The question of whether the
fragmented European payments market, with distinct and disparate
payment habits across countries and regions, is finally at the
point of converging is one that is becoming a hot topic. A recent
round table held by the Centre for the Study of Financial
Innovation attempted to give some answers.
With several countries, each with
their own cultural and economic factors driving different payment
habits and methods, is there such a thing as a European payments
market? Are sub-regional groups emerging in different places or are
there purely national markets? And regardless of the differences,
is there a trend of convergence emerging?
A recent round table event in London, held by
the Centre for the Study of Financial Innovation (CSFI), hosted
several leading payment players from all over Europe in an effort
to answer some of these questions, and to gauge whether payment
innovation is helping or hindering the move towards the Single
European Payment Area (SEPA).
As the discussion took place under ‘Chatham
House Rules’ in order to encourage free and frank discussion, CI
cannot identify any participants by name, but there was plenty to
take away from the discussion.
The event began by examining whether the
European payment market is converging or diverging. One participant
stated that a recent UK Treasury survey on financial inclusion for
immigrants in the UK found that even on a purely national level,
there are some stark differences in the way people pay.
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“The results were very surprising. For
example, in the Polish community, people have bank accounts but as
soon as they get paid they draw their cash out and pay for
everything in cash.
“In the Turkish community, they store
everything in gold, and the Brazilian community won’t have bank
accounts at all. It was very interesting in that even at a very low
level the difference in nationalities was much greater than I would
“The Treasury survey showed that people by and
large rated convenience as a more important factor for making a
payment than cost.”
Consumer choice paramount
Another participant stated that this
is because costs are to some degree invisible to the consumer.
“Although we may think we get our payments for
free, in fact it’s the banks that pay for it, an average of €30
[$40] a year per person. The cost of cash alone is €130. When we
look at the debit and credit infrastructure, it sort of pays for
itself because the banks organise it themselves in a very
cost-effective manner, and the main money they make from the
products they sell is from corporate customers.
“The whole debate should be about what does
the customer want? Do we want to waste all our time and energy
coming up with solutions that appeal to everyone? People want
choice, they demand choice, and they are completely irrational
about it and will do what they like.”
Another participant added: “We have got 40
percent of the population across Europe who are committed to cards
who are very happy with them. But we also have 60 percent who we
haven’t yet given adequate reason to seriously use cards. There are
a series of small barriers to be overcome and to be addressed, but
there’s no single silver bullet.
“In fact, the number one reason given by
consumers for not using cards rather than cash is that the card is
not with them – they don’t have it in their wallet.
“Secondly, there is a belief that particular
retailers did not want to accept card payments. It is only in some
explicit circumstances that the retailer would not accept cards.
But those are the two main reasons why consumers are not using
On the question of whether innovation is
helping convergence, one participant said: “Innovation is at the
core of it, and it’s innovation in its broadest sense – it is not
one single technological advance that is going to do it, it is not
one single piece of infrastructure – it is looking across the
entire innovation spectrum. It is also product development, it is
harnessing new technologies, and it is being more innovative in the
way that we communicate to consumers.
“It is not a single group or product that is
going to drive the future of our business. It has to be all of the
players together, harnessing their efforts.
“The regulators have their role to play, so do
the retailers. We do believe strongly that without innovation,
without a constant review of the way that we do things, there is a
real risk of stagnation.
“And part of the risk of that stagnation comes
from the biggest challenge of all, and that is the consumer.”
Convergence happening – but
Participants agreed that there are
four key aspects for the development of payments in Europe:
convenience; efficiency; security and trust.
These aspects may vary in importance by
degrees in different markets, but they are constant. However, there
are some encouraging signs that while Europe may still be
fragmented on national lines, consumer attitudes to payments are
changing – and at a rapid pace.
A recent payment study released at the
beginning of 2010 by Visa found that in 2002 in Germany, 65 percent
of respondents said they preferred to pay with cash for everything
they bought – that had halved by 2008. The numbers in Spain have
gone from 69 percent to 33 percent, and in Sweden, down from 61
percent to 18 percent.
But this led another participant to ask while
this may represent a degree of convergence in people’s attitudes,
did it mean the same for the market as a whole?
