GREEN PAPER Towards an integrated European market for card, internet and mobile payments
Date: 2012-01-11
Institutions: European Commission
Subjects: bank charges, consumer protection, electronic banking, electronic commerce, electronic money, mobile phone, retail selling, single market

EUROPEAN COMMISSION 

Brussels, 11.1.2012 
COM(2011) 941 final 

GREEN PAPER 

Towards an integrated European market for card, internet and mobile payments 

(Text with EEA relevance) 

 
 
 
 
  
 
GREEN PAPER 

Towards an integrated European market for card, internet and mobile payments 

(Text with EEA relevance) 

1. 

INTRODUCTION 

Secure,  efficient,  competitive  and  innovative  electronic  payments  are  crucial  if  consumers, 
retailers and companies are to enjoy the full benefits of the Single Market, and increasingly so 
as the world moves beyond bricks-and-mortar trade towards e-commerce. The way goods and 
services are purchased in Europe is fundamentally changing. As EU citizens and businesses 
become  increasingly  active  outside  their  country  of  origin,  electronic  payments  that  work 
smoothly across borders significantly facilitate their daily lives. Building on achievements in 
the  field  of  retail  payments,  Europe  has  an  opportunity  to  be  at  the  cutting  edge  of  what 
‘making a payment’ could mean in the future, be it with a payment card, on the internet or by 
using a mobile phone. 

A first important milestone on this journey is the Single Euro Payments Area (SEPA), which 
is based on the premise that there should be no distinction between cross-border and domestic 
electronic  retail  payments1  in  euro  across  the  EU.  The  SEPA  project  covers  the  key  retail 
payment instruments: credit transfers, direct debits and payment cards. From this basis, SEPA 
should be a springboard to creating a competitive and innovative European payments market 
in two ways. The first concerns the ever-growing proportion of on-line or internet payments 
(e-payments)  and  mobile  payments  (m-payments).  Above  all,  the  mass  take-up  of  smart 
phones is changing the payments landscape and is leading to new payment applications, for 
example  electronic  purses,  replacing  wallets  and  physical  cards,  or  virtual  public  transport 
tickets  stored  in  a mobile  phone.  Here,  the  pan-European  SEPA  payment  instruments  can 
provide the basis for more integrated and secure payment innovations. Secondly, the existing 
standards  and  rules  developed  under  SEPA  could  be  re-applied  to  payment  instruments  in 
non-euro currencies, thereby taking the boundaries of a Single Market for payments beyond 
euro-denominated transactions. 

The benefits of more market integration would mainly stem from four drivers: 

1) 

1 

More competition — in a network industry, such as payments, market access for new 
entrants or competitors from other Member States is facilitated through integration. 
Based  on  common  open  standards,  service  providers  could  offer  their  existing 
payment solutions in more than one country. This would expand their business base 
and  hence  create  an  additional  incentive  for  innovation.  As  a  result,  the  costs  and 
prices  of  providing  payments  would  converge  downwards.  Moreover,  more 

Retail payments are defined as payment transactions where at least one party of the transaction (i.e. the 
payer,  the  beneficiary  or  both)  is  not  a  financial  institution.  Hence,  retail  payments  represent  all 
payment transactions which do not take place between two banks. 

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2) 

3) 

4) 

competition  could  mitigate  the  current  domination  of  the  payment  cards  market  by 
the two existing international card schemes. 

More choice and transparency for consumers — with a broader range of competitive 
services,  payment  users  could  choose  the  payment  instruments  and  providers  that 
best serve their needs. Today, the cost implications of the choice they make are often 
not  visible  to  consumers2.  Due  to  hidden  costs,  often  the  most  expensive  payment 
method  is  used  and  costs  are  indirectly  passed  to  all  consumers  through  increased 
prices.  By  contrast,  an  integrated  and  transparent  market  would  steer  consumers 
towards the most efficient payment instruments. 

