significant impact on both banks and corporations that make euro-zone payments.

Here we see that being on the other side of the ocean does help in putting things in perspective. Here in Europe bankers and regulators may still be pointing at each other when the discussion is about the Single European Payments Market. Regulators say the the banks, organised in the European Payment Council, asked them for further regulation in the payments domain, to support the market led initiative towards harmonized payments. And some bankers insist that the EPC is a market driven proces.

Yet in its essence it is regulation 2560 and the continued nagging and threats of regulators that kickstarted this 'market driven' SEPA-process out of fear from further intervention by government. Which is probably one of the reasons why Mr Park views the SEPA-thing in Europe as a government driven project rather than a business-driven activity.

Rightly so, I would add, although I would also agree with his conclusion:
The volume and velocity of cross-border payments is made all the more complex by the differing standards of domestic payment systems, increase of international regulations and the changing landscape of emerging transnational and global systems. Market pressures and the expansion of multinational banks and businesses are driving the search for operational efficiencies.

SEPA deadlines under threat...?

This Finextra article quotes the chair of the European Payments Council (EPC), Gerard Hartsink. He stated that banks will miss the first single euro payments area (Sepa) deadline for direct debits because of delays in passing a new Payment Services Directive (PSD). The news was picked up by the Financieele Dagblad with the Dutch Ministry of Finance commenting that indeed the PSD is delayed and outlining that they rather see a solid PSD than a quick and dirty one.

Reuters today also reported that Visa Europe stated today:
Scrapping retailers' credit card proceesing fees would jeopardise the European Union's plans to create a cheaper cross-border payments system for the bloc's consumers and companies.
The Visa-statement anticipates the outcome of the European Commissions card enquiry (of which the final results are due to be unveiled on Jan. 31). And it does hit the hammer on the head. For European business models to work, one needs a true European approach. And not one that bashes banks and/or card schemes but one that respects the necessary ingredients for payment systems: interchange fees for new products being one.

What I find interesting here is that the interchange fee issue is not mentioned by Mr Hartsink as an obstacle. Why is it that apparently only the players in the cards-market seems to be worried as to the outcome of the Competition Enquiry of the European Commission? Would not a competition authority inspired no-go for direct debit interchange also be a serious barrier to the whole SEPA-exercise?

Lessons for SEPA from the US checks ...?

I haven't as of yet had time to read this research paper completely, but I imagine there may be some lessons for SEPA in this historical paper on development of check-systems and interstate clearing in the US. If not just the message that payments and payment infrstructures develop/follow the economy. As an economy grows and becomes integrated, payment systems will follow.

It is going to be quite interesting to see if the EU-approach of putting the horse behind the carriage (starting with monetary and payments integration and hoping that the political and economic structures will follow) is going to work. While we all seem to be used to the EU regulators beating and slave-driving the horse (banking system) onto the SEPA-road, any more distant observer will note that there is no use beating it when it is still behind the carriage.

Yet, it appears that reflection is an attitude that is not appeciated in Brussels. Rather than fundamentally challenging and rethinking Europe, we seem to push forward to EU-constituencies, EU-payments, fully open markets and what have you. So, in style with the mythology we are taken hostage by the forceful Zeus (representing of course the forceful power of open markets ideology taken to the extreme).

What I don't remember from the history books is if that companionship of Zeus and Europa was a happy one. Well, we're bound to soon find out.

Postbank hits the news twice this week... no free basic card and possible brand elimination

This weeks financial news featured the Postbank a couple of times. In the beginning of the week FD reported that mother company ING Group was reconsidering its branding strategy. As a part of that exercise, the brand Postbank might be taken off the market. Which would be the end of a nearly 90-year separate branding for the payment services of Postbank (before: 1986 government postal giro payment services). So all the experts each had their own opinion whether this was good or bad.

To the more-insider, the news of course didn't really come as a surprise. Every 5 or 6 years the board level management at ING comes up with the question whether or not to maintain or change the brand strategy. Usually nothing changes. So much ado, perhaps about nothing. Although... one might wonder which is the real Postbank in a more consolidated European payments market. There is a Postbank in Germany as well and some confusion might arise if these two start crossing borders and competing. So in the light of European developments, things may become different this time around.

European developments are also at the heart of tonight's news-item in the NRC. The NRC reports that Postbank will abolish its last debit-cards which were for free. There some 1,56 million of those cards which essentially only had a domestic ATM and POS functionality. But, referring to the SEPA-developments, Postbank informs it customer that they will not support the use of this low-end card as of july 2007. Customers that do wish to continue using this card must choose to upgrade to a full panEuropean debit card (for € 10,95 a year).