“They are all moving at different speeds and
from different start points but they are all moving in the same
direction,” answered another participant.
Another participant outlined some of the
national differences witnessed across Europe.
“In the UK, the national payment plan has put
forward the suggestion to end cheque usage by 2018, but in the
Netherlands no one even knows what a cheque is – they have not seen
them for years.
“In the UK, some people think it is odd that
some supermarkets have stopped accepting cheques, but the Dutch
consumer association is asking whether in five years’ time
supermarkets in the Netherlands can stop accepting cash. These
markets to me seem wildly different and do not seem to be
converging at all.”
However, there does not seem to be much
consensus as to what the real problem is. Is it that the entry
point into the channel is different?
“We will only get more choice and more payment
devices,” said one participant. “We can not go back in history. The
only thing we can try is to remove some of the cost-carrying
elements, such as fraud and so on but you can only do that by
Degrees of innovation
One common theme that has emerged
across Europe is the move towards debit, but some participants
questioned whether this was influenced by the abolition of cheque
usage in some countries.
“Effectively people have moved towards a
plastic cheque,” said one.
Another participant said: “Cheque usage has
been reducing year after year, but in some countries it is rising.
We are just in the middle of a recession and in some countries
cheque usage has been picking up.
“It is a very simple method for individuals
and small companies to manage their costs. I put a cheque in the
post and post-date it so that the money does not come out of my
account until a certain date. That way I fulfil my payment
obligation and enjoy ten days of cash.
“There are a number of different trends that
we have seen across Europe, and the only single successful payment
convergence initiative that we have seen so far is the euro single
currency. Apart from that, SEPA so far is happening but incredibly
“We have SEPA credit transfers, SEPA direct
debit will be happening soon, but SEPA for cards is nowhere to be
seen. The Payment Services Directive [PSD] is a great example of
the disparity across Europe. The PSD was meant to create a level
playing field to enable SEPA to happen.
“There are different macro trends, but Europe
tends to move in the same place directionally, with different
speeds and different bumps along the way, and with different
reactions to the economic climate. ATM withdrawals in Europe behave
differently depending on the economic cycle, differing levels of
consumer confidence and so on.
“We see that in developed markets, like
Western Europe, there is a correlation in the number of electronic
payments per inhabitant, number of cash payments per inhabitant and
the level of the unbanked population. As soon as you move out of
the top euro 16 countries, the disparities become much wider. It
takes 10 years to 15 years for a payment innovation to reach the
The example of prepaid cards was used to
demonstrate this point.
“Prepaid cards have been around in the US for
about 20 years,” said a participant, “but they still account for a
very tiny percentage of overall non-cash payments. In Europe they
have been around for 12 years, and they were worth 0.003 percent of
non-cash payments in 2007.
“Is it a ‘problem child’ product? In some
countries like Italy it is very well established, but in other
markets they are nowhere to be seen. Or they exist only in some
flavours like closed-loop gift cards.”
However, another participant said: “But
prepaid cards are not a step forward, are they? Prepaid cards are a
step back. They are closely associated with the black economy, with
tax evasion, money laundering and so on.”
But this assertion was firmly rebuffed by
another participant who said: “Are you talking about interoperable
prepaid cards, or closed-loop cards which are fit for purpose and
do the job?
“Prepaid open-loop is a disaster because it
has been designed by credit and debit card people on a debit and
credit card model for electronic cash. But it is supposed to be
electronic cash, so it is a design fault – we in the industry have
made a mistake because we tried to design something we think should
exist instead of thinking about precisely what we are trying to
“If it is convenience, if it is usability, if
it is to replace cash, it has to have the functions and features of
cash. Cash is good because it has got an anonymity attached to it
and has immediate settlement, and it has that convenience. For me
the prepaid card is vastly over-engineered for the segments of the
market it has been designed for.”
Who or what is driving
The discussion then moved onto how
much political factors are at play when it comes to accelerating
convergence, and exactly whose convenience regulators are really
“We expect the consumer to realise the
benefits, but as an industry we need to be looking at who is
actually influencing the decisions,” said one participant. “As an
industry we need to look at who we are trying to persuade to adopt
these products and how is the language we use addressing that. In
what direction are we coming at this from?
