European Commissioner for Health and Consumer Protection
Payments & Confidence : How to boost security and fight risk
Conference on "Security of non-cash means of payment"
Brussels, 16 September 2003
Ladies & Gentlemen,
I was very pleased to be asked to make a closing statement at this conference. The question of payment security has been of great interest to me from the moment I first set foot in my office as Commissioner for health and consumer protection.
I was happy to learn that this Conference was heavily oversubscribed. It confirms that the topic of today's conference is of great interest.
I was, however, also worried that so many people from many backgrounds take an interest in a problem that consumers should be entitled to take for granted. Payment systems very much are commodity services like many other every day goods and services. Systems and services that are so common and essential should not be a cause of concern to consumers.
But payments are also more than simple commodities. They are, some say, the arteries and the veins of modern economy. Without payment systems our economy simply does not function.
Today's Conference has focused on whether these worries are justified, and if so, what steps we can take and should take to address and overcome them.
Commission initiatives to date
Consumer confidence in payments is not really a new issue for the Commission. As far back as 1988, the Commission presented a Recommendation on the contractual relationship between issuers and holders of non-cash means of payments. This Recommendation set out what principles and rules the Commission believed should be observed to foster consumer confidence. The Recommendation covered information obligations for the issuer, rights and obligations of issuer and holder, and provisions on the apportionment of liability. In 1997 the Commission updated this Recommendation to take account of technical progress and to remind Member States and payment service providers of the importance of fair contract terms to ensure consumer confidence.
The uptake of these Recommendations by Member States has not been an undivided success. Nevertheless they have become benchmarks against which performance in terms of consumers contractual rights and obligations in the area of payment systems can be measured.
The Commission has also put forward legislation to ensure price transparency and performance of cross-border payments, as well as an action plan on combating fraud and counterfeiting.
Work is also progressing on a regulatory framework for the single European payments area in which consumer confidence will play an important role.
All these initiatives aim at contributing to performing, cost-effective, reliable and trustworthy payment systems.
The role of technology in confidence
Various speakers today have illustrated the technological advances that have been made to make payments safer. We have heard about chip cards, cryptography, security standards, mobile payments, etc.. I am confident that this is just the tip of the iceberg and that there are many more technology solutions making their way onto the market.
While I personally have a great interest in technology and technological and IT developments, I am far from an expert. I therefore can not say much about the respective qualities, advantages and disadvantages of systems or technical solutions that have been presented here today.
Nevertheless, I do want to share with you my views on the role of technology in consumer confidence.
Over my years as Commissioner for consumer policy, I have become increasingly aware that the direct effect of security technology on consumer confidence may not be as great as one may hope or expect. In fact, I believe that the more consumers are confronted with security technology and security devices, the more they wonder about the reliability of systems and their vulnerability to fraud.
This is a real confidence dilemma or confidence gap.
For the consumer, what matters is confidence.
On the one hand, confidence clearly depends on the quality of products and services. Shaky technology and repeated security breaches are not going to fill consumers with confidence. But good technology is not enough. Confidence often depends even more on the guarantees and customer service the provider is offering with the product or service.
The basis for confidence is that companies stand behind the products and services they place on the market. Confidence grows when they are prepared to offer the consumer a guarantee that in the event of a problem this will be dealt with swiftly, fairly and effectively.
A guarantee that consumers will not be required to foot the bill in case of problems is the best signal to the consumer that the provider believes in his own products and services and that any problems truly are exceptional. The opposite is also true. Where companies can not vouch for their products and liabilities for security breaches can be passed on to consumers, they will rightly be concerned about the products' robustness and reliability.
The determining factor of confidence are not the 99.9% of the cases that go well, but the 0.1% cases that do not go as expected and the way in which consumers are treated in these cases.
This is a second confidence dilemma or confidence gap.
Bridging the confidence gap
Bridging the confidence gap is essential given the paramount role that payment systems play in today's economy. The payments confidence gap holds back developments in other crucial aspects of the single market and economic development such as cross-border purchases and electronic commerce.
