Excerpt from speech by Yves Mersch, Member of the Executive Board of the ECB, at the European Institute of Financial Regulation (EIFR), Paris, 3 September 2018
Progress towards an integrated market for payments has not been without its problems. Europe still does not have an integrated, standardized card payment network, with the vision of being able to use any card at any payment terminal in Europe having yet to be realized.
Europe’s largest card payment networks are still not interoperable. For example, Germany’s Girocard and France’s Cartes Bancaires account for a substantial number of card payments in the euro area’s two largest economies. However, owing to significant technical differences, a supposed lack of a business case and an absence of political will, these two networks remain separate – as do most other national card schemes. As a consequence, it is more convenient to use non-European cards when traveling across Europe.
Although some standardization work has been carried out via the European Cards Stakeholders Group, Europe still does not have its own Europe-wide card scheme, so we remain fully reliant on non-European schemes when making cross-border card payments. Although they provide a valued service, those schemes raise certain questions from a governance perspective. European banks have relinquished their influence in this area, possibly because of short-term profit considerations.
Indeed, large non-European companies now play a significant role in the provision of payment services in Europe, while European banks are focused solely on serving their national markets.
Let’s face it: the foundations laid by European institutions have not been leveraged by European providers in order to offer pan‑European services. Instead, those foundations are often exploited by multinationals from outside Europe offering innovative, consumer-friendly solutions. Indeed, European banks seem to have surrendered much of the pan‑European payment business.
PayPal now dominates the market for online payments in Europe, using the pan-European SEPA credit transfer and SEPA direct debit schemes to provide harmonized services. Meanwhile, Google, Apple, Facebook and Amazon are also offering significant payment services with pan-European reach, some of which involve joint ventures with individual banks at a national level. At the same time, Chinese giants like Alibaba and Tencent are advancing. While these companies are to be admired for their ability to expand and provide innovative services that consumers want, I would ask why there are no European companies competing in that arena.
There is a risk that our dependence on foreign providers will increase further as regards the development of innovative payment services, since banks are resisting the objectives of PSD2 on this front. They have been defensive when it comes to granting technical access to new and innovative payment service providers, which will limit European fintech companies’ ability to provide competitive solutions. Indeed, I fear that global giants from outside Europe will use their network power to increase their presence further.
In other sectors, European companies have succeeded in achieving global reach. In the car industry, for example, European vehicles set the standard when it comes to quality and reliability. There is no reason why this success cannot be replicated in the area of payment services – or financial services in general.
The way we pay in Europe is changing. Significant numbers of consumers are moving to online payment channels, with retail payments increasingly being carried out via mobile phones. At the same time, virtual currencies have long been a topic of debate – and not only among experts, either.
European citizens demand pan-European services that are safe and efficient. Consequently, there is a need to look carefully at the governance and regulation of payment solutions. Many payment channels are provided by non-European companies. Although those companies comply with our legislation and use our payment infrastructure, they are, for the most part, not domiciled in Europe. This increases our dependence on third countries. In particular, we have to be mindful of the fact that extraterritorial jurisdiction could, in a worst‑case scenario, affect the operation of those companies and disrupt payments between European counterparties. In the current geopolitical environment, such risks are, unfortunately, not as remote as they once were and need to be taken seriously by European policymakers.