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Vice President of the European Commission responsible for Competition Policy
A fair and open system for payments in the Single Market
European Payments Council Plenary meeting
Brussels, 14 December
Ladies and Gentlemen:
I wish to thank Gerard Hartsink for his kind invitation to open your plenary meeting.
This meeting comes at a crucial time for the Economic and Monetary Union and for our single currency – the euro.
For some time now, the financial markets have been signalling their concerns about Europe’s ability to tackle the challenges of the financial crisis and, in particular, to solve its sovereign-debt crisis.
The latest and acute stage of the crisis has forced us to focus on drastic measures for the fiscal and macro-economic pillars of the EMU.
Measures that would have been considered utopistic only two years ago are being implemented to restore fiscal stability and to promote integration and a common economic governance.
The results of the latest European Council show how far Member States are ready to go – unfortunately, with the exception of the UK – to take shared committements and coordinate their decisions.
In this context, public authorities and the business community have a common responsibility. We need to come together and find every possible means to relaunch our economy and create the best conditions for growth.
I believe that Europe’s financial services should feel this responsibility more than other sectors, because they are a strategic industry and because – for this very reason – they have received an impressive amount of public aid over the past three years.
The European Commission – on its part – must deliver on one of its most important tasks: completing once and for all a Single Market in Europe that can give better opportunities for growth to businesses and citizens.
Any project that advances our economic and financial integration in the internal market will send the right message and encourage investors and the business community.
It will not be a surprise to you that the Commission considers the development of fair, comprehensive and efficient payment systems for the whole of the EU as a precondition for the integration of commerce and the development of a true digital economy.
The Digital Agenda – which is one of the flagship initiatives of the Europe 2020 strategy – is quite specific on this point; developing better electronic forms of payment is one of its posted targets.
On the basis of all this, you will see that I attach special significance to the need to tear down the technical and other barriers that hamper the integration of payment systems and to the task of bringing more transparency, more competition, and more innovation to the payments market.
Today, I would like to discuss with you the main issues that we have on the table;
I will also touch upon your initiative to develop a common framework for the interoperability of e-payment services.
I will start with what we can do to better integrate Europe’s payment markets.
The euro has been a powerful factor of integration and has multiplied the benefits of the internal market.
Given the present difficulties, now more than ever it is the time to emphasize the efficiency gains that the single currency continues to provide to economic operators in the euro area.
In particular, the ability to make cash payments in euro for more than 330 million citizens in 17 European countries has cut transaction costs and has made prices more transparent.
But the potential efficiencies of the euro for payments systems have not been tapped in full; non-cash payments remain operations that are not always seamless within Europe.
The self-regulatory SEPA project run by the EPC has been a key initiative to make cross-border payments in euro as easy and efficient as domestic ones.
Considering the complex environment of European banking and the diverse interests at stake, you have achieved important results.
However, the uptake of the new SEPA instruments has been rather disappointing. In September this year – for instance – SEPA credit transfers accounted for only about 21% of all such transactions in Europe and direct debits for a negligible 0.1%.
In the end, we had to set deadlines for the migration of credit transfers and direct debit to SEPA standards through the upcoming Regulation.
The Regulation gives clarity and predictability to the business models that will be applied and that the industry has been calling for.
These developments will make credit transfers and direct debits easier.
However, in other areas – such as payment cards or online payments – the payments market has yet to offer European consumers and companies the services they expect.
The fact that these services are not developed has negative implications for the internal market. For instance, inadequate cross-border payment systems are among the main barriers for the growth of e-commerce.
Just think that only 9% of EU consumers use e-commerce to shop cross-border as opposed to an average of 40% who use it in their respective countries.
And this lack of progress also affects brick-and-mortar commerce, which accounts for a much bigger share of retail trade.
Inefficient non-cash payments systems artificially raise transaction costs in the internal market; undermine the global competitiveness of Europe’s companies; and thwart the potential for growth of the whole economy.
Clearly, there is a lot of work to be done in this area.
We need to intensify and speed up our efforts in areas such as card, mobile and internet payments – where a number of hurdles remain.
As concerns cards, we need to develop more integrated and more competition-friendly business models.
Card-payment markets are still fragmented. In many Member States inter-bank fees are still considerably higher than the levels agreed by Visa and MasterCard for cross-border transactions and their levels vary widely from country to country.
For instance, in Belgium the interchange fee for a €50 debit-card transaction is about 10 euro cents, whereas in Poland it can be as much as 80 cents.
To an average retailer, this difference can add up to over €200,000 per year for the same transactions.
In addition, retailers cannot benefit from the lower fees that they may find in other EU countries because they cannot use the services of an acquirer established abroad.
I cannot see how we can explain to merchants and consumers these differences in fees and the inability to tap other banking services within the EU.
The creation of a new, truly integrated European card scheme may be good for competition if it provides concrete benefits to consumers and companies.
And I believe that we should also start thinking about the future; it is time for us to explore how a smarter use of the new technologies can contribute to truly EU-wide payment services offered by banks and non-banks.
I would like to make one point very clear here; we need to avoid importing the issues that afflict the cards market into the new payment instruments.
