The road to nowhere?
On the road, the surface is laid, the traffic signs are set up - but where are the cars? At this point, they are still driving down the national roads. More than one year after the launch of the Credit Transfer ( ), only 2.0 per cent of total credit transfer volume in the euro area are transactions. At the current rate, migration to a situation where the Credit Transfer is used for a vast majority of credit transfers will take almost half a century.
How to make ends meet
Of course, this is not a realistic scenario. Migration to is expected to pick up this year, as the launch of the Direct Debit has been agreed and corporations and public administrations, which may bring critical mass to payments, can synchronise their changeover to the for both instruments. However, this expectation does not give enough planning certainty neither to the providers nor to the users of Credit Transfers and Direct Debits, and thus, necessary investments are shunned. Given the financial crisis, this is even truer today than it was a year ago, when the Credit Transfer was launched. The financial industry, but also the corporations, has to make ends meet - both literally and metaphorically.
Bridge over troubled water
There is consensus among most stakeholders that it is inefficient and costly to run two schemes in parallel for a prolonged period of time. Dual processing does not generate the economies of scale that the is able to deliver. As Mrs. Tumpel-Gugerell said , maintaining national instruments preserves fragmentation along national borders that the road is meant to bridge, and puts the integration of the European retail payment market at risk.
Already more than three years ago, the Eurosystem has argued that must be run as a project, with all the rigour that this implies. There are no projects without deadlines or end dates. Thus, it is not the question whether there is a need for a migration end date - the question is the "what", the "when" and the "how".
The "what" of the migration end date
The answer to the question what is meant by the migration end date has several dimensions. First, it needs to specify which payment instruments are concerned. Second, it needs to define the share of payments that has to be reached to qualify as critical mass. Last but not least, the target area needs to be identified, both geographically and functionally.
a) The instrument dimension (Two's company, three's a crowd...)
In the course of 2008, agreement has been obtained in the community that cards, being a different kind of vehicle, are outside the scope of the discussion of the migration end date. Thus, it has been established that the migration end date refers only to Credit Transfers and Direct Debits.
b) The quantitative dimension (... but how many account for critical mass?)
In previous publications of different stakeholders, the goal of the migration phase has been described as a situation where instruments are generally in use or where the critical mass of transactions has migrated to . However, it has turned out in the discussion of the migration end date that this description is not precise enough. For instance, national migration plans, if at all, use different definitions of critical mass. Ideally, the migration end date would imply that all national products based on credit transfers and direct debits are effected in a -compliant way, and that the national traffic links, the legacy applications and processes, can be decommissioned.
However, research and market surveys have established that this is not a realistic scenario, that there are a certain number of niche products that cannot be easily changed to -compliant solutions. According to Capgemini's World Payments Report 2008, these products, which cater for specific needs of specific user groups, make up less than 10 per cent of European non-cash transactions each year. Conversely, it may be assumed that at least 90 per cent of the overall payment volume can be processed in a -compliant way. Thus, the migration end date could be defined as a situation where at least 90% of the payments with the respective payment instruments are processed in accordance with the scheme rules.
c) The geographic dimension (Where will it end - part 1)
As the vast majority of payment transactions in euro are generated in the euro area, it is obvious that first and foremost, the migration end date needs to apply in all euro area countries. Ideally, non-euro area countries will adhere to the migration end date for their euro payments, too. New entrants to the euro area will have to adopt the migration end date subject to appropriate transition periods. Of course, individual countries will be free to set earlier migration end dates for their national communities.
Notwithstanding the focus of the migration end date on the euro area, it is indisputable that the as a project fostering European financial integration extends over 31 countries in Europe, and that all of them are relevant for the success of the project. In fact, many impulses on the integration of retail payments in Europe have come from non-euro area countries, and the share of transactions as a percentage of total euro transactions in some non-euro area countries is already considerable.
d) The functional dimension (Where will it end - part 2)
The focus of has been primarily on the bank-to-bank space. More recently, work in the customer-to-bank space has picked up. At the same time, stakeholders from the user domain have become increasingly involved in the debate, and the European Associations of Corporate Treasurers (EACT) have even issued a public statement on the need for a deadline by which the legacy systems will be deactivated.
This leads to the question where the migration responsibility will be placed: within the bank-to-bank sphere and/or within the customer-to-bank sphere. There is a strong link with the question of how the migration end date is set, i.e. whether by self-regulation, regulation by the ECB and/or regulation by the . Regulating the customer-to-bank sphere would only be possible by means of regulation, which would require some lead time. Thus, it may be reasonable to focus on the implementation of the migration end date in the bank-to-bank space first, without discarding the option for regulation in the customer-to-bank space as an additional means.
The "when" of the migration end date
In its 6th Progress Report of November 2008, the Eurosystem has called for the definition and communication of the decision on the migration end date in 2009. More particularly, the definition of the migration end date for the Credit Transfer should be finalised by June 2009 and the definition of the migration end date for the Direct Debit by December 2009.
There is no beginning without end - or end without beginning
There are diverging views whether there should be one common date for both instruments or two separate dates. Proponents of a common date have brought forward compelling technical, operational and economic reasons, while supporters of two separate dates argue that the phasing out of legacy direct debits can only be considered after the successful launch of the Direct Debit. A compromise solution may be to focus first on the definition of the migration end date for the Credit Transfer, without excluding the possibility that the migration end date for the Direct Debit may be set to the same date at a later stage.
2010, the original date envisaged by the for reaching a critical mass of transactions to migrate to the , seems difficult to reach by now. Thus, a new date, which is both ambitious and realistic, needs to be set. The normal investment cycle of 3 to 5 years and also the timing for the end of the transitional regime for the Direct Debit, suggest that discussion on the migration end date may focus on a date at the end of 2012 or beginning of 2013. The exact date will be evaluated and discussed between the , the Eurosystem and the European Commission and include appropriate consultation of the stakeholders.
The migration end date should be perceived as the latest possible date for a national community to finalise its migration. Self-evidently, individual communities are free to set an earlier migration end date.
The "how" of the migration end date
With the establishment of the in 2002, has been introduced by means of self-regulation. This self-regulatory model has been largely successful in the design phase. However, due to the high number of entities involved and the different authorities responsible at national level, it may reach its limits when it comes to implementing strict deadlines. Thus, a growing number of stakeholders have been asking for a migration end date by regulation. In its resolution of 12 March 2009 on the implementation of the , the European Parliament called on the Commission to set a clear, appropriate and binding end-date, which should be no later than 31 December 2012, for migrating to instruments.
Self-regulation has the advantage that it can be adopted faster than regulation by the ECB and/or the . For immediate action, a complementary approach could be envisaged. As stated in the 6th Progress Report of the ECB, the , the European Commission, the ECB, in consultation with the national committees, the national anti-trust authorities and the NCBs, are responsible for defining the Credit Transfer and the Direct Debit migration end date by the end of June and the end of December 2009 respectively. This means that by the publication of the next Newsletter, the Credit Transfer migration end date will have to be fixed and communicated, providing more planning certainty to all stakeholders.
All is well that ends well
Bringing the to completion remains an attainable goal. Setting the migration end date is one of the necessary steps to be taken on the road to one single domestic euro payments market. There is no real beginning for without an end date.
Wiebe Ruttenberg is Head of the Market Integration Division in the Directorate General Payments and Market Infrastructure of the European Central Bank. Monika Hempel is Expert in the Market Integration Division of the European Central Bank.
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