Gertrude Tumpel-Gugerell: SEPA - a busy year is coming to its end and
another exciting year lies ahead
Speech by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European
Central Bank, at the Next Generation Cards & Payments Conference, Brussels,
25 November 2010.
* * *
Good morning ladies and gentlemen,
Introduction
Walking across the Grand Place and around the Bourse you can see busy preparations
under way for this year's Christmas market. I have been told that it will be opened tomorrow
and exhibitors from all over Europe will be selling their goods. The guild houses and Town
Hall will be beautifully illuminated and decked in festive garlands and I am sure that the
Christmas song "Silent Night" will be played. In fact, today is the birthday of Franz Xaver
Gruber, an Austrian primary school teacher and church organist who composed "Silent
Night" at the beginning of the 19th century. On Christmas Eve 1818 "Silent Night" was
performed for the first time, in a chapel in Oberndorf, near Salzburg and subsequently made
its way throughout Europe and to the rest of the world.
Talking about Christmas reminds us that 2010 is slowly but surely coming to an end. As in
every year, the media will soon be producing reviews of the year's events. When we look
back at what has happened in the field of payments, it is obvious that Europe has invested a
great deal of effort and substantial progress has been made. All of us have contributed to
and are familiar with what has been accomplished in 2010. I will therefore refrain from listing
our past achievements but concentrate on the things that remain to be done. Let us therefore
start to think about our New Year's resolutions for 2011.
New Year's resolution number one: let's define a SEPA migration end date
There is a consensus that an end date is needed for the migration to the SEPA credit
transfer (SCT) and SEPA direct debit (SDD). Throughout 2010 representatives from almost
every stakeholder group have been calling for a defined end date. Just recently a study
conducted by BearingPoint revealed that more than 80% of the banks surveyed consider a
binding SEPA migration end date to be necessary. In fact, the majority are in favour of an EU
regulation to set one.1 Of course it is no secret that, despite this general agreement, the
details of such a regulation have been widely debated since the summer. For this reason, I
had welcomed the European Commission's decision to organise a public hearing on the
issue, which took place last Wednesday.
We in the Eurosystem have been very explicit in our comments on this topic and we have
been calling for a regulation setting a migration end date for SCT and SDD. Indeed, we have
gone one step further and have announced preferred dates, i.e. the end of 2012 for credit
transfers and the end of 2013 for direct debits. When it comes to the question of which
payment instruments should become the credit transfer and direct debit schemes used for
euro payments in the EU, for me it is obvious that the answer is the SCT and SDD. This is, in
fact, the position of the Eurosystem, which was clearly communicated in the seventh SEPA
progress report. Of course, it is one thing to set a goal, but it is far harder to achieve it.
However, I am confident that the European Commission will make this possible through a
legislative proposal. Despite the debate surrounding the end date in the past few weeks, we
should not forget that we all share the same goal: we all want to make SEPA a reality. Of
course, SEPA will only be a success story if it goes beyond credit transfers and direct debits.
This brings me to my next New Year's resolution:
New Year's resolution number two: let's establish the requirements for a competitive
cards market
Any cards market should meet a number of requirements in order to facilitate competition
and efficiency. The principle of separating card scheme management from processing
entities is one of the core elements of SEPA that aims to guarantee open access. The SEPA
credit transfer and direct debit schemes are built on this principle; it should be applied in the
cards market too. This would give banks a range of options to choose from as regards the
processing of card payments.
To allow for the efficient processing of card payments in SEPA, the same set of message
standards as used for the processing of direct debits and credit transfers should be adopted,
i.e. ISO 20022. To bridge the gap that exists between this strategic vision and the reality, a
framework for the processing of card transactions should be developed and the processing
infrastructure providers must subsequently develop the rules and standards that are needed
in order to establish technical interoperability for card payments.
Another important issue is cards standardisation, which is crucial to ensure the
interoperability and harmonised use of cards across Europe. In the area of standardisation,
there is a clear separation of responsibilities. First, the European Payments Council (EPC) is
responsible for the strategic vision and business rules for cards. Second, the Cards
Stakeholders Group is responsible for establishing functional, security and procedural
requirements. Third, various market initiatives have developed implementation standards and
specifications for the various domains of card payments. This is very welcome; however,
work on the implementation of these specifications is lagging behind and should be
accelerated.
In the field of security certification for cards and terminals, a set of implementation
specifications have been developed by the Common Approval Scheme (CAS). However,
governance-related aspects of the SEPA security certification framework are still under
discussion. Therefore, we urge the EPC and CAS members to swiftly agree on concrete
proposals for a permanent governance structure with regard to security certification for cards
and terminals. Last, but not least, I would like to stress that, from a European perspective, it
is of strategic importance to adopt a more coordinated approach to global standard-setting
bodies, such as the ISO and EMVCo.