One example is the perverse effect of the interchange-fee model which currently dominates the payment-card sector.
On the one hand, card schemes compete for issuing banks by offering higher interchange fees; acquiring banks then charge these fees to retailers who cannot refuse for fear of losing customers.
On the other hand, banks and payment-card schemes create incentives for consumers to use the high-fee cards, and consumers are happy to use them because they cannot see the true costs of payments.
This system leads to a form of inverse competition – a competition for higher fees – which is clearly not in the interest of merchants, consumers, and the market as a whole.
Inverse competition is a fact; the most expensive schemes are actually taking over the market in parts of the Union. In the UK – for instance – the market is moving towards Premium cards, which for the moment are not under the scrutiny of competition-enforcement authorities.
I do not mean to say that collective interchange fees are unjustified in all cases; it is rather their level that is a matter of concern.
When we accepted the commitments of Visa and MasterCard to reduce their fees, we preserved the system.
The new fees were set to match the savings that retailers make when they accept a card instead of cash. It seems to me that this is a reasonable benchmark which prevents banks from taking advantage of the fact that merchants effectively cannot refuse cards.
The interchange-fee model has a negative spill over effect on new players and systems, including the non-card systems of the future.
This is partly because banks are reluctant to issue cheaper cards as they do not want to lose the revenues that the present fees bring to their coffers.
Retailers estimate that interchange revenues amount to over €13 bn a year in the EU, and the total fees are costing merchants about twice as much.
We have been made aware that banks are also reluctant to cooperate with new non-card payments systems.
Internet and mobile payments systems need the banks to verify that there is enough money in the payer’s account and banks seem to expect a compensation for this service that matches the revenues of their payment cards.
Once again, it is difficult to explain this attitude to merchants and consumers; it is especially difficult to explain to them that it hinders innovation and the use of digital technologies.
There are already a few successful examples of new systems of payment in the Member States. For instance, a system in the Netherlands has seen a spectacular rise and now accounts for more than 75 million transactions per year.
However, although these systems ensure quick, secure and cheap payments, they struggle to expand outside their national markets.
What can we do to give the scale and the opportunities provided by the Single Market to the online-payments sector?
I am aware that you are in the process of developing standards for an e-payments framework to ensure interoperability across Europe.
Your work is important, as the emergence of a single market for payments must rely on good technical and security standards.
However, let me remind you that standard-setting must be done in conformity with competition rules at all times.
In principle, standards like these should make the market more secure, open and accessible; but our practice has taught us that standardisation processes can also be used to restrict market entry.
These concerns prompted us to open proceedings against the EPC last September. My services are currently conducting the investigation. One thing is sure though; the standardisation process must be fair, open to all players, and it must promote innovation.
I invite the EPC and its members to engage with us in a constructive manner. Together, we can get the facts right and – if necessary – we will find the best solutions to the issues that we may identify.
In this context let me share with you my views on the relationship between competition and cooperation in your industry.
Industry organisations such as the EPC will always have a crucial role, for instance – as we have just seen – in developing technical rules and standards.
The firms you associate may need to cooperate – among other things – to make their norms and practices compatible.
But this can be done only on condition that the cooperation brings benefits to their business clients and to the consumers.
No cooperative effort can create a space where the scrutiny of competition authorities is suspended. The existence of a cooperative space as opposed to a competitive space is not acceptable.
In fact, we know from experience that these forms of cooperation sometimes produce restrictive effects on competitors; and this happens even when they are set up with the best intentions.
We have published strict guidelines on this, and I will see to it that no cooperation effort is used as a shield to protect its participants from the rules of competition.
Let me conclude.
We urgently need to address the shortcomings of the approach taken so far to integrate the markets for payment, whose overall outcome has been disappointing.
We must move forward towards payments that are in tune with the 21st century: they must be transparent; they must offer genuine value added to consumers and merchants; and they must make the best use of our technologies.
To do so, I am convinced that we need to turn the page. The Commission stands ready to take more decisive action. What we need is a comprehensive approach based on a new mix of regulation, self regulation, and competition enforcement.
To launch the debate on these issues, my colleague Barnier and I will present a Green Paper soon. I expect the EPC to take an active part in the process and I look forward to your contribution.
Payment markets are now ready for new services and new interfaces provided by banks and non-banks.
I encourage you to be forward looking. Maintaining fragmented markets and preserving domestic revenues based on old models are in nobody’s interest. I am confident that banks are ready to embrace change.
New actors are willing to do what the banks are slow to deliver; they are ready to provide innovative and more efficient payment solutions.
I suspect the banking sector will have to find a way of working with them since users want competition and choice. And this should not be seen as a challenge, but as a tremendous opportunity.
Change is inevitable.
It is the responsibility of enforcement authorities and regulators to guarantee that such change happens in the interest of citizens and businesses in Europe.
Europe has no choice but to remain at the forefront of innovation. It is the duty of the Commission to strive for a fair and efficient European economy and ultimately for economic prosperity.
The development of a single, fair and efficient market for payments is a necessary step in that direction that we all must take.