A thorough factual analysis of the European Union payment landscape is a prerequisite for any conclusion that further regulatory action to promote market integration may be required
In January 2012, the European Commission (the Commission) published its Green Paper 'Towards an integrated European market for card, internet and mobile payments' for a three month consultation. The aim of the Green Paper, according to the Commission, is to identify the obstacles that potentially prevent integration in this area. The Commission stated that the contributions to the consultation will determine the need for European Union (EU) action on the various issues raised in the Green Paper and the form this action should take. On the basis of the feedback received, the Commission will announce the next steps by the second quarter of 2012. The Commission further indicated that proposals, if applicable, will be adopted by the fourth quarter of 2012 or the first quarter of 2013. (See the Commission's 'Frequently Asked Questions' under 'related links' below).
The European Payments Council () published its response to the Green Paper in April 2012. The detailed response of the to the 32 questions tabled by the Commission with the Green Paper is set out at the end of this article (see 'related links' below).
The regrets that the Green Paper seems to overlook major market achievements to date to progress the Single Euro Payments Area (), e.g. development and launch of Credit Transfer () and Direct Debit () Schemes, publication of the Cards Framework (SCF) and the Cards Standardisation Volume - Book of Requirements. Migration to EMV chip and personal identification number (PIN) for face-to-face card transactions is nearly completed. More generally, the market is witnessing a spectacular growth in card transactions and contributions to the development of an integrated mobile payment (m-payment) ecosystem.
The does not support a number of assumptions and suggestions put forth in the Green Paper concerning 'gaps' perceived by the Commission with regard to competition, choice, innovation and other 'market integration drivers'. Consequently, the believes that many of those suggestions will not help achieve the objectives defined in the Green Paper and may even undermine their realisation. A thorough factual analysis of the payment landscape is however, a prerequisite for any conclusion that further regulatory action may be required. This analysis should recognise the following market realities:
- Europe is not a fully integrated market in terms of economic development, cultural background, customer preferences or regulatory framework. This is clearly reflected in the current diversity of payment systems and usage patterns that continues to exist across Europe.
- Europe and its payment markets cannot be considered in isolation as they are part of an increasingly integrated global economy, due to the fact that:
- European citizens travel and spend outside Europe.
- Non-European citizens travel to and spend in Europe.
- International trade occurs between Europe and the rest of the world.
- The European payment industry is competing with non-European competitors within Europe and the global marketplace.
- Electronic commerce, which is the fastest growing retail payment segment, has a global dimension.
- Many global standardisation initiatives exist in the field of payments.
The project, with its underlying and legitimate goal of European market integration, needs to be balanced with the above economic realities.
The does not share the views of the Commission expressed in the Green Paper concerning the perceived lack of progress on m-payments and e-commerce
The interoperability for m-payments is not in a 'stalemate' as stated in the Green Paper, but in an emerging state. The has made considerable efforts to facilitate and engage with other stakeholders to help create solutions for interoperable m-payments. While m-payment schemes already exist today, the ecosystem is still considered as an emerging payment channel across the world as well as in Europe. Any such early stage of market development is characterised by numerous and diverse innovative initiatives and pilots.
Payments do not act as a main barrier to the development of e-commerce otherwise e-commerce would not have experienced continuous fast growth as evidenced by several market studies. The 'Consumer market study on the functioning of e-commerce and internet marketing and selling techniques in the retail of goods' prepared on behalf of the Executive Agency for Health and Consumers (EAHC) (see 'related links' below) lists consumers' greatest concerns about buying products online in another country. The study finds that none of these top five concerns relate to payments (see figure 1). The EAHC performs the tasks and activities entrusted to it by the Commission, and it works closely with the Commission's Health and Consumers Directorate General1.
Figure 1: Consumer Survey - What are your greatest concerns about buying products online in another country?
Source figure 1: Consumer market study on the functioning of e-commerce and internet marketing and selling techniques in the retail of goods' (Executive Agency for Health and Consumers).
