31 August 2012

ESBG Working Paper on EC’s Consultation on Green Paper, 'Towards an integrated European market for card, internet and mobile payments'

The objective is to get a first hand exposure to what the demand side thinks and expects from card, Internet and mobile payments: ultimately value propositions have first to meet demand side, not policy-maker requirements. The European Commission’s Feedback Statement reviews the responses to each of its questions by first giving its perspective on the answers provided by the supply side, then those of the demand side, and finally the views of authorities and regulators. This Working Paper, with its intended focus on the product requirement perspective, naturally places the emphasis on certain items. Are there nevertheless significant differences? The more salient ones are:

• The general message presented for the demand side is that differences between MIFs are not justified and their levels should be harmonised - no mention is made of the need for more fact finding prior to taking any action, and consumers’ concern that a change of business model could be very detrimental to them.
• Regarding the prioritisation of the payment instrument to be used, merchants’ responses are said to support consumers making the final decision whereas many merchants and their associations point to the right of the merchant – paying for the facility – to make or influence that choice.
• There is far more debate on the merchant side regarding rebating and surcharging than suggested in the Feedback Statement, with merchants emphasising the need for speed and ease of handling consumer transactions.
• There is no common view of the retailer/merchant sector on unbundling (separation of scheme and processing) either.
• Regarding access to information on the availability of funds on a bank account, consumer’s and merchant’s positions, when supporting such access, are conditional to the account holder’s prior consent and a proper level of security, a more positive, far less “anti-bank” stance than suggested by the Feedback Statement.

In short, just focusing on feedback from the demand side, as well as from telecommunication companies and payment institutions and their association, the outcome of the Consultation is less straightforward and shows a far greater granularity than suggested by the Commission’s Feedback Statement. This is what should matter when policy-making, or even legislation, will be contemplated.

Having carefully reviewed the views expressed by the demand side (as well as 2 other, not bank-related respondent segments), there are eight impressions that remain:

• Respondents talk about the world they know – i.e. mostly payments with cards – and the improvements they would like to see made there. They have difficulties saying much about Internet and mobile payments – maybe this is due to the way the Consultation was structured. At any rate one can’t walk away from the outcome of the Consultation with a clear vision of tomorrow’s European payments landscape, and how to get there.
• There is a striking gap in knowledge and understanding between the mobile payments world suggested by the Green Paper, and the one described by market participants, in particular – of course – telecommunication companies. On one side, it is certainly one of the objectives of a Consultation to gather more information. On the other, this gap calls for a deep revision of policy-makers’ and legislators’ views as to how to approach mobile payments.
• These two considerations by themselves signal a huge risk for the future of the European payments industry: should the policy-maker and legislator make any decision based on this Consultation, then this would be aimed at the past landscape, not at the emerging one. Any remaining potential for innovation-based efficiency gains would be a direct casualty of such haste.
• Furthermore, would it be worth, from the perspective of the use of public resources, to attempt to “fix” (though this being no admission that it would need to be so) the “old” payments world, rather than investing a similar amount of resources in enabling the “new” world to take off swiftly?
• The tension on the demand side is the reconciliation of two different logics – the strictly economic logic of retailers, and the convenience logic of consumers. Concepts such as market integration (a philosophy even questioned by several respondents) or innovation do not rank prominently in these logics.
• The debate of the demand side can also be summarised as either trying to avoid or to pass on the cost of doing business or making payments – rather than e.g. focusing on reducing that cost. Any suggestion of legislative intervention will logically have one part of the demand side scurrying for protection, and the other to maximise cost savings. It is difficult to see how this would contribute to market integration or innovation.
• Calls for transparency should be interpreted carefully: indeed transparency matters, and i.a. fosters better competition. But any transparency should be relevant for the audience to which it is delivered: as evidenced by the Consultation, knowledge of the merchants’ cost structure with respect to payments will have little impact on the behaviour of consumers.
• Amongst the responses reviewed in this Working Paper there are many calls for letting standardisation and interoperability to market participants. It will be difficult to understand why such calls should not be heeded by policy-makers. Of course, market participants should accept to take another look at the governance of standardisation, and they should receive from competition authorities greater comfort than today as to their ability to cooperate.

If this Consultation could lead the legislator to pause, public authorities to lead more by example, and the policy-maker to explore his moral suasion powers, then it would stand a genuine chance to be viewed as the turning point between the “old” payments world and the new one that is both emerging and pursued by many economies around the world.

Full assesment

© ESBG