More  innovation  —  an  integrated  market  increases  scale  effects.  This  means  that 
existing  players  would  have  more  opportunities  to  save  costs  or  increase  revenue. 
Furthermore, the incentives for innovation by new market entrants would be higher 
and the geographical scope of innovation would increase. 

More payment security and customer trust — in line with the progress achieved in 
safe  and  secure  payments  at  the  point-of-sale,  an  integrated  market  would  increase 
the  security  of,  and  consumer’s  trust  in,  remote  payments,  such  as  e-payments  and 
m-payments. 

An  integrated  EU  market  for  payment  services  could  also  produce,  as  a  by-product, 
administrative data that could be used for the production of harmonised statistics. This would 
increase  the  quality  and  scope  of  EU  statistics,  with  no  additional  costs  for  companies  and 
limited investment for the statistical community. 

This  Green  Paper  assesses  the  current  landscape  of  card,  internet  and  mobile  payments  in 
Europe, identifies the gaps between the current situation and the vision of a fully integrated 
payments market and the barriers which have created these gaps. The objective of the Green 
Paper  is  to  launch  a  broad-scale  consultation  process  with  stakeholders  to  validate  or 
contribute to the Commission’s analysis and to help identify the right way to improve market 
integration. 

2. 

CURRENT PAYMENTS LANDSCAPE AND ITS SHORTFALLS 

The  euro  retail  payments  market  is  one  of  the  largest  in  the  world  and  involves  millions  of 
companies  and  hundreds  of  millions  of  citizens.  According  to  statistics  from  the  European 
Central Bank (ECB), in 2009 almost 58 billion retail payment transactions were made in the 
euro  area  alone.  Annex 1  provides  a  breakdown  by  payment  instrument.  The  economic 
benefits  of  integrating  this  market  are  substantial.  For  example,  studies  suggest  that  full 
migration to SEPA for credit transfers, direct debits and payment cards could yield direct and 
indirect benefits of more than EUR 300 billion over a six-year period. The current degree of 
payment  integration  at  European  level  varies  markedly  between  the  various  payment 
instruments (such as credit transfers, direct debits and payment cards) and channels (e- or m-
payments) used to make a payment. 

2 

This  is  the  result  of  complex  fees  between  the  different  payment  service  providers  involved  in  the 
payment transaction and of charges from the payment service provider to the merchant selling a good or 
service. 

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2.1. 

Core payment instruments (credit transfers and direct debits) 

Credit  transfers  and  direct  debits  are  the  only  payment  instruments  for  which  specific  pan-
European payment schemes exist, namely the SEPA Credit Transfer (SCT) and SEPA Direct 
Debit (SDD) rulebooks developed by the European Payments Council (EPC) for payments in 
euro.  In  December  2010,  the  Commission  presented  a  proposal  for  a  Regulation  setting 
obligatory  deadlines  for  migrating  national  payment  schemes  to  pan-European  schemes3. 
Reaching this essential milestone will lay the foundation for further market integration for the 
payment instruments and channels described below. 

2.2. 

Payment cards 

Payment cards are the most common and frequently used electronic payment instrument for 
retail  payments.  In  terms  of  volume  (number  of  transactions),  card  payments  represented 
a third of all retail payments in 2009. There were some 726 million payment cards in use in 
the EU, representing 1.45 cards per capita. On average, EU consumers spent  EUR 2 194 per 
card in 43 point-of-sale card transactions (in 20094, see Annex 1 for country specific data). 

However, integration of the European payment card market is far from complete and tangible 
results are still limited. A steep increase of the volume of card payments over the past decade 
and the resulting large scale effects have not led to any significant fall in consumer costs and 
inter-bank  or  merchant  fees.  Moreover,  domestic  debit  card  schemes  are  often  not  accepted 
outside  the  Member  State  of  origin,  which  hinders  the  development  of  the  Single  Market. 
Fraudulent use of payment cards also remains an issue, especially for remote transactions. 

