On 4 May 2012, a speech by Joaquin Almunia, Vice President of the European Commission was published on a new approach to integrating payments markets in the EU.
Background
2. The speech was given to a conference of key stakeholders following the closure of the European Commission's consultation on its Green Paper on Card, Internet and Mobile payments on 11 April 2012. For more information on the Green Paper click here
3. The speech identified the main obstacles that obstruct the completion of the internal market for cards, internet and mobile payments:
a. Cost: the cost of card transactions is too high and has not reduced over time. The payment service fee rate can be as high as 2% of the transaction value and amount to approximately 25% of total retail bank revenues. The European Commission is currently conducting a study to determine retailer's actual costs and as well as the benefits to them of card payments in comparison to other forms of payment.
b. There is a lack of harmonised technical standards which keeps payments markets fragmented across the EU. Almunia identified standardisation as an area where there is clear room for improvement and suggested that entrusting standard-setting to standardisation bodies with formal mandates and timetables to develop such standards might be a way to ensure that the decision would be taken out of the hands of the industry members who may have conflicting interests.
c. The markets are not as dynamic and innovative as they should be preventing new technologies such as mobile wallets from expanding in the payments markets even though consumers would support such innovation. Almunia warned against allowing issues arising in the payment cards sector to spill over to other forms of payment.
d. The growing divergence of interests, coming mainly from internet service providers and other non-bank organisations means that consensus is becoming hard to reach from current and future industry participants.
e. The take-up of the new Single Euro Payments Area ("SEPA") instruments has been too slow. In February 2012, SEPA credit transfers accounted for less than 25% of all such transactions in Europe and SEPA direct debits for a meagre 0.4%. The Commission views this as evidence that self-regulation is not succeeding and intervention is required. As a result, the European Parliament and Council adopted a Regulation in March 2012 which sets a deadline of 1 February 2014 for total migration to SEPA credit transfers and direct debits.
f. The European Commission's competition law investigations underline other issues in the card payments sector - recently the General Court upheld the European Commission's findings that collectively agreed interbank fees have restrictive effects and lack justification in terms of benefits for merchants and consumers. The investigation highlighted the following problems in the market:
i. Technical standards and rules applied by card schemes may prevent retailers from profitably shopping for lower fees in other EU countries.
ii. There is a lack of transparency preventing cardholders from making informed decisions about the fees charged on credit cards. Retailers are fearful of losing business if they refuse to use the expensive cards and so agree to pay more. This additional cost is then passed onto the consumer through higher retail prices.
iii. Transactions need to be checked against the purchaser's accounts to verify that the purchaser has sufficient funds. However the banks are unwilling to share that information with non-bank payment providers. This has prevented the growth of competition in this market.
g. The European Commission is also investigating the European Payments Council for collectively setting standards for internet payments without allowing payments services that are not controlled by a bank access to the standard-setting process.
h. In addition, European Commission has opened an in-depth investigation under the EU Merger Regulation into the proposed creation of a joint venture in the UK between Vodafone, Telefonica and Everything Everywhere in the field of mobile commerce. The European Commission has expressed concerns that the joint venture and its parent companies may either have the incentive to prevent future competitors from offering competing mobile wallet services in the UK, or to degrade the quality of competing products to make them less attractive to consumers.
Conclusion
4. Almunia identified that the future of the payments industry centres around the interaction between established industry players and new entrants. Almunia warned that established players must not "stick to traditional models and delay the adoption of more efficient means of payments – or prevent.. other players from providing them." Almunia advocates a new mix of regulation, self-regulation, and competition enforcement to achieve completion of the single market
5. A summary of the contributions provided to the European Commission's consultation can be found here
6. A more in-depth summary of the key issues raised in the Green Paper can be found [here]
7. The Commission will announce next steps over the next coming months.
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