“And we are going to have to produce very
finely-nuanced messages for a very complex set of products. Maybe
we have something to learn from other industries. When we look at
the European level, who is actually driving the SEPA agenda,
particularly when it comes to cards? Is it the European Commission,
the European Central Bank, the European Payment Council?
“Because if it is not political objectives
driving this, do the people of Europe really want interoperable
payments when on some level they have that already?”
This assertion led to participants to examine
the development of SEPA and who it will really benefit.
“It started as a vision of the United States
of Europe to increase the competitiveness of Europe as a whole by
achieving critical mass,” said one participant. “Banks are slowly
migrating but companies are ignoring it.”
“But we should not have to talk to companies
about it,” said another. “Banks should talk to their corporate
clients about what additional services they can offer.
“Even companies who do not operate across
borders should have some need for international payments.
“People should not even have to know what the
PSD is, and that is the whole problem, because banks in all honesty
could not get their act together.”
However, another participant came to the
defence of the banks: “The problem is that SEPA is a two-legged
stool, and that is not the fault of the corporates and not the
fault of the banks. No large corporate is going to spend $50
million rebuilding their cash management system for a system that
is only two-thirds built. SEPA will happen and will take off once
it is finished. SEPA’s not finished.”
One of the more contentious points of the
discussion came when participants questioned how to move SEPA
“We live in a democracy and that is the
problem,” said one. “If you go to China initiatives are done and
dusted in a very short space of time, because there is no
But another participant interjected: “I’ll
take a democracy any time, thanks very much.”
“We cannot convince customers to
adapt new payment methods. We have to go with what the banks want
to do,” said another.
“We cannot hurry clients along, we cannot say
to people to stop using cheques because they are very expensive and
“I think we would waste so much time and
effort if we try to convert people to different behaviours because
I think it is the beauty of being a European. Consumers are
emotional, they are tied to things they are used to. Some people
want to try something new, others do not.”
But how do you encourage that change in
“Incentives are very important. There is a
schizophrenia at the European level around the use of American
international companies and that’s just a fact. They [European
regulators] want a European solution for the Lisbon agenda, and you
cannot get away from that cultural dimension,” said a
Another added: “Whether you like it or not, we
are all Europeans. When you look at it as the EC does, as the
European parliament does, they look at the price differentials as
an indication of inefficiency in their single market, and that is
“If you are charged a different price in one
country, you cannot aggregate and switch volumes and negotiate
prices out of the UK and into the European level.
“There is a market dysfunction in the single
market. From a citizen’s point of view, I do not think they really
care that much. It is a matter of getting what you want in the most
convenient way provided there is not an exceptional price
“Frankly SEPA for cards is going absolutely
nowhere – it is perhaps going backwards very fast. The EC lobbed a
grenade, or more likely a nuclear bomb, into the SEPA Cards
Framework (SCF) recently when they declared that every
implementation standard that was going to be applied to the SCF
would need to be freely available to everyone else.
“No one is going to have any confidence in
these standards if they cannot apply some level of charge. This
comes back to the point of leadership. Who is actually leading this
and who is bringing leadership to this landscape where we are
trying to introduce new solutions?”
Another participant said: “The SCF is a good
example of how all these things should be converging.
“But when the EC calls for this kind of thing,
is that because they actually want it or is it just to avoid Visa
“My personal belief is that I do not believe
there is the level of awareness about how the market operates
around Europe at that political level, but as a sector we need to
take some of the blame for that in terms of not educating the
people that are regulating the sector,” said another.
“It is the regulators that are pushing SEPA
and the PSD and I am not saying either of those are wrong, but they
did come out of Brussels,” said another participant.
“They are costing billions and it is coming
from the regulators. In fact, it is one of the biggest issues
facing the banks today, and they risk not having any money left
over for innovation.
“The majority of our infrastructure and
expense budgets are being chewed up by these regulatory
requirements. It is not a complaint as we have to do these things.
We are supportive, but the reality is that they are not bank
endeavours, they are regulatory endeavours.”
As the discussion drew to a close,
participants broadly agreed that there is certainly an element of
convergence currently occurring in Europe, but that different
markets are moving at different speeds. And ultimately, it will be
down to consumer preference to influence the market’s future