Towards payments without borders

Date 19 June 2012
Time 12:00 pm
Speaker Frank Elderson

Speech by Elderson on the Future of Payments on 19 June 2012.

Betalingsverkeer zoder grenzen

Good morning, ladies and gentlemen, 

Thinking of SEPA I see reason to rejoice as henceforth payments can flow while borders they no longer know..... to give my personal adaptation of the first lines of Marsman’s famous poem Memory of Holland.

And indeed, in the payment system of the future I see how borders between payment methods, payment channels and countries will gradually disappear step by step.

To me, this is an encouraging prospect, because it points to possibilities for creating an even more efficient, safe and reliable payment system than we have today. This is clearly a welcome development, but also one which requires close and extensive cooperation due to the many snags and pitfalls.

It is these disappearing borders and the need for cooperation that I wish to discuss with you today.

Looking to the future, I see the traditional dividing lines within the payment system becoming increasingly blurred. At the same time, I see that both competition and collaboration have intensified. I propose we take a closer look at three changing borders.

First of all, I see a shift in the traditional borders between players in the payments chain. New players are coming to the fore, while more and more non-banks are active in the payments market. 

Meanwhile, the electronic money institutions that were already in place are being joined by a growing number of parties offering intermediary payments services for businesses and banks. In the Netherlands, for instance, there are already 40 businesses providing online check-out services to webshops, enabling them to accept all sorts of national and international payment methods. Some even have the status of payment institution and, as such, can compete directly with the banks.

Another development we see is that the advent of technology-based payments is casting mobile and internet services in an increasingly central role. This not only means more competition in the payments market from non-banks, but also a more complex payments chain with greater mutual dependencies. And all this, in turn, calls for more cooperation. This is needed in order to maintain or improve the safety, reliability and efficiency in the payments chain – for instance by rectifying and preventing faults.

I also see the traditional borders between channels and products disappearing. The use of new technologies has eliminated the traditional boundary between distance payments (e.g. via transfer forms)and over-the-counter payments (e.g. with bank cards).

All around us, things are rapidly becoming more and more mobile and digital. Which is basically bringing distance payments a lot closer. Thanks to virtual check-outs, we now not only shop online using credit cards, but also credit transfers and direct debits. Of course this process is also occurring in the opposite direction. Online payment methods such as  iDEAL can also be used to make guaranteed payments via a mobile phone for physical deliveries to your home. And a traditional virtual player like PayPal has now also appeared at the physical check-out counter. In fact PayPal is even set to launch its own credit card.

Another development blurring the border between cash and electronic is the arrival of e-wallets and other pre-paid payment methods, which can be used like cash to make anonymous payments.Convenience is a good thing for both consumers and retailers. Making and receiving payments must be made as simple as possible for both parties, and innovative parties are constantly thinking up handy new solutions. But as the traditional borders come down, it is becoming even more important than ever to safeguard the security of the payment system. Because cybercrime is on the rise. And this, too, calls for greater cooperation − including with the police and judicial authorities − in order to preserve people’s trust in this new payments world.  

Clearly, the creation of SEPA will dismantle the borders between the national payments markets. And within SEPA, providers and processors of payments are no longer protected against foreign competition. This will inevitably set a consolidation process in motion, with the resulting economies of scale leading to a lower cost price for payments. In the Internal Payments Market, companies will have a much wider choice of payment service providers, while consumers can also look to foreign providers. In this atmosphere of heightened competition, Dutch banks are well-placed to make rich pickings thanks to their efficient payment services. Moreover, this competitive euro payments market also creates fertile ground for European innovation in such areas as the expansion and improvement of payment options with new technologies, for instance. Meanwhile, the European Commission’s Green Paper provides a good platform for consultation with stakeholders about the future shape of the European market for card, online and mobile payments.

However, in order to reap the fruits of the Internal Euro Payments market, new forms of cross-border consultation and cooperation among market parties are imperative. After all, though international companies will soon enjoy the advantages of SEPA, much work remains to be done to allow all businesses and all consumers in Europe benefit to the full. For one thing,SEPA governance must be improved. Gerard Hartsink has already cast light on this issue. I, too, would like to share our vision with you. 

I like to refer to 1 February 2014 as the start date for SEPA rather than as the end date for the SEPA migration. The internal payments market must be given shape through cross-border competition, mergers and consolidations of processors and providers, and through the in- and outsourcing of payment services. This will not happen by itself. As with the migration, it must be done in cooperation with all market parties. Because SEPA is not purely the preserve of the banks. So if SEPA is to succeed, it is absolutely crucial to involve the users of payment services. Consultation and cooperation at European level is even more vital than at national level.

The current governance at European level consists mainly of the SEPA Council. This was set up to promote the realisation of the euro payments market by creating the required stakeholder involvement. As is clear from the ongoing evaluation process, this governance model can still be improved. Its members continue to operate a little too ‘separately”, so to speak.

We will certainly not hesitate to bring our vision to that evaluation process. I think the Dutch governance model can definitely serve as an example for improvement. Particularly, of course, our National Forum on the Payment System (Maatschappelijk Overleg Betalingsverkeer / MOB). I believe that elements of the Forum can be quite useful at European level. The Forum works well and to the satisfaction of all stakeholders, which is one reason why the Netherlands is among the countries with the highest degree of payment efficiency. Dissatisfaction with the European payment system is still widespread and there is great scope for efficiency improvements. Clearly, not all countries have a consensual tradition, but this should not be an impediment here. This is because the need for cooperation is driven, above all, by the nature of the payment system, not by the cultures of individual countries.

