Retail payments in Europe: the benefits of good governance
Speech by Yves Mersch, Member of the Executive Board of the ECB, at the 10th jubilee conference on payments and market infrastructures, “Drivers of European Payment Integration: Innovations and Cooperation”, Ohrid, 7 July 2017
Today, we can transfer funds in euro between all euro area countries with no difference in terms of speed, cost or convenience. Ten years ago, this could not be taken for granted. Migration to the SEPA credit transfer was slow, and a number of issues were still unresolved.
In addition to the legislative push regarding the SEPA migration deadline, the Eurosystem played a crucial role in facilitating integration, efficiency and competition in the European retail payments market and has placed substantial emphasis on the creation of a broader governance structure.
In my discussion of good governance of retail payments in Europe, I will first outline the key characteristics of the Euro Retail Payments Board (ERPB) and its main achievements to date.
I will then discuss the necessary further steps in promoting successful retail payments governance in Europe, at both national and European levels.
Finally, I will highlight how the ERPB is encouraging innovation in the retail payments market, in particular with regard to instant payments, payment initiation services and person-to-person (P2P) mobile payments.
The ERPB: role and achievements
The need for a broad governance structure in the retail payments market is based on two factors.
- The networked nature of the payments industry makes it beneficial to create a space that allows for cooperation on compatible or common standards and business procedures. This, in turn, will enable the creation of complementary products and services that benefit users.
- The integration of the European retail payments market is more than an industry initiative. It is closely related to the political and social ambition of moving towards a more integrated, competitive and innovative Europe. Therefore, achieving agreement on strategic objectives requires all relevant stakeholders to be closely involved – not only from the supply side, but also from the demand side, such as corporate entities, public administrations and merchants, and regulators.
Taking these considerations into account, the ERPB was established as a high-level forum for European dialogue between payment service providers and end users to promote further integration of the market for retail payments in euro. It was announced in late 2013 and replaced the SEPA Council, which was a joint initiative of the ECB and the European Commission. Building on the experience gained with the SEPA Council, the ERPB benefited from a strengthened mandate, a more output-driven approach and wider membership.
Since its creation, the ERPB has, among other things, been instrumental in removing some of the remaining (national) specificities in the post-migration period of the SEPA credit transfer and direct debit. It has also successfully addressed the need for further harmonisation activities in the field of card payments. The technical work on card standardisation was largely delegated to the relevant industry body, the European Cards Stakeholders Group. The ERPB closely monitored its progress, thereby ensuring the ongoing commitment of the relevant market actors.
Successful retail payments governance at national and European levels
The successful functioning of a governance body such as the ERPB depends a great deal on striking the right balance between involving all relevant stakeholders and retaining a lean structure to ensure that strategic objectives can be agreed upon. So far, this has worked reasonably well. Delegating work on technical issues to the relevant industry bodies has also proved successful.
In parallel to the establishment of the ERPB, similar bodies have been set up at national level. Where such bodies are not in place, I expect them to emerge in the near future. In my view, what also needs to be developed further is closer coordination between those national payments committees and the ERPB, under the strategic guidance of the European Commission and the ECB.
There is a lot to be gained from this. First, there is a high level of expertise in national payments committees and comparable bodies at national level that could be better utilised in the ERPB processes. Second, national payments committees could adopt the model of broad stakeholder involvement from both the supply and demand sides. And last but not least, closer cooperation between national payments committees and the ERPB could lead to more efficient standardisation and harmonisation measures – in particular when it comes to innovative services and products – and avoid the potential duplication of work.
ERPB facilitating pan-European retail payment innovation
At present, the most-discussed areas of retail payment innovation in Europe are instant payments, payment initiation services and P2P mobile payments. The ERPB is active in all three areas.
Under the impetus of the ERPB, in 2016 the European Payments Council delivered a pan-European instant payment scheme based on the SEPA Credit Transfer Scheme, called SCTinst. Payment service providers are encouraged to make instant payment solutions in euro available to end users at a pan-European level from November 2017.
While the work of the ERPB is focused on the scheme layer of instant payments, the Governing Council of the ECB recently decided to develop a service for the settlement of instant payments – the TARGET instant payments settlement (TIPS) service. TIPS will ensure that the demand for instant payments is met at European level and further facilitate the integration of the euro area, and is meant to complement the services of automated clearing houses. It will be developed in close cooperation with the payments industry in Europe and will be offered to banks at a maximum price of 0.20 euro cent (€0.0020) per payment for at least the first two years of operation.
Payment initiation services
The review of the Payment Services Directive (PSD2) has opened up the market for third-party payment initiation services. The new players will provide payment services to European customers and increase competition with the current incumbents, namely banks. However, legislation cannot be all-encompassing. To counter the risk of non-interoperable payment initiation services creating new fragmentation in the euro retail payments market, the ERPB has established a working group that defines the technical, operational and business requirements for payment initiation services. This is essential for payment service providers to offer integrated services across Europe.
P2P mobile payments
To facilitate the interoperability at pan-European level between existing and future P2P mobile payments solutions, which will mainly operate at local level, the ERPB has instigated work on a standardised look-up service that allows mobile phone numbers to be used as proxies for IBANs. This look-up service should allow the payment solution used by the recipient to be identified, and therefore should not be restricted to national IBANs but rather provide pan-European coverage. Unfortunately, there have been some delays in this work. I expect that by the next ERPB meeting in November 2017, the causes of these delays will have been resolved so that the work can be completed.
Since its launch in 2014, the ERPB has established a good track record in promoting further integration of the market for retail payments in euro. In terms of deepening the pan-European governance of retail payments, and under the strategic guidance of the European Commission and the ECB, it would be beneficial for national payments committees to cooperate more closely with the ERPB in facilitating harmonisation and standardisation activities. In order to foster the emergence of an innovative euro retail payments market, I encourage the stakeholders in the respective committees and fora to continue striving for cooperation in standardisation and harmonisation.
 Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02012R0260-20140131.
 Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015L2366