It is incorrect to state that e-commerce has made slow progress. This market is, and has been, growing with double digit growth rates continuously. This is not least because of the provision of many well accepted payment solutions by payment service providers in general (card payment on the internet, online banking based payment solutions, wallet solutions, etc.). The has developed a draft framework for the interoperability of e-payment schemes in Europe - seeking to leverage Europe's base of online banking users in a secure, efficient and cost effective way. A public consultation on this draft framework was however suspended as a result of the antitrust investigation, launched by the Commission against the 's work in the area of -wide online payments (see also related press release of 27 September 2011 under 'related links' below).
The position paper on 'Online Payments in Europe', published in June 2011 by the e-Payments Merchant Initiative (see 'related links' below), highlights the fast development of e-commerce in Europe. This position paper states: "In the past 15 years e-commerce has become a mature market and is still growing. This trend is expected to continue in the coming years due to the further proliferation of mobile devices (smartphones, tablets) and the customer need of 'being always online'. Following this market success, e-commerce payments have become a major challenge in the past decade. The vibrancy and innovation of payments is resultant from imperfections in the European payments landscape. These imperfections bring opportunity to create new more efficient methods to consumers and merchants. Many positive developments have taken place to optimise payments for the web. Innovation has seen traditional payment methods come under pressure as consumers and merchants migrate to more convenient and efficient and secure payment methods. [...] Allowing free market forces, to drive the evolution in the European payments landscape is the best possible way of moving to a more perfect model."
The report 'European Cross-border E-commerce - The Challenge of Achieving Profitable Growth' (Accenture; see 'related links' below) reveals that fragmentation of payment systems does not rank within the top 15 issues having an impact on EU cross-border online trading.
Key policy considerations
The response to the Green Paper outlines key policy considerations which, in the view of the , should be observed when determining the need for action to address 'gaps' perceived by the Commission with regard to competition, choice, innovation and other 'market integration drivers'.
- The societal cost of cash and the societal benefit of migration to electronic payments are largely ignored by the Green Paper, whereas the active promotion of non-cash means of payment would significantly contribute to the achievement of the objectives pursued by the Green Paper.
- Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace.
- Regulation risks stifling innovation and market participants-led standardisation initiatives.
- Regulation is not suited to keeping pace with the fast evolution of technology, fraud and market developments. As a matter of principle, any regulatory action should be technology-neutral.
- Ensuring a level playing field for all players active in the European marketplace from a competitive, regulatory and supervisory perspective must be a public policy priority.
- Payments should be run as a business in a market economy (subject to competition, profitability and compliance with all applicable legislation).
- Legal clarity and certainty at level is a critical prerequisite for creating a stable and predictable wide environment for investments in new payment initiatives and innovation - e.g. interchange fees.
- Integrity and customer trust are key in payments and should not be compromised.
- End user interests should be properly balanced with a particular focus on ensuring tangible benefits for consumers.
Any regulatory initiative should be supported by a thorough impact assessment and subject to a comprehensive public consultation and appropriate implementation schedules.
Gerard Hartsink is the Chair of the .
Related articles in this issue:
Related articles in previous issues:
Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate. Seeking common ground between policy-makers and technical experts ( Newsletter, Issue 13, January 2012)
The Economy of Standards: the 'Pros' and 'Cons' of Standards Competition. An introduction to a comprehensive qualitative efficiency comparison using the example of payment cards ( Newsletter, Issue 12, October 2011)
Arrested Development. Inconsistencies between European Commission´s objectives threaten to hamper SEPA progress ( Newsletter, Issue 11, July 2011)
A Closer Look at Innovation in Retail Payments. Central bank research in preparation: a report on first findings of working group established by the Committee on Payment and Settlement Systems ( Newsletter, Issue 11, July 2011)
Dare to be Bold: Electronic Legal Tender is an Option A SEPA legal tender model spanning both cash and electronic payments ( Newsletter, Issue 10, April 2011)
Innovacompegration (This is Not a Typo). Reflections on the best approach to innovation, integration and competition in payments ( Newsletter, Issue 10, April 2011)
1Executive Agency for Health and Consumers Website: http://ec.europa.eu/eahc/about/about.html.
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