The role of confidence in payments for electronic commerce should not be underestimated.
Repeated surveys show that the number of companies and consumers in Europe that buy and sell goods and services through e-commerce is lagging far behind the potential. These same surveys repeatedly point at the same problems. Too many consumers are not confident providing their payment data over the Internet. Security technology to address such concerns often discourages or intimidates consumers. Too many consumers are not confident that they will receive the goods or services they buy.
Too many consumers fear that products will not live up to their expectations and too many are afraid that they will fail to be reimbursed if they return the products.
Unfortunately, I have to add that these surveys even if they are anecdotal at times illustrate that these fears are often not unfounded. Consumers are confronted with unauthorised transactions charged to their account, Goods or services they pay for fail to be delivered or they do encounter great difficulties getting reimbursement if they use their right to return goods or cancel services.
Fears for such problems are much less outspoken in for example the United States. But also within the EU we see differences when it comes to consumer fears associated with payments or the likelihood to be reimbursed.
I have spoken on a number of occasions about the urgent need to address this problem. I remain more convinced than ever that the payment industry has an important role and responsibility to play in this. In countries like the United States or the United Kingdom we see that the industry does indeed take up its role in this respect, either because of legal obligations, but also voluntarily. In a number of countries consumer liability for non-authorised transactions is limited by law. Some countries also impose legal obligations on payment service providers to reimburse the consumer in the event goods and services fail to show up or do not live up to requirements. I am encouraged by the fact that these obligations have been swiftly incorporated into the payment systems and that in many cases payment service providers even far exceed their legal obligations pursuing zero liability policies and full money back guarantees.
I have great difficulty in understanding and accepting that consumers in one country receive a much better treatment and protection than consumers in another country, although the transactions they are involved in and the payment instruments they use are very similar.
My ideas in this respect have, however, not always met with great enthusiasm on the European continent. I am told that this would be too costly, that it is not practicable, or that the payment service provider has no responsibility other than simply handling the payment.
I remain to be convinced of this. Payment system operators in countries where more advanced consumer protection and refund mechanisms are available do not appear to suffer from a competitive disadvantage. The experience even seems to point in the opposite direction as costs are compensated by the increase in transaction volume and value.
This increased transaction volume does not only benefit payment service providers. It also benefits merchants who sell more products and consumers that are better able to exploit advantages of e-commerce.
I therefore remain committed to the idea that European Consumers should not be held unduly liable for unauthorised transactions, that they should have more and more easily access to refund mechanisms and that they should be made more aware that such mechanisms are available to assist them.
The cost of confidence
The last point I would like to raise today is that of the cost of confidence. The Commission is acutely aware of the fact the competitiveness of our companies is closely linked to their costs. That is why the impact in terms of cost is a determining factor in the policies we pursue and the legislative proposals we consider and put forward.
Confidence has a price, but the price of a lack of confidence may well be much higher.
My experience in the area of food safety illustrates this all too well. As with payments the number of actual problems in the food sector is very small compared to the overall volume of production. Nevertheless the food sector has experienced some of the worst confidence crisis imaginable. One clear lesson emerging from such crises is that the cost to our companies and our economy of a lack of confidence far exceeds the cost of confidence.
To conclude I want to emphasise that I attach the utmost importance to the investments made in the technology solutions that were set out today by the various speakers. These investments reflect the cost of confidence. The choice of technology, the level of investment required and the pace of the roll out of innovations are matters for the payments industry to decide.
In making these decisions, I do, however, ask you not to lose sight of those aspects of the payment systems where technology is not the answer or can no longer be justified from a cost perspective.
Liability limits, money back guarantees and customer service play an equally important role in fostering consumer confidence. They are indispensable in bridging the confidence gap.
Bridging this gap is in the interest of consumers, in the interest of companies willing to sell goods and services to consumers and bridging this gap in the interest of the payment systems that will benefit from the confidence users have in their systems.
I believe that bridging this confidence gap was the theme of today's conference. Confidence comes at a cost, but the cost of a lack of confidence is far greater.
I thank you for your attention.