Although reactions at the present moment are still scarce, there is bound to be some rumour in the market. Given the image of Postbank as the former postal giro, with a mission to make payment facilities accessible to all people, there may be questions in parliament. Which will undoubtedly link this move of the Postbank to the current perception in public opinion that these European SEPA-developments will make life more expensive. In which case Postbank in turn will undoubtedly refer to European institutions such as European Commission and European Central Bank. The ECB for example recently published its vision and stated that:
...
Ideally, citizens should be able to use their cards anywhere in the euro area.
...
A SEPA for cards will have the following characteristics:
all technical and contractual provisions, business practices and standards which had formerly resulted in the national segmentation of the euro area have been eliminated.
...

Well, of course all ideals come at a price and in my opinion it would be up to the ECB now to step forward and compliment and support Postbank which has had the audacity to act as a first moving issuing bank towards a Single Euro Payments Area for cards. Which is to be preferred above banks merely paying lipservice to the European Ideal and not moving at all...

MasterCard Europe Announces Maestro SEPA Interchange Rates

MasterCard Europe has today announced SEPA fall-back interchange rates for Maestro® point-of-sale (POS) transactions intended to be effective from 1 January 2008. The Maestro SEPA fall-back rates per transaction type are as follows:
Maestro, Chip & PIN, EUR 0.05 + 0.20%
Secure e&m-commerce, EUR 0.05 + 0.25%
Baseline transaction,EUR 0.05 + 0.30%
Large Merchants, EUR 0.03 + 0.12%

Mastercard states that for cross-border Maestro POS transactions, the fall-back interchange rates are significantly reduced versus current intra-EEA cross-border rates. For a typical transaction of 50 euros, the new Maestro SEPA interchange rates will be between 9 and 20 euro cents – as compared with the current Maestro intra-EEA interchange rates of 25 to 59 euro cents.

It will be interesting to see the response of Commission and ECB to this publication. Undoubtedly they won't be satisfied (a satisfied regulator/overseer being one if the inherent impossibilities of life)....

Third progress report on Target2: on track

EBC's 3r progress report on Target2 shows that it is on time (of course we have to keep in mind that this is a delayed schedule... in the orginal planning Target2 should have been delivered all over Europe by now). It finally includes the pricing scheme for ancilliary systems.

The Eurosystem's view of a SEPA for cards

Quite interesting. The world of cards is already a worldwide business since quite some years. And here we have a bunch of central banks in euro-countries focusing on a suboptimization issue: how to allow similar types of payments in euro-countries with cards. See the Eurosystems view on SEPA for Cards. One might wonder: have they been sleeping all the time when banks were developing cross-border usage of debit-cards?

And another question: why suddenly the concern with consolidation. First the eurosystem insisted on one card-one terminal and harmonisation of features in the cards-world. Then suddenly as this materializes, there is the fear that it may not be a good thing to increase standardisation and allow for consolidation.

And a final remark. This is another annoying example of institutional drift. We set up the Eurosystem to do just one thing: determine monetary policy and operate a gross-settlement system used as a mechanism for executing money market policies. Over time, as any good institution apparently wishes, the eurosystem seeked to grab more territory by making statements, policy reports and implying that it retail payments are also within its remit. But I resent that drift. Retail payments are mere peanuts that will not shock the monetary engine whatsoever. So why bother about retail and card payments as the Eurosystem?

Isn't it more relevant to European efficiency in payments that cash payments be properly priced and kicked out as a very dirty, costly payment mechanism? That we get rid of the physical euro as soon as possible? That would be a more important issue that falls within the eurosystem remit. But alas, that would also be too impopular a statement and would not be good for the image of central banks. So rather the Eurosystem chooses to make cheap and easy statements on the neighbours grass than weed its own.

An opportunity missed...

ECOFIN October 2006 conclusions on SEPA

I will recite the conclusions below. Of course the usual stuff about how the SEPA world may not be worse more costly than the current payment services. This is essentially the equivalent of ordering a free payment lunch which consists of:
- a technical overhaul (as a result of EPC-standards),
- a legal overhaul of bank internal processes (as a result of the payment services directive)
- a commercial overhaul (working towards a cost-based fee structure for all customers and payment products in order to achieve more efficiency fo EU-society)
- maintaining current price/product/functionality features in Europe.

I've highligted two interesing recitals (perhaps overlooked). The first one outlines the concern that member states have that the Commission may actually not be doing a serious job with respect to assuring a level playing field for all new entrants in the payments market. Could this be a reference to the free-lunch that mobile operators are already enjoying for some years?

