On Innovation: What the European Union Could Learn from Apple and Face...

On Innovation: What the European Union Could Learn from Apple and Facebook

Reflections on the evolution of SEPA in the new regulatory reality governing the euro payments market

13 July 12

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Gerard Hartsink on the future evolution of : "The has no choice but to recognise that the expertise of payment experts employed by the banking industry may come second to the requirements defined by the European Union legislator and the European Commission."

Gerard Hartsink, Chair of the European Payments Council () since 2002, recently commented in an Blog (see first 'related link' below): "I suppose we can all agree on this: European integration is not for the faint hearted. It requires the ability to remain focused on the long-term objectives. The process aimed at creating the Single Euro Payments Area () is one such European Union (EU) integration initiative which has frequently challenged all involved to keep their cool while navigating troubled waters." With regard to the adoption of the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfer and direct debit schemes in euro' (the Regulation), he added: "The good news is that the EU legislator at long last creates the regulatory conditions required to bring to its successful conclusion."

Having steered the industry, together with Vice Chair Claude Brun, through a decade of in the making, this visionary however has no time to kick back and marvel at great achievements. True to form, he remains focused on next steps. Analysing upcoming initiatives scheduled by the European authorities to impact euro payments, Gerard Hartsink clarifies: "The order of the day is to stay engaged in the debate."

  • With adoption of the Regulation, the legislator empowered the European Commission (the Commission) to amend the technical requirements set out in the Annex to the Regulation through so called 'delegated acts', "in order to take account of technical progress and market developments" (Article 13). The Credit Transfer () and Direct Debit (SDD) Schemes will have to comply with the technical requirements as determined by the Commission.
  • In January 2012, the Commission published its green paper 'Towards an integrated European market for card, internet and mobile payments' for consultation. According to the Commission, the contributions to the consultation will determine the need for EU action on the various issues raised and the form this action should take.
  • Commissioner Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy, delivered a series of speeches in late 2011 and early 2012 outlining the Directorate General (DG) Competition's vision for an integrated and innovative euro payments market. Commissioner Almunia stated: "Our purpose (...) is to ensure that new challengers can operate on the markets and provide sufficient alternatives to industrial customers, and ultimately consumers. This has the double effect of promoting the innovative solutions often brought by the newcomers and of forcing the incumbents [banks] to respond in kind."1 The Commissioner added: "New actors are willing to do what the banks are slow to deliver; they are ready to provide innovative and more efficient payment solutions."2 Commissioner Almunia pointed out that, in his view, "Europe-wide electronic payment services are underdeveloped. (...) We need a mix of regulatory actions and competition-policy enforcement to dismantle old-fashioned ways of working and make room for innovative, pan-European payment services to the benefit of all economic operators in Europe."3

For comment on the perceived lack of innovation in the euro payments market alleged by the Commission, refer to 'related articles' below and the article ' Response to the European Commission Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments' in this edition of the Newsletter. The bottom line relevant here, in light of the new regulatory reality, was concluded by Gerard Hartsink: "The has no choice but to recognise that the expertise of payment experts employed by the banking industry may come second to the requirements defined by the EU legislator and the European Commission as regards the debate on the evolution of the payment schemes." He also stressed the continued commitment of the sector to the vision and clarified: "The banking industry looks forward to exchanging views with all stakeholders and the European Commission on the future of ."

Henry Ford on innovation: "If I would have asked my customers what they wanted, they would have told me: 'A faster horse.'"

In a previous article reflecting on the best approach to innovation, integration and competition in payments ('Innovacompegration - This is not a Typo', see 'related articles' below), the following definition was provided: 'Innovation is the multi-stage process whereby organisations transform ideas into improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace.' It is now up to the institutions to define the most appropriate way to create innovative payment solutions. Upon assuming this responsibility, the institutions may wish to take a closer look at the principles followed by innovation leaders who have demonstrated the ability to accurately assess future customer needs. The analysis in this article focuses on the approach adhered to by Apple (the world's most valuable company) and Facebook (close to a billion users globally).

