Innovation in payments is a key issue within the payments industry. Guido Ravoet, chief executive of the European Banking Federation, explains how a simple and technologically neutral structure will generate innovation for a successful Single Euro Payment Area.
The Single Euro Payment Area (SEPA) project, which covers credit transfers, direct debits and payment cards, represents a catalyst for the creation of an innovative European payments market, notably on internet and mobile payments.
The European Banking Federation (EBF) seeks to achieve a simple and limited regulatory structure that is technologically neutral and generates innovation. It promotes the development by the marketing of financially sustainable, safe and competitive services that meet the needs of end-users, and facilitates the true realisation of the digital economy identified as a major strategic goal of the European Union.
It took the market (and regulators) ten years to reach an agreement on a single market for payments in Europe. Following the introduction of the euro, the political drivers of the SEPA initiative - EU governments, the European Commission and the European Central Bank - have focused on the integration of the euro payments market.
They have called on the payments industry to develop a set of harmonised payment schemes and frameworks for electronic euro payments throughout the SEPA project with the same level of service, convenience and security.
The European Payments Council (EPC) defines payment schemes and frameworks that help to make SEPA happen. Huge efforts have been made by the payments industry to develop SEPA Credit Transfer and SEPA Direct Debit payment schemes. Hard work is also being undertaken to create a SEPA for cards. European banks had called on EU legislators to introduce measures to help regulate the ensuing changes; however, it appears that the legislators have gone beyond the expectations of banks by introducing restrictive and challenging provisions. The recently adopted EU SEPA Regulation introduces a migration deadline for SEPA credit transfers and direct debits by 1 February 2014. The onus is now on stakeholders, including consumers, corporates and payments institutions to make SEPA a success.
All change for EU payments
A great deal of effort has been dedicated to harmonising the present state of affairs: payment forms, channels, instruments and infrastructures built and designed over the past century. Nevertheless, the banking industry is bracing itself for forthcoming changes in the EU payments area. Several factors render change inevitable:
- Ubiquity of mobile phones - the maximum distance between a person and their phone is 3ft; 25% of people use their phone in the bathroom; 66% of people sleep next to their mobile phone; 40 is the average number of times a day a person uses their phone.
- The unstoppable growth in e-commerce - a year-to-year growth of nearly 25% worldwide.
- Changing consumer habits - the coming of age of the digital native generation as technology becomes more natural and intuitive.
Within these changes there are advantages for every stakeholder. For retailers, incremental sales, multichannel selling, loyalty and repeat buying. For consumers, more convenience: fast, easy, secure; no need to carry cash, coupons and cards. For payment-services providers, multichannel payments initiation, execution and reporting responding to new customer demands.
Due to these and many other factors, the role of banks in payments is becoming ever more challenging as new players enter the payment space. Banks need to understand new market dynamics, adopt new business models and be open to collaboration and partnering with existing and emerging providers. This implies a redefinition of the collaborative space.
Earlier this year, the European Commission issued a green paper entitled 'Towards an integrated European market for card, internet and mobile payments'. The objective was to increase competition, choice and transparency for consumers, stimulate innovation, enhance payment security and customer trust, and the benefits of standardisation in some areas.
After consultation with its members, the EBF reached the conclusion that some of the potential measures the paper envisages will not help achieve this diverse (and in some circumstances contradictory) set of objectives. On the contrary, they could be detrimental to their fulfilment and could directly result in consumer dissatisfaction, confusion and the introduction of inefficiencies.
The necessity arises then to define an alternative vision - such as one that would seek to achieve a simplified regulatory structure that embraces technological neutrality and innovation, promotes the development of competitive services that meet the needs of end users, and facilitates the true realisation of the digital economy.
Europe: payments leader
It is widely acknowledged that Europe is at the forefront of what 'making a payment' could mean in the future. This state of the art know-how is generally measured in terms of electronic payments and in terms of usage of new technology, such as chip-transactions or contactless transactions. Moreover, it is also important to stress that the European payments market today is highly competitive and innovative.
In the last three years, patents submitted to the European Patent Office for payment technologies have averaged 1,100 a year (source: ECB, CEPS/ECRI event -31/01/2012).
Furthermore, the assumption included in the European Commission's green paper that 'market integration' in the payments area is lacking and is an obstacle to unlocking the full potential of electronic payments at European level is challenged by a number of studies.
Contrary to the belief that payments are one of the main barriers to future growth with limited cross-border internet-transactions within Europe, evidence shows that in many instances, consumers are able to benefit from an already large offering of goods by producers in their home country, so there might also be less interest to shop in a different language across borders.
In addition, the most important international online retailers have already set up national websites. E-commerce in Europe is growing at just under 20% a year (source: Centre for Retail Research) and the ECB refers to the existence of 'a myriad e-payments solutions' (source: ECB, CEPS/ECRI event -31/01/2012), which reflects the competitive landscape in Europe in the payments arena.
With this in mind, it is important to acknowledge that the fundamental changes underway require stability, particularly in terms of regulatory framework and requirements, which is the prerequisite to any infrastructural investment in payment schemes. One thing that is clear, however, is that Europe is 'on track' for positioning itself on the global landscape of innovative payments for the 21st century.