Debit is become an increasingly important source
of revenue for the card associations as banks rein back their
lending because of slowing national economies. Luke Olbrich,
MasterCard’s head of SEPA debit, spoke to William
about how debit growth could help the scheme defy the
tough economic outlook.

MasterCard is not concerned by the possible introduction of a
third card scheme, according to Luke Olbrich, MasterCard’s head of
SEPA debit in Europe.

The establishment of a third scheme to rival Visa and MasterCard
has been supported by the European Central Bank (ECB) and has been
one of the big talking points as SEPA takes shape. One of the
concerns of officials pushing the SEPA agenda has been that, while
it intends to liberalise payment markets, it could have the affect
of killing off national debit schemes as banks increasingly favour
the international brands to meet their Europe-wide

Change in overall proportion of internationalThe most credible
third scheme to emerge so far has been Oliver Hommel’s European
Alliance of Payment Systems (EAPS), which has linked numerous
national schemes. They include Germany’s electronic cash scheme,
Spain’s EURO 6000, Portugal’s Multibanco, the UK’s Link network,
Italy’s PagoBancomat and Bancomat schemes and European processor

But Olbrich said any such scheme could only be a step backwards for
European consumers.

He told CI: “While the ECB may be proactively pushing for a third,
European-use-only scheme owned and operated by the European banks,
the reality is that would be taking consumers backwards a

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“Last year, our debit cards were used in over 197 countries and
territories. In the UK, Maestro cards from 191 different countries
were used. If you introduced a new European scheme, you would
effectively disable all of these cards from day one. If you were
travelling in Japan, the US or Morocco, you would not be able to
make payments with a European-only scheme.”

MasterCard unfazed by competition

Olbrich said MasterCard was unconcerned by increased competition in
its market place as a result of SEPA. While a third scheme would be
able to compete with MasterCard for cross-border transactions under
SEPA, which make up around 3 percent of total transactions,
MasterCard would equally be allowed access to the domestic debit
transactions which they have previously been barred from competing
in – which make up around 97 percent of transactions.

Olbrich added: “The reality is the prize is at the domestic level,
and that is where we see the opportunity for ourselves because we
have not been involved in the business in most of the SEPA

SEPA has been one of the most talked about issues in banking and
consumer finance in Europe in recent years because of the way it is
reshaping the payments industry for a range players. SEPA, the
industry-led initiative to create a single payments market in the
EU, officially went live in January 2008 but implementation has
remained a gradual process. As far as MasterCard is concerned,
however, SEPA is live.

Olbrich cited the development of “economic zones” MasterCard had
seen developing as cross-border payments mechanisms started to
become harmonised. And some of the biggest areas of growth are
perhaps surprising.

Belgium – percentage transactions acquiredSome of the most
quickly growing markets for cross-border transactions included
Germany, where there was an increase of 103 percent in point of
sale (POS) cashless cross-border transactions between 2005 and
2007. In France, over the same period, there was an increase of 46
percent; Spain an increase of 43 percent; and the Netherlands an
increase in 56 percent – all mature markets where growth rates in
other areas of financial services have traditionally been hard to
come by.

Olbrich said: “Cross-border spending has been constrained in the
past. Germany is not a big destination, but in the growth rate in
usage of international debit cards it is the fastest growth in
Europe [103 percent]. And it is not because the food has become any
better – it is really day-to-day shopping. There was an uptick from
the 2006 World Cup soccer tournament, but that is not what is
really driving it, it is the creation of a single market.”

The “economic zones” of international payments have developed where
countries share borders, as it becomes easier for consumers to make
card payments between countries. Cross-border payments from Austria
to Germany have increased to such a degree that almost 40 percent
of all Austrian transactions are now acquired in Germany. There is
also a significant flow in transactions between Belgium and France,
with around 37 percent of Belgian transactions acquired in

Any card, any terminal

Virtually all debit cards in the EU bear an international
SEPA-compliant brand, whether purely branded or co-branded. Even in
countries where Maestro’s penetration has traditionally been low –
countries like Finland, France and Italy – fewer than 10 percent of
the cards in each of the countries do not have global or SEPA reach
already, according to Olbrich.

He said banks were making headway on closing this gap, and expected
to see it shut by the end of this year or early 2009, depending on
the progress of banks. On the terminal side, there are two areas:
the upgrade to international SEPA brands from national-use only
acceptance and EMV implementation.

Olbrich said 88-90 percent of terminals in Europe take Maestro
cards. There were some holes in coverage in Belgium, Portugal, the
Netherlands and Germany, but they were steadily being filled out,
he said.

Olbrich said one of the biggest changes coming out of SEPA was
structural, particularly in the merchant acquiring industry.

He said: “Beyond any-card-any-terminal, SEPA is also about the
liberalisation of the domestic payment markets. That means opening
up those markets to competition, both at the scheme level and the
service provider level. That is so you no longer have separate
brands for national and international schemes. As a result, you are
seeing significant growth in usage at a national level, leveraging

There is an increasing amount of competition in the merchant
acquiring market as rules protecting national processing and
acquiring monopolies are relaxed. With international brands
featuring on more and more cards, acquirers are able to leverage
that brand to enter markets. From 1 January, all European merchant
acquirers are theoretically able to offer retailers in any EU
country acquiring services, terminals and transaction

Olbrich said: “In the past, it did not make any sense for acquirers
to try to compete.

“They might have done some central-acquiring for companies like
British Airways or a big UK hotel or rental car chain, but it did
not make sense for them to compete because they would have to
become members of the international schemes.

“And some companies would not even let them compete, because if
they wanted to accept a national scheme it would mean they would
have to accept the national processor. From a structural point of
view, that is where we expect to see the big changes in the short

Austria – percentage transactions acquiredFor cross-border
retailers in particular, this should mean big savings. Because of
the fractured nature of the payments system in Europe, retail
chains which operated across multiple EU countries often needed to
have separate agreements with merchant acquirers in each

The level of savings possible under SEPA is illustrated by OMV, an
Austrian and central European oil and gas corporation, which
recently signed a Europe-wide agreement with acquirer Euronet,
enabling it to cancel 14 separate bank acquiring contracts and save
millions of euros.

Olbrich added: “As a result [of SEPA] prices start to fall for the
Maestro brand compared to the domestic brand. That has been a bit
of a debate – that when Maestro is introduced, prices go up. The
reality is that prices have fallen because it introduces
intra-scheme competition that did not exist with the national

Changing spending patterns

It is apparent then that debit is becoming an increasingly
important source of revenue for MasterCard in Europe. And its
half-yearly results, published in late July, indicated debit was
also becoming a strong growth engine in its US business.

Although it reported a net loss of $747 million because of a $1
billion settlement with American Express, MasterCard’s debit
programme gross dollar volume (GDV) growth inside the US was 15.8
percent, compared to 32.6 percent outside the country in relation
to the second quarter of 2007. Credit and charge card programme GDV
was up just 0.7 percent in the US, compared to 27.4 percent outside
the US.

Olbrich said: “Debit is recession-proof in many ways. It is about
the replacement of cash rather than continued consumer credit. If
anything, during economic downturns, we see greater debit card
growth because banks start reining in their credit lending

“They start reducing the amount of credit they are offering
consumers, so consumers are pushed back to using cash or their own
resources, which given some of the ‘Wild West’ practices of
lending, maybe is
not a bad thing to cool down the economy a bit.”