Henry Ford, by the way, was determined to build a simple, reliable and affordable car at a time when most models were complicated machines which required a chauffeur familiar with its mechanical nuances to drive it. Consequently, the privilege of owning a car was reserved to the very affluent. Henry Ford's vision resulted, in 1908, in the invention of the Model T and the assembly line - two innovations that revolutionised American society and shaped the world we live in today.4

Steve Jobs on Apple: "It is not about convincing people that they want something they do not. We figure out what we want. And I think we are pretty good at having the right discipline to think through whether a lot of other people are going to want it, too."5

Sharing insight on 'The Apple Way',6 Steve Jobs highlighted the following principles as essential to product imagination:

  • Risk failure: "If [artists] keep on risking failure, they are still artists. Dylan and Picasso always risked failure. The Apple thing is that way for me." "When we create stuff, we do it because we listen to customers, get their inputs and also throw in what we would like to see, too. We cook up new products. You never really know if people love them as much as you do."
  • Think different: "Here's to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They are not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can't do is ignore them. Because they change things." (1997 Apple ad in the 'Think Different' Campaign.)
  • Gamble: "We are gambling on our vision, and we would rather do that than make 'me, too' products. Let some other companies do that. For us, it is always the next dream."
  • Cultivate interdisciplinary talents: "Leonardo da Vinci was a great artist and a great scientist. Michelangelo knew a tremendous amount about how to cut stone at the quarry. The finest dozen computer scientists I know are all musicians." "It is in Apple's DNA that technology is not enough. That it is technology married with liberal arts, married with the humanities, that yields us the results that make our hearts sing."
  • Be passionate: "Unless you have a lot of passion about this, you are not going to survive. You are going to give it up. So, you have to get an idea or a problem or a wrong that you want to right that you are passionate about; otherwise you are not going to have the perseverance to stick it through."
  • Communicate with feeling: "We do not stand a chance of advertising with features and benefits and with RAMs and with charts and comparisons. The only chance we have of communicating is with feeling."
  • Do not rest on laurels: "I think if you do something and it turns out pretty good, then you should go and do something else wonderful, not dwell on it for too long. Just figure out what's next."
  • Drop some acid (once) and join an ashram: "I do not believe that Microsoft has transformed itself into an agent for improving things, an agent for coming up with the next revolution. (...) I just think he [Bill Gates] and Microsoft are a bit narrow. He would be a broader guy if he had dropped acid once or gone off to an ashram when he was younger."
  • Be Zen: "It places value on experience versus intellectual understanding. I saw a lot of people contemplating things but it did not seem to lead to too many places. I got very interested in people who had discovered something more significant than an intellectual, abstract understanding."

If the authorities were to follow the 'Apple Way' aimed at pushing the market towards what Steve Jobs would have termed 'the next big thing' in payments, related action would certainly be a lot of fun to comply with. At a minimum, such action should continue to allow innovators to pursue this route. Regulatory intervention aimed at fostering innovation should therefore refrain from limiting the freedom required to be creative.

Mark Zuckerberg on Facebook: "Our mission is to make the world more open and connected. Making the world more open means more information and perspective is available. Making the world more connected means people are exposed to more of those perspectives through the connections they are able to maintain. That is why I love what we are doing."7

Brian Solis, a leading analyst of the effects of emerging media, commented in Time magazine: "The way Mark Zuckerberg runs Facebook is reminiscent of the way Steve Jobs ran Apple. It's 'We're not going to wait for customers to tell us what they want. We're going to introduce what we think is in their best interest, and they will learn to love it.'"8 "The social network," continues Brian Solis, "is only as valuable as the engagement that is fostered within it. The network has to constantly reinvent itself so people feel compelled to come back, and more importantly, to share more about themselves than they had thought of or felt comfortable doing so in the past."

Mark Zuckerberg, founder and CEO of Facebook redefined the way close to a billion people socialise online. The most distinctive feature of the network, he commented, is that "it is never done". Consequently, Mark Zuckerberg and his programmers never stop recreating the platform. In the process, he is prepared to take his chances or, as Steve Jobs would have put it, 'gamble' on the outcome. This includes bearing the wrath of users when rolling out new functionality, such as features which determine users' Facebook experience. To give an example of the principle: Facebook recently sent shock waves through its universe with the introduction of the new 'Timeline' page motif "which is a complete rewiring of the way Facebook works. (...) A new survey of Facebook users by security firm Sophos found that of the more than 4,000 users polled, 83 percent had negative feelings about the timeline change. (...) Facebook is [however] betting that we'll come around to Timeline (..). Even the site's most loyal adherents have a track record of hating its new features, only to later declare that Facebook would be unrecognisable without them."9

Analysts point out that, according to consumer surveys, the result of this Facebook operating principle is that the network is perceived as increasingly arrogant.10 This image would however not necessarily prevent Facebook from becoming a "gigantic business", The Economist points out. "Research also shows that Apple is perceived as arrogant, but that has not stopped people treating its products with almost religious reverence." On 1 February 2012, Facebook announced plans for an initial public offering (IPO) which, according to The Economist, "will raise five billion US dollars, maybe more, in the largest flotation ever of an internet company."

