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Mr Frits Bolkestein
Member of the European Commission in charge of the Internal Market and Taxation
Establishing a single payment area
Opening speech round table on retail payments in the Internal Market
Bruxelles (Centre de Conférence Albert Borschette),Jeudi, 9 novembre 2000
Ladies and Gentlemen,
Let me, first of all, welcome you all to this important meeting on "Establishing a Single Payment Area". High expectations are accompanying this event, in particular on the part of the European retail customer and of those who are interested in a fully functioning Internal Market.
I am particularly pleased to welcome the speakers from so many different organisations who are all committed the Commission hopes to bring about improvements to the present situation in cross-border retail payments in the Internal Market. Although cross-border credit transfers are the most important concern, I am glad to see that today's speakers will also talk about alternative payment methods. Nowadays, nearly every month there are one or several announcements about new developments from payment providers promising progress. Entrepreneurial imagination, technological innovations, division of labour and competition are also in the field of payments the best guarantee of improvements which will benefit the wider economy.
My contribution today is limited to 15 minutes, which is extremely short if one wants to develop ideas and a vision for the future. Therefore I would focus attention on some key messages. I assume that Mr. Padoa-Schioppa will briefly summarise the state of the art with regard to the realisation of the seven objectives for cross-border credit transfers commonly set out in the ECB's and the Commission's Communication. The Commission agrees with the analysis of the ECB in its recent interim report. Mrs. Peijs will recall the main problems in the realisation of a Single Payment Area and explain the proposals for improvements as recently adopted by the EP. The Commission shares most of the views and will favourably examine these proposals.
Now, my messages are the following :
There is a clear need for a change. I am deeply convinced that those who will not change their present traditional methods of processing and executing retail customer's payments "will be changed". We live in a period of "upheaval". Technological innovations, cost considerations, commercial strategies, consolidation in the market structure are driving forces for changes in the payment area. Although the market share of electronic payments is today rather modest, there is no doubt that electronic(e-) and mobile(m-) payments have a tremendous future. This should particularly hold for cross-border payments. Remaining technological, security and general acceptance and confidence problems need and will be solved. So be prepared to be in the "trend of the change".
Historical evidence demonstrates that the place of these changes in the payment habits is more exponential than linear. The periods needed to change from barter to cash, from cash to paper-based giro and from paper-based giro to electronic payments became steadily shorter. Nobody knows when and what will be the next step in the cyber economy. But it is evident that there are numerous possibilities to make payment systems more effective. WAP-technologies, smart cards and new access devices are becoming a reality. The Commission's activities in the context of e-Europe and standardisation (e.g. Finread) are designed to promote such developments.
Electronic payments are also essential for the development of e-Commerce. Each real retail transaction is normally accompanied by a payment. In an e-Commerce world the electronic payment is the logical corollary. It is necessary to solve the problems of trust and confidence on behalf of the consumers and to lower the level of fraud and counterfeiting of non-cash means of payments. The Commission intends to issue shortly a Communication and Action Plan in this respect. The interrelationship between e-Commerce and payments will be addressed in another Communication on "E-Commerce and Financial Services". The Commission will also receive early next year the outcome of a study on the implementation of the Commission's Recommendation of 1997 on electronic payment instruments. This re-assessment and possible proposals to reinforce the rules will take account of the technological developments in this field.
One of the characteristics of the "New Economy" is that it is "network-based" and brings about a considerable increase in productivity and reduction of cost. The payment industry, which is in the centre of the gathering today, has all the attributes needed to belong to the "New Technology". Payments in the modern world are predominantly "network-based" since they are dematerialised and consist mainly of financial information to be channelled through the payment infrastructure. Its optimal configuration can result in a very efficient payment execution in terms of time, low cost for the payment provider and attractive prices for customers.
The Commission's political objective is exactly that: a modern Single Payment Area for the entire EU where there is no frontier effect for cross-border payments. Therefore the Commission promotes all efforts in this direction: once the payments industry has finalised its proposals, the Commission is prepared to inform widely the European citizen about the availability of a low-price Straight-Through Processing (STP) cross-border retail payment based on IBAN and BIC .
