Commission takes whip to banks over EU payments

By Anna McLauchlin

Date: 12/05/05

The European Commission will present plans on Friday (13 May) to force banks to make it easier for consumers to make payments in any member state. Banks have slammed the plans, but consumer organisations have welcomed them.

European banks are already working towards a self-imposed goal of creating a Single European Payment Area (SEPA) - via the European Payments Council (EPC) - but the Commission is sceptical as to whether they will deliver.

"The EPC proposal for SEPA leaves some questions unresolved and back-doors open, in particular the question of if and when it will be fully implemented," its so-called incentives paper reads.

Merely integrating banks' current systems, it continues, "could even result in a deterioration in services in some countries, or worse, stifle competition".

As a result, the Commission says, its role is to "help industry find swift solutions, remove legal obstacles, ensure legal certainty and provide incentives for the construction of SEPA...because there are huge benefits in making this investment".

The Commission wants to create an EU standard for payment systems, so that cards will work in all terminals across the EU and so that more companies can enter the payments market, boosting competition.

The standard would be "developed by the market" but legally enforced by the executive within five years.

International Bank Account Numbers (IBAN) - the 'phone numbers' of the payment system - would be made mandatory across the EU and there would be a legal maximum time for cross-border payments to be executed.

There would also be an obligation for banks or credit card companies like Visa and MasterCard to publish their charges to retailers - known as interchange fees - in order to make the market more competitive.

Governance of the process is the second big issue for the Commission. It recommends that a standardisation body oversee the development of the EU payment standard.

The Payments Committee (composed of market participants and national experts) would be responsible for overseeing the implementation of the rules, using scoreboards and benchmarking to put pressure on member states to transpose the legal framework.

The Commission wants the EPC, the decision-making body of the European banking industry, to devote more resources to its project and create a high-level body to set clear deadlines for when certain projects should be completed.

Banks have hit out at the Commission, accusing it of stifling competition and innovation in the sector. "There are certain elements that go in the direction of a planned economy and forget about the market," said Ruth Wandhöver of the European Banking Federation, citing the transparency requirements for interchange fees, which she argues will force payment providers to charge similar prices.

Wandhöver also criticised the EU's plans to force a certain technology on banks and payment providers.

"EU banks are already working on a standard for cross- border euro payments and it is very complex to deal with different national laws and practices. If you start to include other players and currencies it will be impossible," she said.

Dominique Forest from the European consumer organisation BEUC said that the measures were overdue. "There is certainly a need to improve the situation so in that sense it is welcome. The EPC said it would create SEPA by 2010 but now is saying perhaps it can't, so added pressure is needed," he said.

But, Forest said, making cash more expensive would run counter to the aim to improve service for consumers. The paper suggests that payment providers may object to making their costs public when cash is heavily, but secretly, subsidised.

"The paper does not consider the fact that in some member states, particularly the new ones, many people have limited access to banks," he warned.

The Commission will present the paper to two working groups. The first meeting will take place on Friday between the Commission and market participants (the Payment Systems Market Group).

It will then go to a group composed of experts from each member state before deciding whether to incorporate the recommendations into a draft law on SEPA, known as the New Legal Framework, by June.

Article reports on European Commission plans to force banks to make it easier for consumers to make payments in any Member State.

European Commission: DG Internal Market and Services: Free movement of services: Financial Services: Payment services: New legal framework http://ec.europa.eu/comm/internal_market/payments/framework/index_en.htm

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