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Dare to be Bold - A SEPA Legal Tender Model Spanning Both Cash and Electronic Payments Viewed 6356 times

06-09-2011 By Norbert Bielefeld, Deputy Director - Payment Systems with the European Savings Banks Group (ESBG)

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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Previous entries

10.03.15EPC and Cards Stakeholders Group Release Version 7.05 of the SEPA Cards Standardisation Volume for Public Consultation – All Interested Parties are Invited to Provide Feedback by 5 June 2015

26.02.15SEPA Compliance in the Euro Area: Get Ready for February 2016. Act Now

10.02.15European Payments Council 2.0: the EPC Has Adapted its Structure to Further Enhance Governance and Stakeholder Involvement

26.01.15EPC Publishes the SEPA Direct Debit (SDD) Core Rulebook Version 9.0 and SDD Business to Business Rulebook Version 7.0 to Take Effect in November 2016

12.01.15European Union Regulatory Initiatives Impacting the Security of Euro Payments: the 2015 Outlook

09.12.14Update on Work Items Addressed by the Euro Retail Payments Board (ERPB) Chaired by the European Central Bank: SEPA Credit Transfer, SEPA Direct Debit, Instant and Mobile Payments

25.11.14EPC Publishes Updated Versions of the SEPA Credit Transfer and SEPA Direct Debit Rulebooks to Take Effect in November 2015

06.11.14Next Steps to Create the Digital Single Market: E-invoicing Continues to Grow Spurred on by Public Policy and the Accelerating Dynamics of E-business

23.10.14The New European Commission: a Closer Look at President Juncker’s Vision for the EU Internal Market and Economic and Monetary Union

30.09.14The New European Commission is Expected to Take Office on 1 November 2014. A Recap of the Role of the European Commission in the Evolution of SEPA Credit Transfer and SEPA Direct Debit

18.09.14Next Steps in the Area of Online Payments: Is Europe Ready for e-Identity?

28.08.14Learn More About Work Items Related to SEPA Credit Transfer and SEPA Direct Debit to be Addressed by the New Euro Retail Payments Board (ERPB) Chaired by the European Central Bank

07.08.14Summer Reading: Food for Thought on the Future of European Payments, Contributed to the EPC Newsletter by Experts Representing Various Market Segments

17.07.141 August 2014 Does Not Mark the End of the Migration Process. Get Ready for SEPA 2016. Act Now

01.07.14Participate in New EPC Poll: In Your View, Which Regulatory Initiatives Will Have the Greatest Impact on the European Payments Market Going Forward?

12.06.14PSD2: EPC Calls on EU Lawmakers to Maintain the Firewall Protecting Consumers Making Internet Payments. This Means: No Sharing of Any Personalised Security Credentials with Third Parties

19.05.14EPC Launches Three-Month Public Consultation on the Evolution of the SEPA Credit Transfer and SEPA Direct Debit Schemes. All Stakeholders are Invited to Provide Feedback by 15 August 2014

06.05.14Join the Debate on the Further Evolution of the SEPA Credit Transfer and SEPA Direct Debit Schemes: Less Flexibility, More Harmonisation? An Overview of the Options, Variations, Exceptions and Exemptions Possible in SEPA Today

15.04.14PSD2: The New Article 67, (‘Refunds for Payment Transactions Initiated By or Through a Payee’), Proposed by the European Commission Risks Undermining Consumer’s Unconditional Refund Right for Direct Debits Included with the SEPA Direct Debit Core Scheme

25.03.14PSD2: EPC Identifies Considerable Scope for Amendments of the Proposed New Set of Rules Related to the Activity of Third Party Payment Service Providers Offering Payment Initiation or Payment Account Information Services