21 October 2013

ECB/Cœuré: Retail payments at a crossroads

Before the crisis, the retail payments business went largely unnoticed as a substantial source of revenue in banking. During the crisis, the retail payments business had been resilient, providing reliable and regular revenues. As a result, the subsequent realisation that banks with more stable funding models were better able to cope with the crisis has led in recent years to a greater recognition of the importance of retail banking and retail payments.

Retail payments are at a crossroads. Different roads may appeal in different ways to the various economic actors. One possibility would be to preserve the status quo and to implement only the changes needed to comply with the existing regulatory framework. Alternatively, we could follow a road less travelled. Here, new economic actors may emerge and consumers may start to utilise more personalised, simple and secure payment services and applications.

Retail payments integration

Retail payment integration in the euro area – and in Europe – has made progress. Although there are still considerable efforts to be made, we are just a few weeks away from completing the migration to new European schemes that have been developed for credit transfers and direct debits. It’s a big step forward.  But progress in the field of cards has been slower. To ensure a level playing field, national borders for cards licensing, issuing and acquiring have to disappear, and the consistent implementation of the separation of scheme management and processing has to be ensured. Some movement in this area is expected to result from the revised Payment Services Directive and Regulation on interchange fees for cards.

Promoting further integration of retail payments in Europe is seen as economically and socially advantageous. There is empirical evidence that initiatives to integrate and harmonise retail payment markets boost trade and consumption and benefit the whole economy. Deeper integration of retail payments is expected to bring about more price convergence among cashless retail payment instruments in the euro area, making those instruments more affordable and thereby promoting financial inclusion.

The Single Euro Payments Area (SEPA) is instrumental in this respect. Later this week, the ECB will publish the second SEPA migration report, which will highlight the progress accomplished and the remaining challenges as we come closer to the SEPA end-date of 1 February 2014 for migration to pan-European payment instruments. Looking beyond the end-date, the ECB will establish and chair the Euro Retail Payments Board (ERPB) as successor of the SEPA Council to contribute to and to facilitate the creation of an integrated, competitive, innovative and level playing field market for euro retail payments.

Retail payments innovation

E-commerce and new communication and information media have set new challenges in terms of functionality and security for retail payments. They have also given providers of payment-related services new opportunities to compete. Unfortunately, these opportunities have not yet been fully exploited by the different market players. Innovative retail payment solutions in the euro area are still largely being provided by non-bank service providers, mainly for the payment initiation phase. Banks are at a crossroads. They can either try to defend their existing products and leave this business segment to non-bank providers, or they can become more open and innovative.

In the end, whoever provides innovative payment services should be mindful of two key issues. First, those services should be safe and protected against misuse. Second, innovative services should have the potential to become pan-European solutions. If we do not think about the European dimension right from the start, in a few years’ time we will face all the problems of having to merge multiple national solutions into a European framework.

Full speech

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