Allow me to describe what a governance model based on Dutch principles could look like.

Firstly, it is important that the European Council and the European Parliament provide a clear mandate – a mandate that is unambiguously aimed at promoting safe, efficient and reliable euro payments in SEPA. Another requirement is that users and providers are properly and proportionately represented. To achieve this, the European organisation needs to be improved on the user side.  Collective issues, such as the final details of the European Direct Debit and agreement on the introduction of e-mandates, must be decided in consultation. 

The preparatory work can be done in working groups consisting of providers and users. Every year this forum could report on the progress to the European Council and the European Parliament. As in the SEPA Council, the ECB and the European Commission should act as the drivers of this forum. European political involvement – reinforced by the threat of legislation – can also help to galvanise market parties into voluntarily working together to give the payments market more tangible shape.

In short, such a forum should take ownership of SEPA. But before we reach the SEPA start date, and in order to ensure the Netherlands migrates on time, a great deal of consultation and cooperation is needed at national level between providers and users of payment services: these include banks, software producers, companies, governments, consumers and all their interest groups. Which takes us back to the present.

How is the migration progressing in the Netherlands?

As most of you know, entirely in keeping with our tradition of consensual politicsweset up the National Forum on SEPA Migration (NFS). The aim was to build a broad base of support for  SEPA, with DNB propelling the process. We set up the NFS because we believe in the Internal Payments Market and want to ensure a smooth migration, while preserving the existing efficiency. To this end, we drew up theNational SEPA migration plan together with all stakeholders. This plan maps out the transition to European Transfers and Direct Debits for each group of users. The Programme Bureau of the NFS, which is placed within DNB, monitors compliance with the arrangements. We also jointly seek  appropriate solutions to the diverse hurdles we encounter in the migration process. Let me give you a few examples.

One much-discussed topic in the past months involved the future of thepre-printed transfer form, known as the acceptgiro. Those involved considered whether the SEPA migration would an ideal opportunity to abolish that old paper-based payment method. Or whether the introduction of an IBAN version would be a better solution.  After  extensive consultation, the banks found that a significant group of consumers and distributors wished to keep the acceptgiro until a good alternative became available. So there is a future for the IBAN acceptgiro. But only until 1 January 2019 at the latest, when it will be finally laid to rest after over 40 years of loyal service. 

Another example concerns the use of short account numbers by charitable organisations. As you can imagine, NL08 INGB 7x0 3x5 is more difficult to communicate than Giro 555. This prompted us to form a small working group consisting of banks and charitable organisations. Together we are looking for the smartest approach to this problem within SEPA. Solutions are expected shortly.

A third example relates to the implementation of the consumer protection measures the SEPA Regulation prescribes for the European Direct Debit. A separate working group comprising banks, creditors and consumers has been created for this purpose. And incidentally, this same working group will also discuss the introduction of the electronic mandate – the e-mandate - after 2014. The first innovation on a European scale.

In the Netherlands, we are already over six months into the SEPA migration process. However, this is not yet reflected in the migration figures and we still have just about the lowest migration ratio in Europe. Our chances of becoming European champions in this area are pretty slim, but definitely cannot be ruled out. After all, if we can't be European champions in football, then let’s make this our goal!  As you know, the final whistle will not be blown until 1 February 2014. And our preparations are in full swing.

Meanwhile, the IBAN migration communication campaign – OveropIBAN – is underway. The OveropIBAN site has gone live; we have initiated a wake-up call for the business community; we are publishing articles in trade journals and are speaking at a growing number of seminars and conferences. Banks have also intensified their efforts to inform customers about IBAN and SEPA. This is already paying off, because ourmonitoring shows a growing awareness of SEPA and IBAN as well as a steady increase in the number of companies that have started their preparations. The first major organisation has already completed its migration. This early mover, the UWV benefits agency, now carries out a large proportion of its outgoing payments with European transfers and IBAN. Further good news concerns the fact that the bottlenecks identified so far have all proved solvable and will fortunately not stand in the way of our migration. 

But it is vital for all the various parties to adhere to the migration scenario they themselves have agreed to. We are seeing that by far the greatest number of market parties have underestimated the work and effort involved in the migration. The providers - i.e. banks and software firms – are struggling to keep pace and meet the timelines. This underestimation on both sides of the market is putting a lot of pressure on the timetable and its achievability. But these timelines can still be met, provided everyone rolls up their sleeves. Too many companies have still not finalised their migration plans. So we are going to spur them on via the monitor, via the industry organisation involved, and via lectures and seminars. And, last but not least, through the Supervision entrusted to DNB to ensure compliance with the Regulation. And now let me draw my remarks to a close as I’m sure you are all ready for a cup of coffee.

What awaits you after the break are several interesting presentations that offer a detailed picture of the possible future payments landscape. And provide insight into the wishes and expectations of the end users, into the vision of new players, and into the challenges facing all stakeholders. My message is this: listen carefully to each other. Fewer borders in the distribution channels, fewer borders between banks and non-banks, and fewer borders in the European payment system necessitates greater cooperation in non-commercial fields.

This competitive, innovative Internal Payments Market is truly something we must achieve together with all stakeholders. I wish you every success with the transition to SEPA. And for today, enjoy the rest of the conference.

Thank you for your attention!