Steve Jobs on listening to customers: "We make tools for people. Some things are good in a product, some things are bad. If the market tells us we are making bad choices, we will make changes."

It was stated above that "the way Mark Zuckerberg runs Facebook is reminiscent of the way Steve Jobs ran Apple. It's 'We're not going to wait for customers to tell us what they want. We're going to introduce what we think is in their best interest, and they will learn to love it.'" (Brian Solis). policies affecting 500 million citizens are created based on exactly the same principle. The difference is that people love Facebook (232,835,740 users in Europe at end March 2012) and Apple.

The general willingness of policy-makers to advance the best interests of their 500 million fellow citizens is not called into doubt. The question however, is whether citizens actually share the views of the authorities on the matter. Available data on public perceptions of the reflects the nature and intensity of the relationship between Europeans and the institutions. The Commission regularly publishes data on public opinion in the identified with surveys conducted on behalf of the Commission. The 'Eurobarometer 76' (see 'related links' below) includes the following findings:

  • 34 percent of Europeans have trust in the EU.
  • 32 percent of Europeans have trust in the Council of the European Union representing EU Member States; 36 percent of Europeans have trust in the Commission; 40 percent have trust in the European Central Bank and 41 percent have trust in the European Parliament. Trust in the four main EU institutions has followed a downward trend since the fall of 2009.
  • 31 percent of Europeans have a positive image of the EU. This constitutes a significant drop from the 52 percent figure in September 2007.

European public opinion surveys on the activities and role of the European Parliament, which is the only European institution whose members are elected by direct universal suffrage, are published in the 'Parlemeter' (see 'related links' below). The latest Parlemeter finds that "the institution's image has deteriorated. It is struggling to convince EU citizens of its dynamism and above all its capacity to listen to their expectations." Results show that:

  • 31 percent of Europeans consider that they are well informed about the activities of the European Parliament.
  • 35 percent of Europeans consider that the expression 'listening to European citizens' is an apt description of the European Parliament (and only 4 percent say it describes the European Parliament 'very well').
  • 39 percent of Europeans consider that the European Parliament can be described as 'dynamic'.

Voter turnout for the election of the European Parliament has declined continuously since the European Parliament was first directly elected in 1979; with only a 43 percent turnout at the last election in 2009.

This data shows that the institutions seem to operate in a realm which is rather removed from the general populace. Close dialogue with market participants is however the precondition to accurately assess market needs and, consequently, create innovative tools which resonate with market participants. This dialogue, as Steve Jobs pointed out, involves not only listening. Responsiveness, in the form of a willingness to adapt a preconceived course of action based on feedback gathered, is also required.

2.0: how will action help get us there?

Early movers on the demand side including corporates, public administrations and government agencies confirm that migration to the Schemes and technical standards generates tangible benefits (see case studies under 'related articles' below). Open and inclusive processes are currently in place, which encourage all stakeholders to engage and ensure that the schemes continue to evolve in line with market needs (see ' / SDD Rulebook Release Management and Scheme Development' under 'related links' below). According to the Indicators (see 'related links below') compiled by the European Central Bank, some 25 percent of all credit transfers processed in the euro area in February 2012 were SCTs. is kicking in and it is working. When considering further regulatory action aimed at shaping the next phase of , it is proposed that the EU authorities take this market reality into consideration.

This author also maintains that innovation should ideally be left to market forces to ensure that only those initiatives which meet market demand are the ones that survive. On this note, it should be kept in mind that Apple was founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne, to sell the Apple I personal computer kit, which was hand-built by Steve Wozniak. The idea for Facebook evolved after Mark Zuckerberg, love sick and with nothing else to do, brought down the Harvard computer network hacking away with his college buddies one night. Both initiatives succeeded to outperform giant market incumbents without regulatory intervention to "dismantle old-fashioned ways of working and make room for innovative" services (Commissioner Almunia).

Taking into consideration however, that the authorities seem determined to intervene with regard to innovation in the euro payments market, some fresh ideas on the part of the authorities on how to assess market needs could be helpful. The data on public perceptions of the institutions cited above indicates that the processes currently deployed by the to engage with and identify the general interests of its stakeholders might deserve to be revisited. Without meaningful interaction between the authorities and citizens, there is a risk that the authorities will define solutions in search of a problem rather than the other way around.

