Jean-Claude Trichet: Creating an integrated market for the euro area
Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Conference
"SEPA Summit" at the Euro Finance Week, Frankfurt am Main, 13 November 2006.
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Ladies and gentlemen,
It gives me great pleasure to welcome you to this conference on the Single Euro Payments Area
(SEPA). The ECB is committed to the success of the SEPA project and therefore decided to contribute
to the organisation of this SEPA Summit in Frankfurt.
I am pleased that we could attract some of the key decision-makers in Europe (and beyond) to this
two-day event. I welcome Mr McCreevy, Commissioner for the Internal Market, who will share his
views on the developments in the creation of an Internal Market in the field of payments. I also
welcome the members of the two panels this afternoon.
Today's conference is an excellent opportunity to discuss the opportunities that SEPA and, more
generally, financial integration offer for Europe. On this occasion, the ECB is also distributing for the
first time its brochure on SEPA, which is intended to provide an informative overview of the project,
also for those not involved in this issue on daily basis.
Our main message is that SEPA will only become a reality when all euro payments in the euro area
are treated as domestic payments and the current differentiation between national and cross-border
payments disappears. I am aware that this calls for everyone to make substantial efforts, as it requires
not only the alignment of national practices of the banking industry, but also changes in habits from
economic actors in all euro area countries. Indeed, the SEPA project is - in ambition and size -
comparable with the changeover to the euro banknotes and coins, although the logistics are quite
different. SEPA could be seen as an important historical step in the unification of Europe after the
introduction of the euro banknotes and coins.
The progress with the SEPA project that has been achieved up to now by the industry is impressive.
Looking back on the discussions on improving cross-border retail payments less than a decade ago, it
was surely difficult to imagine that such a remarkable market-led movement called SEPA would be
achieved to foster financial integration. The SEPA project has activated a real modernisation process
which, in turn, will generate other adjustments.
It is thanks to many individuals, many of whom are here today, who have continuously driven the
project, that such progress has been possible. The banking industry has been able to join forces with
the European Payments Council (EPC) to become the driving force behind the SEPA project.
I would like to share some thoughts with you today on three topics. First, I would like to explain briefly
the ECB's interest and involvement in the SEPA project. In particular, I will underline that, for the ECB,
progress in financial integration is crucial and the status quo in this field is not an option. As a second
topic, I would like to address some of the factors that are essential for the success of SEPA. Finally, I
will present my thoughts on the outlook for SEPA as a truly integrated payment market in the euro
area.
Financial integration and SEPA
Let me explain briefly the main economic benefits of financial integration, stemming first from the
better sharing and diversification of risk, and second from the increase of the potential for higher
economic growth.
Concerning the first aspect, financial integration in the euro area facilitates a better sharing and
diversification of the risk of potential shocks, because it will allow, for example, economic agents from
one region to invest more easily in other regions of the euro area. Economic agents will also be able to
choose payment service providers from different regions, or choose providers that have back-up
facilities in different regions. Financial integration is therefore relevant for the stability of the financial
system, as it improves the financial system's ability to adsorb adverse disturbances.
Concerning the second aspect, financial integration also increases the potential for greater and more
sustainable economic growth, as it will increase the capability for economies of scale and scope, and
thus increases investment opportunities. For example, an integrated financial system, with harmonised
rules, standards and practices across the different countries, would allow for more rationalisation,
consolidation and expansion. The integration process will foster competition and innovation, and drive
down costs. Indeed, the opening-up of markets will allow payment service providers to offer their
services in other euro area countries, which will increase competition.
The euro area has already achieved a significant degree of financial integration. In this respect,
removing the fragmentation of retail payment markets will contribute further to financial integration.
SEPA, with its harmonisation and restructuring efforts, is a crucial factor in opening up the different
national retail payments markets, allowing euro area-wide competition and fostering innovation in the
euro area.
Let me now continue with the fields which have to be covered to foster financial integration.
How to reach SEPA?
In essence, financial integration is achieved when three conditions are fulfilled: (1) singleness of the
market, (2) market participants' equal access to the market, and (3) market participants' equal
treatment in the market. For the retail payments markets, this means that market participants must be
subject to a single set of rules when dealing with payment instruments or services, have equal access
to the payment services or products, and be treated equally.
I see three main barriers which have to be removed if the euro area is to become a more integrated
retail payments market. These are the technical, commercial and legal barriers which exist between
the current national payment markets.
The first barrier is a technical barrier. Of particular importance for SEPA is the development of
common technical standards, which enable the smooth connection of systems and the transfer of
messages between different players. Technical standards are the basis for payment systems, and
could also be referred to as the "plumbing" of the financial system, ensuring the transfer of funds.
National fragmentation through standards should belong to the past and common standards for the
euro area should be in place. The ECB fully supports the work of the EPC in this field, which has
cooperated with the International Standards Organisation (ISO) to develop these standards.
The second barrier is a commercial barrier. For SEPA, the development of a common set of rules and
business practices is a necessity. This is referred to as the "rulebooks" that ensure a common
treatment for transferring funds. The EPC has agreed on the common rulebooks for credit transfers
and direct debits, and a framework for card payments. This single set of rules will allow different
entities to provide core services throughout the euro area. The ECB fully supports the EPC's work in
this field. We also subscribe to the concept of separating the rules from the processing services, as it
will allow operations on a European scale and bring an end to vertical integration, in which scheme
rules are set by the processors.