2.3. 

Payments through the internet (e-payments) 

E-payments are payments made over the internet, usually in one of these three ways: 

1) 

2) 

3) 

Making a remote payment card transaction through the internet. 

Online-banking  based  credit  transfers  or  direct  debits  under  which  the  payer  uses 
an online  banking  portal  for  authentication  (currently  only  operational  at  domestic 
level)5. 

Payments  through  e-payment  providers,  with  which  the  consumer  has  set  up 
an individual  account.  Accounts  can  be  funded  through  ‘traditional’  payment 
methods, for example bank transfers or credit card payments. 

With the emergence of e-commerce, i.e. the buying and selling of products over the internet, 
e-payments play an increasingly important role. According to Forrester Research6, the number 
of online shoppers in Europe is forecast to increase from 141 million in 2009 to 190 million 
by  2014.  Annual  growth  rates  of  the  e-commerce  market  size  over  the  next  five  years  are 
projected  at  around  10 %.  Average  spending  per  capita  at  EU  level  is  forecast  to  rise  from 

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6 

Proposal  for  a  Regulation  establishing  technical  requirements  for  credit  transfers  and  direct  debits  in 
euros and amending Regulation (EC) No 924/2009, COM(2010)775, 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010PC0775:EN:NOT. 
Source: ECB Payment Statistics, February 2011. For detailed country statistics see Annex 1. 
These transactions can either be made directly through the payer’s online banking system or via a third 
party (e.g. Ideal in the Netherlands, Giropay and Sofortüberweisung in Germany or EPS in Austria). 
http://www.forrester.com/ER/Press/Release/0,1769,1330,00.html 

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EUR 483 in 2009 to EUR 601 in 2014. Despite its significant growth potential, e-commerce 
currently  represents  only  3.4%  of  all  European  retail  trade7,  so  there  still  is  considerable 
untapped growth potential. 

According  to  a  public  consultation  on  the  future  of  electronic  commerce8,  payments  have 
been identified as one of the main barriers to the future growth of e-commerce. The related 
key  issues  identified  in  the  consultation  include  the  diversity  of  payment  methods  across 
Member States, the cost of payments for consumers and merchants, especially for low-value 
payments (micro-payments) and payment security. The lack of a coherent and comprehensive 
(self-)  regulatory  framework  currently  leads  to  a  European  e-payments  environment  that  is 
largely  fragmented  along  national  borders  with  a  small  number  of  successful  domestic 
e-payment schemes and a limited number of large international players from outside Europe. 

2.4.  Mobile payments (m-payments) 

M-payments  are  payments  for  which  the  payment  data  and  the  payment  instruction  are 
initiated, transmitted or confirmed via a mobile phone or device. This can apply to online or 
offline purchases of services, digital or physical goods. 

Mobile payments can be classified into two main categories: 

1) 

2) 

Remote  m-payments  mostly  take  place  through  internet/WAP9  or  through  premium 
SMS  services  which  are  billed  to  the  payer  through  the  Mobile  Network  Operator 
(MNO).  Most  remote  m-payments  through  the  internet  are  currently  based  on  card 
payment  schemes.  Other  solutions,  based  on  credit  transfers  or  direct  debits,  are 
technically  feasible  and  possibly  as  secure,  efficient  and  competitive,  but  seem  to 
have difficulties entering the market. 

Proximity  payments  generally  take  place  directly  at  the  point  of  sale.  Using  Near 
Field  Communication  (NFC),  the  leading  proximity  technology  at  this  stage, 
payments  require  specifically  equipped  phones  which  can  be  recognised  when  put 
near  a  reader  module  at  the  point  of  sale  (e.g.  stores,  public  transport,  parking 
spaces). 

These  definitions,  in  particular  for  remote  m-payments,  suggest  that  the  line  between 
e-payments and m-payments is blurred, and may become even more so in the future. 

