EU new boys skip cheque-book era to take cash transfers lead

By Anna McLauchlin

Date: 17/02/05

The EU's new member states are rapidly modernising their banking and card procedures and could overtake their older neighbours on the way to achieving a pan-European payment area, experts say.

The European Commission will discuss an impact assessment of its plans for a Single European Payments Area (SEPA) next month and put forward a directive later in 2005.

The Commission's aim is to dismantle barriers to cross-border payments between banks and payment systems. For consumers that will mean being able to use a single bank or card account for any payment anywhere in Europe.

But Krzysztof Pietraszkiewicz, the president of the Polish Banking Association, said that since Poland does not have the same heavy legacy as the older member states of utility-based national debit systems or cheque books, his country is ready to move rapidly into an integrated EU debit market.

"In two or three years we will be ready to establish a common platform," he said. "And Poland is an attractive market, incomes are growing all the time, we have around 3.5 million small and medium-sized enterprises and a very active society."

Poland has invested in the most modern technology as it was the most efficient and therefore ultimately the cheapest, he said.

Poland's situation is mirrored elsewhere as the new member states invest in the most up-to-date payment systems. The Baltic states are particularly advanced and much of their banking is now conducted online, suggesting that the new EU states would be ready to join in a single payment area within a few years and possibly ahead of the European banking sector's self-imposed deadline of 2010.

New member states still face the problem of convincing society to use the system. According to Pietraszkiewicz, more than 55% of Poles over the age of 15 have a bank account, but the number of transactions is still extremely low. In the new member states overall an average 40% of people have a current bank account.

Pietraszkiewicz admitted that companies wanting to compete with domestic banks could have a hard time "In Poland there is room for new initiatives, but it is still restrictive," he said. "A new financial organisation would have problems to offer services more cheaply than the domestic banks, I think."

In 2002 the European banking sector, in conjunction with the European Central Bank (ECB), created a European Payments Council (EPC) to implement their voluntary agreement to make European euro payments as safe, quick and efficient as domestic payments by 2010.

Sources say that drafts of the Commission's directive set out the rules for 'payment service providers' to offer services in the EU. Such providers range from remitters that transfer money from one account to another, to global payment companies or financial institutions.

These rules include the framework for an EU payment system, such as that the maximum delivery time should be no more than three days.

It also covers issues such as registration requirements, information to be given to consumers, liability in the case of payments being misappropriated or lost and accounting procedures.

Banks are unhappy with the draft, as they wanted to be left to themselves to regulate the current 16 European clearing schemes to achieve SEPA. But a December 2004 report from the ECB signalled that momentum amongst banks to create SEPA had stalled because of transition costs, and warned that, if banks failed to deliver on their promise, legislation would have to do the work for them.

Global payment service providers such as MasterCard or Visa are hoping that the single payment area will provide them with new opportunities to compete against domestic banks all over Europe. Eric Tomlinson, MasterCard's chief debit officer, said: "Europe can be a fortress and open within the EU alone, but that's not realistic in terms of world trade. An EU solution should encompass the East and go right through to the Americas."

Banks warn that the draft, which includes corporate payments, could result in higher prices for consumers with increased liability even for payments made outside the EU.

Dominique Forest from EU consumer association BEUC argued that consumer protection is vital if people are to be confident enough to use pan-EU systems. "You can't really have competition without confidence," he said.

Article says that according to experts the EU's new member states (EU-10) were rapidly modernising their banking and card procedures and could overtake their older neighbours on the way to achieving a pan-European payment area. The European Commission was set to discuss an impact assessment of its plans for a Single European Payments Area (SEPA) in March 2005 and put forward a directive later in the year.

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

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