In addition, all market participants obliged to adapt systems and operations with the technical requirements applicable to the and SDD Schemes as determined by the Commission, would greatly appreciate it if the regulators were able to make specific information on the principles and timelines governing the further evolution of the Schemes available. To date, the Commission remains silent on the matter. Surely, some sort of plan is in place?

End note

The institutions rightfully expect all European constituents, including payment service providers, to support diversity of opinion, regularly perform a critical self-assessment and demonstrate the willingness to change if the general interests of the so requires. The author is confident that the institutions welcome an open and public dialogue on policies, including the procedures established to define these. The aim of commentary in this newsletter is always to contribute to constructive dialogue among all stakeholders on how to jointly generate the best possible solutions.

Javier Santamaría represents Banco Santander. Banco Santander is a member of the European Payments Council.

Related links:

EPC Blog: The 2012 Euro Payments Outlook. By Gerard Hartsink (December 2011)

EPC Blog: SEPA 2.0. The New Regulatory Reality Governing the Integration of the Euro Payments Market. By Gerard Hartsink (February 2012)

EPC Blog: SEPA for All - What Customers Want. The EPC Shares Lessons Learnt with the European Commission on How to Align SEPA Payment Schemes with Proven Market Needs. By Javier Santamaría (November 2011)

EPC Blog Series: Get Ready for SEPA by February 2014. Early Movers on the Customer Side Share Lessons Learnt

EPC Consultations: the EPC Invites all Stakeholders to Participate in Public Consultations on EPC Deliverables

EPC Website: SCT / SDD Rulebook Release Management and Scheme Development

EPC Publication: Shortcut to Who Does What in SEPA?

Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009

European Commission: Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments' - Frequently Asked Questions

Speech Commissioner Joaquín Almunia: Unleashing Europe's Potential for Growth: The Role of Competition Policy (1 December 2011)

Speech Commissioner Joaquín Almunia: A Fair and Open System for Payments in the Single Market (14 December 2011)

Speech Commissioner Joaquín Almunia: Competition Policy and Growth (28 February 2012)

European Commission: Eurobarometer 76 - Public Opinion in the European Union (December 2011)

European Parliament: Parlemeter EB74.3 (April 2011)

European Central Bank SEPA Indicators

Related articles in this issue:

EPC Response to the European Commission Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments'. EPC identifies key policy considerations with regard to potential European Union initiatives impacting the euro payments market

Villeroy & Boch: 'The Long Term Benefits of SEPA Exceed the Short Term Efforts to Get There.' The group completed migration to SEPA Credit Transfer in 2008 and migration to SEPA Direct Debit in 2011

EPC Scheme Change Management: Annual Public Consultation Starts in May 2012. All stakeholders are invited to provide feedback on possible changes to the SEPA payment schemes

Challenges and Opportunities: 'The Social Media in Payments Report 2012'. Latest research provides insight on the industry's approach to new digital communication channels

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 New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'. SEPA Regulation empowers the European Commission to mandate technical requirements applicable to SEPA payment schemes ( Newsletter, Issue 13, January 2012)

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)

Innovacompegration (This is Not a Typo). Reflections on the best approach to innovation, integration and competition in payments ( Newsletter, Issue 10, April 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)

Newsletter articles published in the section 'SEPA Case Studies' highlighting successful migration projects of bank customers

Newsletter articles published in the section 'Fringe Observations on SEPA'



1Speech by Commissioner Joaquín Almunia titled 'Unleashing Europe's Potential for Growth: The Role of Competition Policy'. See 'related links' with this article.

2Speech by Commissioner Joaquín Almunia titled 'A Fair and Open System for Payments in the Single Market'. See 'related links' with this article.

3Speech by Commissioner Joaquín Almunia titled 'Competition Policy and Growth'. See 'related links' with this article.

4EyeWitnesstoHistory.com - http://www.eyewitnesstohistory.com/ford.htm.

5All quotes by Steve Jobs from: George Beahm (Editor), I, Steve. Steve Jobs in his own words. (Hardie Grant Books, 2011).

6See also: Jeffrey L. Cruikshank, The Apple Way: 12 Management Lessons from the World's Most Innovative Company (New York: McGraw-Hill New York, 2006).

7Entry on Mark Zuckerberg's Facebook page (21 January 2012).

8Time Magazine, This Is Your Life (According to Your New Timeline). What Facebook's new profile page tells us about the battle for control over the Internet. 13 February 2012.

9Ibid.

10The Economist: The Value of Friendship. Facebook is likely to become a gargantuan company. That will bring risks as well as rewards. February 4th to 10th 2012.



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