European Commissioner for Internal Market and Services
Time to deliver on SEPA
SEPA Congress at Euro Finance Week
Frankfurt, 13 November 2006
Ladies and Gentlemen,
It is a very great pleasure for me to be with you this afternoon and to make this keynote speech with President Jean-Claude Trichet on the subject of the Single Euro Payments Area. As Jean-Claude has just said SEPA is one of the most important challenges we face at the current time without SEPA, monetary union in the euro-area cannot be complete and without SEPA, the substantial benefits and promise it holds for revolutionising our economies cannot be harvested.
Listening to Jean Claude, I realise just how strong is the shared vision for SEPA that both our institutions hold. In fact, earlier this year, I had the pleasure with Gertrude Tumpel-Gugerell of publishing a joint Commission-ECB Statement on SEPA which sets out in concrete terms that vision and the practical steps and milestones for its accomplishment.
If we look back to this time last year, then I think we can see just how much has been achieved over the past few months.
Last year there were many doomsayers who still doubted and questioned SEPA but now the market is vibrant with activity adapting to the reality of SEPA: the whole banking, processing and clearing industry is re-thinking new business models, re-configuring established market structures and gearing itself up for the bracing winds of fresh competition and new opportunities that SEPA will bring.
Last December the Commission adopted the proposal for a payments directive. This would provide a solid and harmonised legal foundation for SEPA products, particularly for direct debits.
I know some of you may be concerned that the Directive will not be adopted on time. So let me briefly explain where the negotiations stand. All three institutions, namely the Parliament, the Council and the Commission, are working hard to achieve rapid adoption through a single reading.
But the moment of truth is rapidly approaching and we still have one or two major issues to crack, in particular in relation to an appropriate prudential framework for the new payment institutions. Good intentions and commitments unanimously expressed by Ecofin Ministers now need to be converted into tangible text agreements. We all need to move, and move rapidly right now, from principled-discussion for each, to an honourable compromise for all.
So this afternoon, I would especially call upon the Community Co-legislators to redouble their efforts and I would ask Member States to rise above the narrow national and sectoral interests and keep their eyes firmly on the wider benefits of SEPA and its promise for the whole European economy. I, for my part, confirm that the Commission stands ready to make every effort and we are prepared to go the extra mile to secure an acceptable compromise for all.
The industry is making huge efforts and investments to be ready for SEPA in 2008. Consumers stand to benefit greatly from SEPA, thanks to enhanced competition, product diversification and lower prices.
It would be disastrous if Member States would let industry and consumers down because they defend narrow national interests or cannot agree on a sensible and proportionate prudential framework for payment institutions. Economic literature points without any ambiguity to the fact that Europe is largely unable to facilitate the entry on the market of new, small and innovative businesses which will drive competition and competitiveness. This weakness is particularly acute and damaging in network industries, such as the payments industry. We cannot let this opportunity pass. Encouraging innovation has been identified by our heads of government as a way to ensure competitiveness. The Ecofin Council and the European Parliament have now to deliver on these commitments.
Business needs a solid framework for planning SEPA. Even if we have some slippage in adoption, it is important to remember that the PSD is based on the approach of full harmonisation. In non-EU-jargon, that means Member States have no scope to derogate from the provisions of the Directive, unless there is a specific option. So once the Directive is adopted at Community level, business will already be able to plan on the basis of the known provisions in the Directive without having to wait for the exact form of national implementation. So I want to encourage industry to go ahead and plan for SEPA without waiting for national implementation.
Here, I should like to pay tribute to the work of the EPC under the Chair of Gerhard Hartsink. Although we are not quite there yet, (an alternative direct debit scheme for some Member States is critical and cards is area where we need more detail) the EPC has already accomplished sterling work with the existing credit transfer and direct debit rulebooks necessary for the launch of SEPA products. Securing the agreement of the 7000 or so European banks is no mean achievement and one for which I should like to heartily congratulate the EPC.
So encouraged by the progress we have achieved over the last year,
I should now like to look forward to some of the challenges ahead.
Earlier this year I met with senior bankers and they highlighted three issues of concern for them.
First they pointed out that, although SEPA is a hugely important project, it suffers from a lack of promotion by public authorities. As a result citizens and SMEs are generally unaware of what SEPA means and the advantages it will provide. This will start to cha nge as SEPA products become available. But there needs to be a commitment from the top as well. The recent ECOFIN discussions and conclusions are a sound basis for further work with Finance Ministries.
As regards SEPA publicity, my staff are working closely with colleagues at the ECB and the EPC to align our external SEPA communications and develop a consistent and persuasive information campaign. We will also organise user fora and major conferences to bring together all stakeholders. However, for the moment all this external communication is on hold. At the current time, I believe it is important to focus maximum effort on rapid adoption of the Directive but, just as soon as we have agreement, this campaign can move into full swing with a positive momentum behind it.
A second key issue bankers highlighted was the need to ensure successful SEPA migration and the role public authorities could play.
