Going against the trend?European integration for retail payments

Wiebe Ruttenberg

Joint ECB-MNB Conference, Budapest, 15-16 November 2012

ECB-CONFIDENTIAL

Contents

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I. Why do retail payments matter?

Efficient, robust, standardised,

integrated retail payment systems

Facilitate trade

Increase competition and

innovation

Foster financial

integration

Completion of the EU monetary union

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I. Why do retail payments matter?

Social costs of retail payment instruments • 0.96 % GDP or 45 billion euro for participating countries

• 1 % GDP or 130 billion euro for all EU27ECB Occasional Paper; Social and private costs of retail payment instruments (2012)

Bank stability and performance • Effective retail payment services entail higher bank stability

• Higher performance through more developed retail payment services

ECB Working Paper; Return to retail banking and payments (2009)

Social relevance of retail banking• Taking deposits, providing credit to real economy, and provision

of payment services to firms and households are key public services

• Evidence positive impact of retail payments on economic growthAdvisory Committee on the Future of Banks in the Netherlands (“Restoring Trust”, April 2009)

UK HM Treasury (“Banking reform: delivering stability and supporting a sustainable economy”, June 2012)

ECB (work in progress); Retail payments and economic growth (2012)

I. Retail payments on the agenda of many authorities

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Worldbank

National Central Banks

Bank for International Settlement - CPSS

European Commission

European Central BankInternational Monetary Fund

Federal Reserve System

I. Why is the ECB involved?

One of the basic tasks to be carried out through the ESCB is to “promote the smooth operation of payment systems” Article 127(2) of the Treaty on the Functioning of the European Union

“the ECB may make regulations, to ensure efficient and sound clearing and payment systems”Article 22 of the Statute of the European System of Central Banks and of the European Central Bank

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I. Catalyst mandate

Source: Eurosystem’s third SEPA Progress Report (June 2003)

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Actions to be taken under the Eurosystem’s catalyst role

Monitoring of progress of and cooperation with the banking industry and the EPC in particular

Eurosystem offers assistance in developing cross-border services for payment instruments

Increase of transparency and analysis on retail issues

Cooperation with the European Commission

I. ECB as a catalyst

Interacting with:•Banking industry: establishment of SEPA credit transfers and SEPA direct debits•EU legislator: the Payment Services Directive, Regulation on Cross-border Payments, SEPA End-date Regulation, Green Paper on Cards, Internet & Mobile, etc.•EU Competition authority: cards, direct debit, internet payments, etc.•National Central Banks: from reactive to proactive stance

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II. What has been achieved so far?

Stylised facts and figures

•Retail payment markets show healthy

growth

•Convergence of retail payment markets

•SEPA update

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II. Retail payment markets show healthy growth

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II. Retail payment markets show healthy growth

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II. Retail payment markets withstood turmoil times

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Growth in euro area payments volumes below the 12-year average in 2011 due to financial turmoil and European economy downturn

But payments growth being still far above average GDP growth

Substantial differences across European payments markets  CAGR

(GDP)

2000-2011

CAGR(GDP)

2010-2011

Total euro area 4.5% (1.2%) 2.3% (1.4%)

Total non-euro area 6.5% (2.0%) 7.7% (1.7%)

Total all EU 27 5.1% (1.4%) 4.1% (1.5%)

Note: “CAGR” is Compound Annual Growth Rate for the volume of non-cash transactionsSource: European Central Bank Statistical Data Warehouse

II. Convergence of retail payments, volume

Some convergence in

payment behavior in EU

for all payment

instruments

except cheques & e-money

Euro introduction

accelerated speed of

convergence

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Notes: Convergence is measured as the decrease in the dispersion of payment instrument use across countries. Source: ECB (2012) forthcoming.

II. Convergence of retail payments, value

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Notes: Convergence is measured as the decrease in the dispersion of payment instrument use across countries. Source: ECB (2012) forthcoming.

Some convergence in

payment behavior in EU

for all payment

instruments

except cheques & e-

money

Euro introduction

accelerated speed of

convergence

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II. SEPA update

Fees for cross-border credit transfers have dropped by around 90% between 2001 and 2011. (EU Regulation 2560/2001 and 924/2009)

Transaction time has decreased from 3.3 days in 2001 to max. 1 day in 2012. (EU Payment Services Directive / 2007)

EMV migration of cards was 88% and of terminals 94% in the EU-27 end-Q4 2011. (market self-regulation)

III. What about the future?

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III. What about the future?

Retail banking and - with it - retail payments will continue to have high social relevance

The financial crisis should not slow down retail payment integration, as this affects trade, financial integration and EU markets competitiveness

Vision for ECB role in retail payments:

transfer knowledge as expertise and influence centre in retail payments;

manage at EU level the political and policy dialogue with financial industry, end-users, EU legislator and other EU authorities;

have an equal, mutual respected and trusted relationship with the EC (MARKT, COMP, SANCO);

increase European influence on global level.17

III. What about the future? (2)

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III. What about the future? (3)

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Conclusions

Retail banking and - with it - retail payments will continue to have high social relevance

The financial crisis should not slow down retail payment integration, as this affects trade, financial integration and EU markets competitiveness

Evidence shows that financial integration through convergence of payments behaviour is happening, but at a slow pace

Europe and beyond: SEPA continues to drive change

An integrated and efficient market of secure payment services in Europe is a moving and dynamic target

Need strong public authorities to set the framework

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Thank you for your attention!

Questions and comments?