With regard to prices for cross-border payments I guess I must make a rather unpopular remark. Nevertheless, one cannot ignore the truth. We all agree that the present average price for a cross-border payment of 17 Euro as found in the last Commission's study is much too high.
We recognise that it has decreased from a former excessive level, that this average price may not necessarily be representative for the whole market and that there exist better offers for customers. In this sense the Commission advises citizens, who complain quite frequently, to shop around and look for the best deal. We realise at this occasion that there is a perception in the minds of the citizens that the execution of payments should be "free of charge" for the customer. Partly, because he believes he gets this "free of charge" in some countries at national level. This is, however, often an uninformed and undifferentiated view.
This general perception of payments "free of charge" derives partly from the "gratuity" of public payment tender when paying with bills and coins. However, although the individual citizen is in most cases not directly charged if he uses bills and coins, there are clear costs to be borne by society as a whole: issuing, storing, counting and disseminating and central bank money cause tremendous cost. The forthcoming introduction of the Euro in the form of cash illustrates the importance of the initial issuing cost. At the level of banks and, of retailers similar charges for the use of cash are quite important and are generally borne by all customers independently whether they use cash or non-cash means of payment.
So, the use of cash although mostly "free of charge" is not without cost. One is tempted to conclude that people, who mainly use cash-less means of payments, in particular if they are directly and heavily charged for that service, pay for those who basically use cash.
A similar consideration applies to non-cash payments. The high volume of national and cross-border non-cash payments made daily by individuals shows that this is a valued service which clearly creates costs to the payment providers, but which the individual tends to ignore.
If at national level these cost have not been directly charged or indicated this is explained by cross-subsidisation in the remuneration of other bank services or by hiding the charges in a package price. This articulation of the price policy is the responsibility of each individual payment provider, normally the bank. It is not for the Commission to do their your job. But, although the Commission urges that the present average price for cross-border payments should be considerably lower, the Commission can accept that there is a reasonable price for cross-border retail payments for the service provided resulting from competition. In the not too distant future this price should converge with the national price level in eliminating any intra-Community border add-ons.
With regard to the price level, the execution time and the charging methods, the Commission will very soon re-evaluate the present situation and present, on the basis of the outcome, a report to the European Council and Parliament with its findings on the implementation of the Cross-Border Credit Transfer Directive in the Member States. We hope in particular that the illicit double-charging for OUR-transfers will no longer occur.
The execution time and price for cross-border retail transfers will and must be considerably reduced. This is not because the EU-Commission or the ECB wants this and tries to persuade the banks to achieve it. I am convinced that technological progress will allow such development and competition will press strongly in this direction. There are banks in the market, which under certain conditions already today provide cross-border credit transfers in real time and at low cost. Some, although they are the exception, permit the customer to manipulate his cross-border accounts in several Member States from his PC or the bank's establishments. Non banks stand ready to offer alternative payment services. Therefore banks in the EU are well advised not to wait but to jump on the possibilities offered by technology in the Internal Market.
These developments will certainly be based on the dematerialization of money, the realisation of real time in execution, and the improvement of the finality. Clear developments are already happening for small retail or interpersonal cash payments, which increasingly will be replaced by non-cash transfers. Proton in Belgium is an excellent example. Interpersonal non-cash payments are possible. WAP technologies will enable credit transfers at any moment, from everywhere.
The Commission's ultimate objective is to see the possibility that e-money purses issued in one Member State can be used cross-border in the whole Euro-zone . A first pilot application between Germany, France and Luxembourg is in a testing stage. The e-Money Directives recently adopted provide the legal framework for the integrity of the e-money issuer. The introduction of the Euro will also facilitate this development. Interoperability needs to be achieved and agreed between e-money providers.
Ladies and Gentlemen, this is only a selection of the numerous issues to be considered in the context of the "Establishment of the Single Payment Area" which need to complement the final stage of the introduction of the Euro on 1 January 2002. This is a question of credibility for all of us. The Commission is interested to listen to the various contributions, which will be presented here today. I wish you an interesting and fruitful conference.