Given that an efficient payments market can reduce the cost of payments to society by 1.0 to 1.5% of GDP combined with the fact that public authorities through tax, social security and purchasing represent 20% or more of the payments market, I have more than a little sympathy for this request. Clearly, public authorities could play a vital role in kick-starting the SEPA migration process and the rapid achievement of critical mass.
I am pleased to say that this too is an issue that we have been able to raise with Finance Ministers. In order to facilitate commitment to an early use of SEPA, the conclusions at last October's ECOFIN, invites Member States to carry out cost and benefit analysis, where necessary, to check that SEPA products are better or at least equivalent to existing products....... And to this end the industry is invited to provide information.
Some may feel this is a rather weak commitment by public authorities, but in my view, its realism enhances its credibility. Public authorities have obligations to justify the expenditure of tax payers' money and in a market-led process for SEPA, it is wholly logical that SEPA products must be at least equivalent, and preferably better, than existing products.
Jean Claude has highlighted the substantial benefits of SEPA at some length. I too am convinced that when we look at the broader picture and carry out a proper cost-benefit analysis, there can be little doubt that the net benefits of SEPA are very substantial. In fact, we too will take a closer look at SEPA's economic impact and my department has just commissioned a comprehensive study into the costs, benefits and opportunities of SEPA to refine our own analysis. This study should be completed by next summer and we will publish the results.
The third and last issue bankers identified was the not unimportant question of costs. While I am convinced that SEPA will yield substantial benefits overall, SEPA will also imply short term investment costs, particularly for the banking sector and to a lesser extent for users, such as corporates and public administrations. Banks and processors will need to scale up their processing systems and IT payments infrastructure, as well as migrate cards and adapt customer mandates and contracts. Users too will incur changeover costs.
This is a difficult issue but not one we should exaggerate. A recent report by recognised consultants in the field confirms that almost 60% of SEPA-like-payment instruments are or could easily become SEPA compliant. Moreover, new infrastructure investment is a regular feature of doing payments business and it would be misleading to lay the blame for all this investment at the door of SEPA.
There are also other ways to mitigate costs. We can extend the useful life of existing systems by conversion software. We can also encourage users to make greater use of more efficient electronic means of payment. This can reduce the cost of cash and cheques - a burden that is often borne by the banking system.
Banks can also tackle the cost issue through the strategic choices they make. For smaller players, it may be more profitable to outsource their payments business to larger, more efficient players that can capitalise on scale economies. Alternatively, they may choose to focus on specific market niches. But more importantly, if we can use SEPA as an IT platform for the development of e-invoicing and other value added services linked to the payment chain, then the potential savings for corporate customers are very substantial indeed.
In my view, banks with their strong marketing power, secure payment systems, traditional customer links and inherent role in the payment chain are in pole position to develop and win this business. Certainly, these services are already very profitable for banks in Scandinavia and I see no reason why this success cannot be exported to the rest of Europe.
I have just talked about the concerns bankers have expressed to me about SEPA, but before I close, I should like to reverse roles and share three concerns of mine with you.
The first relates to the take up of the new SEPA products by administrations and corporate users. This take up will only happen if payment service providers go and see the users to explain to them what the added-value of the new SEPA products will be. It is in the interest of the banking industry to do this as a matter of urgency. The sooner the users are convinced of the advantages of SEPA, the shorter the migration period will be. In other words, a shorter period during which banks will have to bear the costs of running two parallel payment systems. So I hope the industry will take the bull by the horns and convince the users to migrate to SEPA as soon as possible.
The second concern is the cards market. Clearly SEPA should allow what I will call an "any card, any terminal" approach. I must declare a personal interest- my wallet is full of cards and I look forward to the day when I can slim this down.
The EPC SEPA Cards Framework therefore envisages different ways of achieving this. However, here I must give a warning. And this concerns competition in the market.
I am in close contact with my colleague Neelie Kroes on this issue and I can assure you that the subject is also being very closely followed by national competition authorities. Let me be clear: if there is abuse in the cards market then we have the instruments to intervene and we shall not hesitate to make use of our powers.
However, you know that I am no proponent of legislation. On the contrary, I would much prefer to see the market operate freely without further legislation, but it must be a market that is subject to effective competition and one that achieves our full vision for SEPA. We therefore welcome alliances and cooperation that can produce more competition.
My third concern relates to standards and governance. Payments are a network business par excellence and standards are absolutely key. An open standard setting process bringing together ail stakeholders and subject to proper governance is vital. My experience with standard setting in the accounting area has taught me just how important proper governance arrangements are. I am pleased that this message has been understood and we will be very closely examining the recent EPC proposals to see whether they meet the needs of all stakeholders - particularly on the demand side.
Ladies and Gentlemen,
I am convinced that if we can now move from discussion to action and convert commitment to agreement, then we can deliver the Directive and SEPA for the greater benefit of our economy and consumers.
 World Payments Report 2006, Cap Gemini
 ie credit transfers, direct debits and card payments