In January 2012, the European Commission (the Commission) published its Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments' (see ‘related links' below). The Green Paper, whose main authors are the Commission's Directorate Generals (DG) Internal Market and Services and Competition, claims to analyse "the obstacles which hinder European market integration in these promising payment technologies." Commissioner Michel Barnier, in charge of the DG Internal Market and Services, said: "Europe has an opportunity to be at the cutting edge of what ‘making a payment' could mean in the future. However, we will not be able to reach this goal with the current level of market fragmentation." According to Joaquín Almunia, Vice President of the Commission responsible for Competition Policy, today's "inefficient payment systems" within the European Union (EU) unduly "undermine the global competitiveness of the European economy and limit its potential for growth. Europe's consumers, merchants and companies deserve payment services in tune with the 21st century: transparent, with genuine value added and making the best use of our technologies." (See the Commission's press release under ‘related links' below). It is expected that the Commission will communicate shortly whether it sees the need for EU action to address ‘gaps' it perceives with regard to competition, choice and innovation in the area of card, mobile and internet payments.
The does not support a number of related assumptions and suggestions put forth in the Green Paper. Consequently, the believes that many of those suggestions will not help achieve the objectives stated in the Green Paper and may even undermine their realisation. For details, refer to the Blog ‘More Action Impacting Payments in the Pipeline? Responds to the European Commission Green Paper on Card, Internet and Mobile Payments' (see ‘related links' below). From the perspective of market participants both on the demand and the supply sides of the payments market, the Commission's analysis of the state of affairs in 2012 regarding integration of, and innovation within, the euro payments market is surprising. Latest developments have generated a host of innovative solutions taking advantage of rapid technological progress in the areas of card, internet and online payments. As a result, the market is witnessing a spectacular growth in card transactions and contributions to the development of an integrated mobile payment ecosystem. Contrary to assumptions put forward with the Green Paper, 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 Green Paper also seems to overlook major market achievements to date, to progress the Single Euro Payments Area ().
The generally recognised definition relied upon in the academic and market debate, states that "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."*** This author maintains that innovation will disappear without the right incentives, due to the effort and resources required to transform a new idea into a product or solution. Innovation in payments is driven forward on a daily basis by tens of thousands of product managers and developers in the European payments industry seeking to design the most competitive offerings to consumers and corporate customers. In the past twelve years, i.e. since the launch of the programme, thousands of new products have gone to market to facilitate, for example, automatic currency conversion, faster payments, auto conversion of message standards and expedited opening of bank accounts abroad. Other major innovations in the recent past include the roll out of sophisticated and secure electronic banking applications and the introduction of contactless payments. Migration to EMV chip and personal identification number (PIN) for face-to-face card transactions in Europe is nearly completed. Following are the most important factors underlying innovation:
- To generate the substantial resources within a company required to develop a new solution and bring it to market, developers must demonstrate that there is market demand for this solution.
- Alternatively, the developer must demonstrate that the new solution is very likely to generate market demand in the future. This scenario is best illustrated with a quote from Steve Jobs, who said: "We are not going to wait for customers to tell us what they want. We are going to introduce what we think is in their best interest, and they will learn to love it." Identification of future market needs is an art form for which there is no recipe (otherwise there would be no brand and business failures). See also item four in this list.
- The competitive advantage to be generated with a new solution must be clearly identified, through analysis of competitors' existing offerings or based on confirmation that indeed the market to date does not yet provide the new solution considered for development.
- The solution must be convenient and easy to use for the customer, especially in payments.
- Bringing innovative solutions to market in a network industry may require cooperation between providers. If such cooperation in the non-competitive space is restricted by regulators, it is impossible to bring such solutions to market.
- There must be a business case for providers to develop a new solution. Payments are not a commodity but a commercial offering.
Innovation always implies the risk of failure. The pressure on developers is huge to minimise that risk and make the first prototype work. In the real world, times of crisis such as these may limit the willingness of companies to take risks in the areas of research and development. Last but not least, service providers have to create a positive buying experience for customers when bringing new products to the market. This is particularly difficult in the area of payments. No one likes to make a payment; services provided in this context are rarely met by customers eager to embrace new solutions, whereas people will line up and spend the night on the street to be among the first to buy the latest edition of the iPhone. This author - with more than forty years of experience in managing all aspects of payments - is not aware that customers ever made such efforts to greet the launch of a new payment product.
Documents published by the regulators, addressing innovation in payments, do not reflect any of the items listed above; views articulated by the regulators on the subject may therefore risk overlooking the most important factors driving forward innovation in the market place. From the perspective of payment service providers active in the market, regulation risks stifling innovation and standardisation initiatives led by market participants. Regulation is also 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. Regulatory intervention should not undermine the innovative capacity of the European payment sector and its competitiveness in the global marketplace.
Experience demonstrates that the most successful innovations materialise if the market is simply allowed to generate forward-looking payment solutions in response to customer demand. It would be welcomed if the Commission would take this market reality into consideration when determining the need for further action in the area of payments.
*** Baregheh A., Rowley J. and Sambrook S. (2009) Towards a multidisciplinary definition of innovation, Management decision, vol. 47, no. 8, pp. 1323-1339.
- EPC Blog: More EU Action Impacting Payments in the Pipeline? EPC Responds to the European Commission Green Paper on Card, Internet and Mobile Payments
- EPC Newsletter: Committee on Payment and Settlement Systems' Working Group Publishes Report ‘Innovations in Retail Payments'
- EPC Newsletter: What Happens Next? European Authorities to Communicate Their Vision for SEPA 2.0 by End 2012
- EPC Newsletter: ‘Towards an Integrated European Market for Card, Internet and Mobile Payments': Striking the Balance - Interoperability and the Access Dilemma. European Commission publishes feedback report on its Green Paper
- European Commission Green Paper ‘Towards an Integrated European Market for Card, Internet and Mobile Payments'
- European Commission Press Release: 'Breaking Down Barriers to Secure and Innovative Card, Internet and Mobile Payments' (January 2012)
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