At the Cards & Payments Europe 2007
conference, Wiebe Ruttenberg of the European Central Bank outlined
the regulator’s long-term vision for the Single Euro Payments Area,
including a call for a challenger to the debit schemes of Visa and
MasterCard. Victoria Conroy reports .

When it comes to discussing the Single Euro Payments Area
(SEPA), it is rare to find agreement between card issuers and
regulators: card issuers regard the initiative as a necessary evil
in order to facilitate more efficient payments, and regulators
regard it as the gateway for fairer consumer pricing and greater
competition. However, both parties are agreed that debit cards are
likely to play a much more pivotal role in the post-SEPA European
payment market. But, as ever, there are opposing viewpoints from
issuers and regulators.

Wiebe Ruttenberg, head of the Eurosystem market infrastructure
division at the European Central Bank (ECB), gave delegates at
Cards International’s Cards & Payments Europe 2007
conference an insight into the way regulators are approaching the
future of debit payments in Europe, and reaffirmed that regulatory
bodies want to see the emergence of an alternative debit scheme to
Visa and MasterCard.

Ruttenberg outlined the long-term vision of the Eurosystem,
which is made up of the 13 euro area countries. It encompasses four

• more than two euro area-wide card schemes;

• any card issued anywhere in the euro area accepted at any
terminal, anywhere in the euro area;

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• any merchant anywhere in the euro area can have as an acquirer
any bank in the euro area; and

• processors, infrastructure providers, clearing and settlement
mechanisms located anywhere in the euro area can deal with any
bank, any merchant and any transaction in the euro area.

“These elements are all available now in a national context but
within a few years they should be available within a European
context. It is all about choice – for the consumer to use the card
scheme he wants to use, and for the retailer to accept the card
scheme he wants to accept, and to choose the acquiring bank he
wants,” Ruttenberg said.

The basis for SEPA for cards includes the SEPA Cards Framework
(SCF), the November 2006 Eurosystem SEPA for Cards report, the
Payment Services Directive (PSD), the decision by the European
Union’s (EU) Directorate General for Competition on interchange
fees and the European Payment Council’s standardisation work
between 2008 and 2010. On these foundations, he said, the industry
needs to build its value propositions.

“Relating to the SEPA Cards Framework, three choices were given
by the banking community itself on how to become SEPA-compliant.
The options included the replacement by international card schemes,
the expansion of national card schemes to Europe or to co-brand
with other card schemes, most likely international ones. This was
the reason for the November 2006 Eurosystem report. We saw that
there was a risk of massive replacement of national card schemes by
international ones, or people sticking with the co-branding
solution, with the effect that nothing would change within SEPA.
That cannot be the case.”

He said that there is no desire among regulators for the
elimination of “highly efficient and low-cost national card
schemes. Is this what we wanted when we launched the SEPA
initiative? The answer is no.”

Tied to this is the issue of control of Europe’s payments
market. “We have the very powerful US brands Visa and MasterCard;
we have China UnionPay becoming very active in the rest of the
world, and JCB also. But who is setting the standards in Europe for
cards? Who is setting the fees? Where will the European data be
processed? And in the end, who controls the scheme and everything
within it? Of course, it’s all about governance and control so
another scheme needs to be legally based in Europe and operated
under EU law. Data should be processed in line with EU data privacy
regulations. Personal data and how it processed inside and outside
Europe is a very important political issue.”

Ruttenberg said that, following the publication of the
Eurosystem report: “It became clear to us at Eurosystem that a lot
of banks were thinking about giving up the national card schemes
without thinking about the alternative. Of course these are
political questions too, which are relevant for all market players
as the answers will influence what happens in Europe’s card
markets. There’s a direct impact on choice for consumers,
retailers, banks and infrastructures if we don’t have answers to
these questions.”

However, Ruttenberg said that the ECB was not being
discriminatory towards Visa and MasterCard.

“Europe needs Visa and MasterCard, because they both provide a
pan-European service for card payments,” he said. “We welcome the
adoption of SEPA by both companies. But they are only two, and two
may be not enough if there is to be a sufficient level of
competition in the market.”

Alternative scheme

To this end, the Eurosystem had urged the establishment of an
alternative debit scheme, but given that the first SEPA
implementation deadline is now fewer than six months away,
Ruttenberg admitted, the chances of a new European card scheme
being up and running by the 1 January deadline was “mission

“There is a need for the emergence of a European card scheme, or
maybe more than one. Strategic thinking is required now, because
setting up a new card scheme is a long-term project. The Eurosystem
is neutral and supports all credible alternatives.

”We think a European scheme should be understood to be a debit
card scheme covering the 13 euro area countries, but wider coverage
to the 27 EU countries is to be welcomed. Europe is a debit card
continent. Another debit scheme is needed with reach outside the
EU, so co-branding is not considered as necessary. But if there’s
an initiative which would like to offer global reach as a scheme
itself, why not?”

Ruttenberg said that there had been misunderstandings about the
Eurosystem’s view of co-branding. “We have never been against
co-branding but a few years ago it seemed like it was viewed as the
magic solution for SEPA compliance, which would result in a
mini-SEPA. Our concern was that everyone would want to co-brand –
if that were to happen, nothing fundamental changes in the system,”
he said.

“Co-branding helps current national card schemes considerably.
It will achieve European reach, and co-branding provides a way to
become SEPA-compliant from January 2008 onwards. It would also give
the banking industry and other players enough time to come up with
an alternative European debit scheme. In that way, we are not
against co-branding, but we are against the status quo
approach which prevents markets from moving forward.”

Ruttenberg said that there were other concerns. “It cannot be
the case that current national debit card schemes are rolling out
their systems to other countries, when their own national market is
fully protected by some sort of pre-assigned authority for the
national card scheme. Another issue is that by the end of 2010
cards limited to national use will have to be phased out.”

Interchange fees

Interchange fees have been a contentious issue for all players
in the card payment market, and Ruttenberg echoed calls by Visa and
MasterCard for greater clarity. “It’s clear that the market needs
clarity over what is allowed in interchange fees. Without that
clarity, it’s very difficult to build up a business case for
current or future card initiatives,” he said.

Ruttenberg said that another issue in need of clarification is
whether three-party schemes such as American Express would be
subject to the same SEPA compliance standards as the four-party
Visa and MasterCard schemes. “The SCF and our report in November
stated our belief that three-party schemes should comply with the
SEPA requirements too. But there is some room for discussion. For
example, why the need for separation of scheme and processing if
you only have a pure three-party scheme? If the separation of
scheme and processing is not mandatory for such a scheme, what
about the level playing field expected for four-party schemes? It’s
a matter for concern.”

This issue is also tied to standardisation across SEPA, he said.
“SEPA compliance is also about standardisation, such as EMV, issuer
to acquirer, and so on. In the end, one card should be able to be
used everywhere in the euro area with one terminal, one acquirer
and no locked-in solutions. What would it mean if a three-party
scheme was not SEPA-compliant, and what would that mean for
standardisation? Will there be different terminals at the POS for
three-party schemes? That should not be the case. Standardisation
is key for opening up the market.”

Ruttenberg warned that SEPA was not an excuse for banks to
increase pricing levels or fees. “It will be very difficult to
communicate to the end users – the consumers – that SEPA will be
more expensive if the service has not changed. It cannot be used as
an excuse to increase price levels without any significant
improvement in service. At the moment the Eurosystem is looking at
the possibility of monitoring prices in the cards market and
interchange fees, to understand what will happen in the next couple
of years.”

Ruttenberg concluded: “Banks and payment networks are in a
changing market, which enforces action by all market players – the
status quo is no longer an option any more.”