McCreevy loses patience with banks over payments

By Anna McLauchlin

Date: 07/04/05

The European Commission will decide in the next few weeks whether to regulate the banking sector more heavily to speed up the creation of a European payment system, European Voice has learned. If it does it will face a fierce battle with European banks and payment providers.

A Commission source confirmed that the EU executive's internal market department (DG Markt) "is reflecting" on whether to provide extra incentives for banks to use the pan-EU infrastructure that already exists for cross border payments but which only accounts for 1% of transactions in the EU at the moment. Examples include setting the maximum execution time for payments to one day, or introducing mandatory interoperability so that all debit cards must work on all terminals.

DG Markt will present a paper on these incentives in the middle of this month and a high-level stakeholder group - the Payment Services Market Group - will discuss the matter on 13 May before the Commission decides whether to act.

Legislation on a Single European Payments Area (SEPA) - known as the New Legal Framework (NLF) - has already been drafted and was to be adopted in June. It would set out the rules for payment service providers to offer services in the EU, such as registration requirements, information to be given to consumers and liability rules.

The aim of SEPA is to ensure that consumers can make cross-border payments just as easily as they do at home.

But Internal Market Commissioner Charlie McCreevy wants to boost competition further through a new version of the NLF, delaying its adoption until September.

Sources say that the commissioner is becoming increasingly frustrated by the lack of action taken by the European Payments Council (EPC), a private group composed of banks and banking associations, to create the SEPA. He is also concerned that banks will maintain their monopoly on the systems used to make cross-border payments rather than opening up to competition.

The EPC, which supports self-regulation, has already committed itself to creating a pan-European debit system by 2008, but on Tuesday (5 April) it announced that it would limit this to the eurozone. First it will create a new system in 2008 which will make a cross-border transfer or withdrawal in the eurozone the same as a domestic one. Secondly it is hoping that most payments will then use the system by 2010.

But this is unlikely to go far enough for the Commission, nor does restricting the plan to the eurozone fall in line with the EU's vision of a single market. The source said that the banking industry must prove that some things can be done inside the eurozone that cannot be done in all member states, otherwise its proposal will apply as usual to all 25 member states.

But he noted that by the time the directive comes into play, likely to be in 2009 or 2010, many of the new member states might already have joined the eurozone.

The Commission's competition department supports McCreevy, but if DG Markt decides to adopt its incentive paper, the Brussels executive is likely to have a fight on its hands from a rich and powerful lobby.

"This is absolutely the wrong debate and I know it would be opposed by banks and central banks," argued an expert at the European Banking Federation. "Our system is already open and we just need to convince consumers, banks and governments to use it. Infrastructure is not a problem."

Eric Tomlinson, chief debit officer of MasterCard, agreed. "The Commission could regulate the timeframe to create the pan-European debit system, but not what the solution would look like," he said. "That would be counterproductive as it would wipe out the incentive for the investment needed to get electronic payments to replace cash."

Article reports about plans in the European Commission's DG Internal Market to step up the banking sector's co-operation on the simplification of cross-border payment services by issuing an incentive paper.

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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