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Dare to be Bold - A SEPA Legal Tender Model Spanning Both Cash and Electronic Payments Viewed 6988 times
The author serves as a member of various EPC bodies including the EPC Cash Working Group. The ESBG is a member of the EPC. The views expressed in this blog are those of the author and may not necessarily represent the views of all ESBG members.
Key strategic initiatives launched by European Union (EU) policy makers in the past decade - including the 2010 Lisbon Agenda, the Europe 2020 Strategy, the Digital Agenda for Europe and the Single Euro Payments Area (SEPA) programme - imply that migration to electronic payments is a key objective. If this is truly as important to policy makers as they state, then they should ensure that there is coherence across agendas. This is essential when it comes to the use of cash as a payment instrument.
The European Commission recommendation outlining ten guiding principles clarifying the scope and effects of the legal tender of euro cash is one example which illustrates prevailing inconsistencies in public policies. This recommendation, adopted in March 2010, forcefully asserts the position of physical cash (banknotes and coins) as legal tender. It also artificially inflates further the perceived value of cash as a payment instrument in scope, to the detriment of a broader use of those electronic instruments which will ensure Europe's competitiveness in the wider economy. The recommendation contradicts the strategic objective defined by EU policy makers to incentivise a shift to electronic payment instruments, which aims to reduce the societal costs resulting from the use of cash today.
Latest data predicts that over the coming decade Western Europe will see the slowest growth of non-cash payments volumes of any region globally. Contradictory EU policies will exacerbate the negative effects of this development on Europe's relevance in international standardisation bodies, its influence on providers of payment solutions and ability to transact more efficiently.
A forward looking solution could however be rather close. Europe's payment systems have proven that they are secure and reliable and they are certainly well overseen. The Payment Services Directive (PSD) adopted by most EU Member States in November 2009 has provided for much enhanced consumer protection for non-cash payment instruments. Both the PSD and the new e-Money Directive allow for quality competition. Bancarisation (the number of people holding a bank account) is almost complete (acknowledging that a very small percentage of the population would not hold an account under any circumstances). The two Directives referred to above provide solutions which cater to these exceptions, thus ensuring access to convenient and secure means of payment for all segments of society. These assets and developments pave the way for a SEPA legal tender model spanning both cash and electronic payments which would notably fully transpose the principle of ‘indifference' between payment instruments so often referred to by policymakers. In such a model, either discounting or surcharging for the use of any payment instrument would be allowed, in order to enable genuine competition in the marketplace. Merchants would no longer be compelled to accept high denomination banknotes, and the quality of legal tender would be awarded to any SEPA payment instrument.
A bold proposal? Not any bolder than the proposals which have brought the EU forward since the Treaty of Rome. What are we waiting for?
Join the discussion and share your comments. For more information and related links, please view the article ‘Dare to be Bold: Electronic Legal Tender is an Option' in the EPC Newsletter.
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10.07.15Update on outcomes following the Euro Retail Payments Board’s third meeting: Instant Payments in Euro, Person-to-Person Mobile Payments, Technical Standards Related to Payment Cards and E-invoicing Payment Issues