These requirements should lay the foundation for a competitive European cards market.
However, I personally believe that the European cards market would also benefit from the
power of choice. Therefore, a duopoly in the European cards market is not the outcome that I
would prefer to see for the SEPA project, which brings me to New Year's resolution number
three.
New Year's resolution number three: let's move forward with an additional European
card scheme
The Eurosystem has been calling for an additional European card scheme for four years.
Therefore, we are closely monitoring the work of the three initiatives that have been
launched. It is important to emphasise that we have not selected any "favourite" out of the
three projects, but treat all three equally. All three face some of the same challenges: the
main challenge is certainty as regards the potential business case. Some clarity has been
provided with regard to the sensitive issue of multilateral interchange fees (MIF) thanks to the
agreements reached by the EU Commission with VISA and MasterCard. However, the
market asks for more certainty and it may be that this must ultimately be provided in the form
of a regulation. I would strongly urge the appropriate authorities to work on this issue so that
the clarity needed at the European level can be provided. An additional European card
scheme - which is as safe and efficient as the best performing schemes today - is a
necessary element of an integrated and competitive cards market.
New Year's resolution number four: let's innovate
Europe is still a patchwork of national online markets, and Europeans are prevented from
enjoying the benefits of a single digital market. Traditional payment instruments still dominate
payments for e-commerce. However, they were not designed to cope with the needs of the
online world and often cannot be used for cross-border transactions. Among these payment
instruments, cash on delivery, credit transfers upon receipt of an invoice and the provision of
card credentials to merchants play an important role.
In all but a few countries, card transactions based on secure payment protocols and
e-payments based on online banking are still in the minority or are only used for domestic
transactions. We have to ensure that Europe does not lose any more ground in e-commerce,
compared with the United States and emerging online markets. Therefore, there is a clear
need for efficient, low cost, secure and readily available online payment solutions throughout
Europe - and ideally beyond. The potential for online payment solutions is great enough to
offer scope both for secure card payments and for e-payments based on online banking. The
ECB strongly supports the emergence of SEPA-wide online e-payment solutions, such as
those that already exist at the national level, for example in Germany, Austria and the
Netherlands. In my view, European wide implementation of such innovative ideas is very
much needed.
Both increased security for "card-not-present" transactions and the introduction, throughout
Europe, of e-payments based on online banking will provide more payment options for users.
And such developments will also address a problem that greatly concerns central banks:
safety. I firmly believe that for "online shopping" the payments industry needs to deliver a
solution that permits customers to pay for their purchases in a safe way. This brings me
directly to the last of my proposed New Year's resolutions:
New Year's resolution number five: let's not forget about security
The security of retail payments is key to ensuring that consumers and businesses place their
trust and confidence in SEPA. The risk-based approach applied by individual banks may not
be sufficient to achieve the level of security that is required at the aggregate industry level.
The reason for this is that commercial risk tolerance may differ from social risk tolerance. In
the seventh SEPA progress report we dedicated a chapter to the topic of security. By
sending a number of ambitious messages we have ensured that the necessary attention will
be paid to this topic. One of these messages was our expectation that the cards industry in
Europe will issue "chip-only" cards from 2012. But if the industry decides to retain the
magnetic stripe on cards for practical reasons, we would ask that any data enabling the
processing of magnetic stripe transactions should be removed. This should ensure that
sensitive account information can no longer be copied. The current levels of fraud clearly
show that something needs to be done urgently in this respect.
The increasing level of card-not-present fraud carried out over the internet can be addressed
by the introduction of secure payment protocols (e.g. 3D Secure or virtual cards). To
encourage the use of such security measures, a liability shift - which has been used, for
example, as an incentive for EMV migration - could be applied.
Clearly, SEPA requires a harmonised minimum level of security for retail payments to ensure
transparency and a level playing field. In order to achieve this, we need to have more clarity
about the security requirements as well as about the actors involved in setting these
requirements. We have recently launched the idea to set up a Forum for Security Issues and
have received a positive feedback from banks. Such a forum would monitor market
developments. In addition it could enable the relevant authorities, including banking
supervisors and central banks, to align their expectations on security. The Eurosystem is
currently investigating what could be the precise mandate and composition of such a forum.
Conclusion
I have to admit that these five New Year's resolutions are quite demanding. But I believe they
are essential for the SEPA project. If all of us continue to work on SEPA with the same level
of dedication as this year, we can accomplish all of them.