The second one is on the SEPA next steps initiative. Having had a consultation in the beginning of the year, the Commission professionally shoved its results on the table and decided not to publish the results of the consultation (right now). Quite remarkable for a Commission which states that it attaches a lot of value to the principles of better regulation. But then again, quite understandable. If the results to the SEPA-Incentives paper were to be made public, the Member States would become aware of the real sentiments in the market with respect to the way the Commission acts in the payment domain. And that would mean the Commission's position during the discussion of the Payment Service Directive would substantially weaken (BTW: I'm assuming here that all market players used the sepa-incentive consultation to explain to the commission that there goals and vision for payments in Europe are too ambitious, unrealistic and actually damaging to banks and customers alike).

Well, having said that, here is the full October ECOFIN-statement on SEPA:

"The Council:
– 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 wthin 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;
– 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;
– 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;– 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 inquiry into competition in the retail banking market (which includes payment cards) before the end of the year,

– 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;
– 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;
– 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."

ECB speech on SEPA for cards: a contribution to a cashless society?

This week Mrs Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB spoke at the EFMA Cards and Payments Conference in Paris, using these slides.

Now, what is interesting is that the Eurosystem claims to be neutral towards the different models for the cards market in Europe (slide 14) but then goes on to state that 'competition needs to be ensured':
• SEPA should mean more than two schemes....
• International card schemes and national schemes have a role to play

Now this leads to the following questions:
- how did the Eurosystem suddenly become responsible for competition issues...?
- why don't the competition authorities speak up to put the Eurosystem back in the monetary corner where they belong?

Cap Gemini World Payments Report 2006 is out and identifies the real issues at stake !

Download the Cap Gemini World Payments Report 2006 and find out that it is actually quite good. The consultants are not afraid to draw conclusions such as:
To preserve payments revenues, banks in Europe must improve their pricing strategies. Current pricing does not reflect banksÂ’ internal costs, and fails to provide incentives for consumers to use cost-effective payments solutions. Banks should be considering how to stimulate cost-effective means, such as electronic payments, at the expense of inefficient services like cash withdrawals and cheques. Banks should also consider introducing transaction-based pricing alongside fixed-fee packages.

And another good thing is that they stipulate the interrelatedness between the (very much delayed) work on the Payment Service Directive (PSD) and the implementation of EPC-standards. They clearly outline that without the PSD, introducing SEPA would be cumbersome, costly and useless. Their own observation:
The SEPA requires national legislative change, since it would be challenging, if not impossible, to launch SEPA products.
And the quote from outsiders:
But is the PSD really a prerequisite to the SEPA, anyway? Absolutely, according to EU Internal Market Commissioner Charlie McCreevy, who has said, "No Payments Directive, no SEPA".

Effectively, for insiders, this is quite an outspoken report. At present all resources in Europe are busy getting EPC-products in place and getting the Payment Service Directive finalized. And the Commission itself has already announced that January 1 2009 would be the earliest likely date for the implementation of the PSD. This makes one wonder why banks would want to rush in to meet a January 1 2008 deadline for EPC-products?

Why indeed...?

Let's look at the European central banks' project Target 2: that should have been ready well before 2008, but is delayed with about one year. And then the European Commissions' Payment Service Directive: should have been implemented in 2008, but my personal estimate is that 1, January 2010 is more likely (across Europe). Meanwhile EPC are still on track, getting ready for introduction/reachability of EPC-products by 1.1.2008, largely out of fear for further regulation.

Now what good is the use of introducing for example a cross-border direct debit for eurocountries on 1.1.2008 if - other than expected- there is no harmonised legal framework? The consequence is that each individual bank has to revise/analyze contract law in at least 12 countries to be able to offer the product as of 1.1.2008. And, on top of all, each time a member states implements the local PSD-regime, the banks must revise their relevant local contract terms accordingly. So that's about one contract change in 2 months on average during the years 2008-2009.

While theoretically speaking one would be right to argue that there are no legal impediments to stop banks from introducing EPC-direct debits as of 1.2.008 it is quite clear that such a thing would be a complete and utter waste of time and resources from a practical perspective. It is far better to await Europe-wide implementation of the PSD in 2010.

So another why occurs to me. Why is it that at the present moment in time such a delay in SEPA/EPC work would be the most welcome, efficient, socially optimal and (alas) unlikely outcome at the same time?

