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Creating an integrated card, e-payments and mobile payments market for Europe


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Creating an integrated card, e-payments and mobile payments market for Europe

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A version of this article was published in E-finance & Payments Law and Policy in February 2012

The European Commission has set out its vision for a fully integrated European payments market; one in which the consumer has access to a diverse range of secure, non-cash payment instruments to make low and high value purchases, online and offline, throughout the EU.   A fully integrated payments market for card, internet and mobile payments is not only essential to achieving a Digital Single Market, argues the Commission, but will also lead to increased competition, innovation and lower costs for merchants and therefore lower prices for consumers.

In a Green Paper and consultation issued on 11 January 2012, the Commission asks stakeholders how this vision might be achieved.   The Green Paper identifies a number of obstacles to integration across different payment instruments and channels, focusing on five key areas:

Market fragmentation, market access and entry across borders The Commission identifies a number of factors that affect card payments in particular, although it points out that many of the same issues also impact internet and mobile payment channels.  These include:

  • National differences in Multilateral Interchange fees (MIFs): MIFs are the interbank fees – agreed and set by the participants of a payment scheme – that are paid by the merchant's payment service provider to the cardholder's payment service provider on each transaction.  MIFs in the same scheme can differ between Member States and different rates can apply for domestic and cross border payments.   The Commission asks whether these differences hinder market integration and whether action is necessary.
  • Disincentives for cross-border acquirer services:  International card scheme rules currently hinder merchants from shopping around between Member States in order to take advantage of the lowest acquirer fees. 
  • Co-badging: Allowing different payment brands to co-exist on the same card or device could benefit new market entrants and increase consumer choice at the point of sale.  The Commission asks for views on the potential benefits and drawbacks of co-badging as well as existing restrictions.
  • Access to settlement systems: "Payment institutions" (broadly, non-traditional categories of payment service providers) argue that they are unable to compete with banks on an equal basis as they have to use banks to provide clearing and settlement services.  Stakeholders are invited to provide information on the magnitude of the problem and whether a common cards-processing framework should be established

Lack of transparency:  Consumers are often not aware of the cost associated with their use of particular payment instruments.  Merchants bundle the cost into the price of their goods and services, and consumers base their choice of payment instrument on other factors, such as the opportunity to earn air miles.  The Commission wants to assess the impact increased transparency might have on consumer behaviour and on the cost of payment services.  

Lack of common standards:  Common, open standards can ensure that payment services are interoperable and not fragmented along national boundaries, or in the mobile payments sphere, on the basis of providers' individual proprietary solutions.   They also play a part in ensuring that consumers can take their payment application with them irrespective of their choice of handset or mobile operator.  Both the Commission and the European Payments Council view the SEPA project as the springboard for developing common standards in mobile payments across the EU.  (In November last year, the EPC published the final version of its "Mobile Contactless SEPA Card Payments Interoperability Implementation Guidelines".)  

Security:  Finally, the Green Paper asks stakeholders whether proximity m-payments are sufficiently secure; whether additional security requirements required and whether payment security should be regulated.

The Green Paper is open for consultation until 11 April 2012.  The Commission will announce the next steps to be taken before the summer of 2012 and aims for legislative proposals to be adopted by the fourth quarter of 2012 or the first quarter of 2013.

If you would like to discuss the issues raised in the Green Paper or if you would like assistance in formulating a response to the Commission's consultation, please contact John Worthy or Nick Pimlott.

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