The third barrier is the legal barrier. The current regulatory differences across the euro area hinder the
provision of efficient and automated services throughout the euro area. The proposed Payment
Services Directive will remove these legal barriers. The Directive - and there we are privileged to have
later on the explanations of Mr McCreevy - will create a clear and homogenous framework for making
payments in euro. The Eurosystem strongly supports the work on the Directive, as it will establish the
legal certainty which is necessary for operations across the euro area. An early adoption of the
Directive is key, as it will facilitate the implementation of SEPA.
Given the importance of financial integration, and SEPA in particular, the ECB is acting as a helping
hand or "catalyst" for private sector initiatives and is monitoring the progress of SEPA. As a catalyst,
the ECB devotes particular efforts to fostering collective action in the private sector to address
coordination problems, which hamper financial integration. The ECB also provides guidance and has
made its expectations clear so that the SEPA project does not become a short-term solution for
crossborder payments, but becomes an ongoing project that will bring the euro area closer to having an
advanced retail payments market.
Let me now turn to the success factors for SEPA.
Success factors for SEPA
As part of any good project, it is important to have a clear vision and achievable deadlines. The
Eurosystem, in cooperation with the European Commission, has defined a common vision for SEPA,
which should inspire the SEPA project. We see SEPA as "an integrated market for payment services
which is subject to effective competition and where there is no distinction between cross-border and
national payments within the euro area". For euro area citizens, this implies that they will be able to
make cashless payments throughout the euro area from a single payment account anywhere in the
euro area, using a single set of payment instruments, as easily, efficiently and safely as they do today
in the national context.
This vision provides the basis for SEPA and guides the different initiatives of the banking industry.
Indeed, the vision has become the "leitmotiv" for changes in the retail payments market.
To realise the SEPA vision, strong commitment from all the stakeholders is required. The ECB and the
Commission are eager advocates of the SEPA project as it brings an integrated and competitive
market.
Furthermore, the European banking industry has shown commitment by launching several initiatives to
create SEPA, and by setting up the EPC to drive the different industry initiatives. More recently, public
administrations have also shown their commitment to SEPA, as the ECOFIN Council in October
expressed its strong political support for the creation of SEPA.
The success of SEPA depends on the commitment of all stakeholders, and this will be facilitated when
the advantages of SEPA are made as visible as possible. Let me therefore share with you some
thoughts on the benefits of SEPA.
For consumers, I expect that they will be able to make their euro payments throughout SEPA from one
bank account. They will be able to use payment cards anywhere in the SEPA, and they will be able to
make convenient cross-border bank transfers and direct debits from anywhere in the euro area.
For corporations and retailers, I expect that they will be able to simplify their European business
management. They will also be able to collect direct debits and payment cards from anywhere in the
euro area. The more competitive market will lower operational costs of payment cards and will at the
same time ensure a more consistent acceptance of cards.
For the banking community, I expect an increase in competition and cooperation across euro area
borders. I also expect that market efficiency will increase, as better prices could be negotiated for the
euro area and new services will be provided to increase automation.
The migration towards SEPA, however, also introduces some challenges. For example, the banking
industry is expected to be confronted with initial investment costs in particular, which will clearly have
an impact on the business of the banking industry. Corporations and retailers show concerns about
the evolution of prices. It is important for the success of SEPA that these concerns are addressed.
Listening to the community, the ECB has tried to better understand the potential effects of SEPA for
the different stakeholders.
In general, we expect that the overall impact for the banking industry will vary according to different
scenarios and stages of the SEPA project. In the short run, the coexistence of SEPA schemes in
parallel with the national schemes is, for example, expected to lead to initial investment costs and a
relatively neutral impact on the revenue side for the banking industry. In the long term, when national
schemes are replaced by SEPA schemes, the costs for banks are expected to decrease because of
potential cost savings, for example from rationalisations, economies of scale and innovations (such as
electronic invoicing). The revenue side will also be affected as competition increases.
The impact on costs and revenues will be determined by the approach chosen by the banks. Banks
that take a forward-looking view and opt for additional services which will automate the payment
process will create new business opportunities.
The changes which are required in the initial phase of the setting-up of SEPA are certainly substantial,
and benefits can be reaped especially by those institutions that embrace new technological
developments and provide innovative services.
This leads me to my last thoughts on the outlook for SEPA.
Outlook for SEPA
The Eurosystem's outlook for SEPA is a truly integrated market, where all euro payments are treated
as domestic payments and the level of safety and efficiency is at least on a par with the best
performing national payment systems today. The Eurosystem will closely monitor the developments of
SEPA, and will pay particular attention to characteristics of an integrated market, such as singleness
of the market, equal access to the market and equal treatment in the market.
It is important the SEPA will finally bring about the creation of a single market where payments are
equal to and ideally will surpass the speed and convenience of the best performing current national
systems. I expect the SEPA project to be future-oriented and of a high quality.
It is also important for the single market that all stakeholders are informed and consulted on their
requirements in the development of SEPA. All parties involved should intensify their dialogue on
SEPA. The ECB will increase its communication with users. We intend to hold a conference with
corporations and merchants in 2007.
Conclusion
Let me now conclude.
SEPA is crucial for the euro area, because it fosters financial integration and brings benefits to the
citizens. Considerable efforts have been made to enhance financial integration, and more efforts are
still to be made to achieve a truly integrated market.
Taking a longer-term perspective, SEPA should be seen as a continuous project of steps towards
financial integration. The ECB and national central banks of the euro area will provide guidance and
assistance to make SEPA a success.
I am confident that the changes initiated by the industry in cooperation with authorities will pave the
way for an integrated and more competitive retail payments market for the euro area, which will foster
innovation, better products and services, and better prices.
Thank you for your attention.