My guess is that there's quite a bit of tunnelvision and prestige involved in the SEPA and European project. As a result, it is quite unlikely that all those CEO's, Regulators, Commissioners, presidents in high places drop their prestige/image reasoning. They intend to bang the drum and hit banks with tough talk and are unwilling to reverse course as a matter of prestige. And their staff are not going to make them one bit smarter either: never disturb the dreamers at the top with real-life reality at the bottom. Because that will undoubtedly cost you your yearly performance bonus and your career. So staff is silent while top dogs dream on.

Ideally all involved policy makers and top dogs at E(S)CB and Commission would live up to the fact that they are being paid by all tax payers, and wake up one day with the courage to say to their own top dogs: we ourselves failed hugely in delivering our bit of SEPA (TARGET2/PSD) on time. So why demand from banks to maintain the old deadline and incur a bunch of useless investments? Any first year student in project management can explain why that is the most foolish thing to do.

Perhaps a final retoric exercise may help increase awareness and help all involved policy makers and top dogs to drop the prestige concerns.
1. Appreciate that it took more than 50 years to get with the EU where we are now.
2. Appreciate that building Europe is a long term institutional growth process.
3. In which all kinds of projects (such as getting a EU constitution agreed) face all kinds of delays.
4. And then ask yourself the many billion euro dollar question:
Why would we bother about 2 years delay in delevering a true European Payment Space?

Repeat steps 1 to 4 of the exercise until something begins to dawn in your mind.
Take a deep breath and proceed to:
5. Imagine that the year is 2030 and we look back in the history books. Grandchildren come up to old grandpa/grandma and ask about the good old time of fragmented domestic payments in Europe. Ask yourself the control-question:
Would any one of our grandchildren ever really care if we tell them that the EPC-work and SEPA started in 2010 and not in 2008?

6. Now experience:

Rest......

......peace........

........solution


Let us be reasonable, let us not stop the work on PSD, EPC-standards and Target2, but let us save ourselves a lot of energy/resources and let us delay the implementation of all market projects some 2 more years to the latest deadline of PSD-implementation in Europe (2010). So that we can tell our grandchildren proudly that in our time we significantly helped the customers and the public in Europe by putting common sense before prestige and delaying the SEPA-work to allow for smooth and cheap changeovers and market driven establishment of the Single Euro Payment Area.

P&S News: 38 Joint statement on SEPA

Most interesting log in the P&S News 38 is the link to the Joint statement from the European Commission and the European Central Bank. As I mentioned before on this blog, it is quite alarming to note that two EU institutions claim to be fully aligned on the topic of the future of payments in Europe.

Luckily there is this last frase that outlines that in this self chosen marriage, the European Commission lies on top:
The Commission and the ECB support to the greatest possible extent continued self-regulation by the industry, but given the importance and the size of the social and economic benefits of SEPA, the Commission expressly reserves the right to introduce or propose necessary legislation to achieve it.

Meaning: the Commission doesn't care any bit aboul all the banking industry stuff and ECB-bla bla. They will regulate, no matter what reality tells them. And as to the cost of this regulation (which will sooner or later end up in banks prices): they won't hesitate to blame it to the banks anti-competitive behaviour.

Is the discussion on critical mass for SEPA critical ?

In a uncanny demonstration of unity and shared vision, the European Central Bank and European Commission published this joint statement on the Single Euro Payment AREA (SEPA).

Essentially they applaud the work of the European Payments Council on SEPA but then go on to raise a warnnig finger:
The delivery of SEPA instruments is only the first step, since the introduction of the instruments as a mere cross-border payment solution would not result in a genuinely integrated market at the level of the Euro area. In particular, a critical mass of national credit transfers, direct debits and card payments should have migrated to SEPA payment instruments by the end of 2010.

Furthermore we read:
The Commission and the ECB support to the greatest possible extent continued self-regulation by the industry, but given the importance and the size of the social and economic benefits of SEPA, the Commission expressly reserves the right to introduce or propose necessary legislation to achieve it.

With the term critical mass the joint statement refers to a term that has been first used by the European Payments Council itself, in their April 05 press-statement:
We are also convinced that a critical mass of transactions will naturally migrate to these payment instruments by 2010 such that SEPA will be irreversible through the operation of market forces and network effects.

So the most critical discussion in the next years is about the understanding of the term: critical mass. Is it 2 %, 20 %, 80 %? Should this be calculated on a domestic level (at least 15 % in all euro countries) or is it already critical if some countries have irreversibly moved to epc-payments while others take their time (but are bound to follow, due to network effects....)?

And last but not least: does this topic have sufficient critical mass to interest the public whatsoever? Despite all the policy bla-bla most customers don't have a serious issue with their cross-border EU-payments. At least not since regulation 2560. So what's all this SEPA-fuss about anyway.