The volume of payments made through mobile phones is currently the fastest growing of all 
payment  methods.  The  rapid  proliferation  of  smart  phones  with  the  option  of  installing 
sophisticated  payment  applications  has  fuelled  this  development.  Juniper  Research  forecasts 
that  between  2010  and  2012  the  value  of  all  m-payments  worldwide  will  increase  from 
USD 100 billion  to  USD 200 billion.  Other  studies  suggest  that  the  value  of  m-payments 
worldwide will surpass USD 1 trillion in 2014, totalling USD 350 billion in Europe alone. It 
is also estimated that one out of five smart phones will be NFC-capable by the same date. 

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Euromonitor 2010 
http://ec.europa.eu/internal_market/consultations/2010/e-commerce_en.htm 
The  Wireless  Application  Protocol  (WAP)  was  developed  by  the  Open  Mobile  Alliance  (OMA), 
a forum  for  industry  stakeholders  to  agree  on  common  specifications  for  the  mobile  phone  industry. 
A WAP browser is a commonly used web browser for mobile phones. 

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Market  penetration  of  m-payments  in  the  EU  still  has  considerable  unrealised  potential,  in 
comparison, for example, to the Asia/Pacific region. According to estimates by the research 
company  Gartner,  there  were  7.1 million  mobile payment users in Western Europe in 2010, 
compared to 62.8 million users in Asia/Pacific, a large share of them in Japan. One of the key 
reasons  for  the  slower  market  take-up  in  Europe  is  the  highly  fragmented  mobile  payment 
market. The key market actors (mobile network operators, payment service providers, mobile 
phone manufacturers) have not yet agreed on a viable business model enabling inter-operable 
payment  solutions.  As  a  consequence,  the  largest  and  most  promising  global  m-payment 
initiatives are currently launched outside Europe. Apple, Google and Visa have all announced 
major drives to enter the m-payment business. 

Efforts for m-payment integration at European level currently take place on a self-regulatory 
basis. In this context, the EPC is cooperating with the global association of mobile operators 
(GSMA) and published a White Paper on mobile payments in July 201010. The White Paper 
focuses on mobile payments through payment cards. 

As with e-payments,  the lack  of a concrete European framework  addressing main concerns, 
such  as  technical  standards,  security,  inter-operability,  and  the  cooperation  between  market 
participants, risks perpetuating a fragmented m-payments market in Europe. Furthermore for 
both e- and m-payments, (potential) market participants seem reluctant to invest as long as the 
legal situation regarding scope for applying collective fee arrangements, such as for payment 
cards, has not been settled (see 4.1. below). 

3. 

VISION AND OBJECTIVES 

According  to  the  SEPA  vision  put  forward  by  the  European  Commission  and  the  ECB  for 
electronic  retail  payments  in  euro  across  the  EU11,  there  should  be  no  distinction  between 
cross-border and domestic payments. On the basis of the standards and rulebooks provided by 
SEPA,  this  distinction  should  also  become  obsolete  for  non-euro  payments  within  the  EU. 
This would result in a true digital Single Market at EU level. Full integration would mean: 

Consumers use a single bank account for all payment transactions, even if they live outside 
their  country  of  origin  or  travel  frequently  throughout  the  EU.  By  accelerating  innovation, 
payments  become  more  convenient  and  adjusted  to  the  specific  circumstances  of  the 
purchasing transaction (online v offline, micro- v large-value payments, etc.). 

Businesses  and  public  administrations  are  able  to  simplify  and  streamline  their  payment 
processes and centralise financial operations across the EU. This has significant potential to 
generate  savings.  Furthermore,  common  open  standards  and  faster  settlement  of  payment 
transactions improve cash-flow. 

Merchants  are  also  able  to  benefit  from  cheap,  efficient  and  secure  electronic  payment 
solutions. Increased competition makes alternatives to handling cash more attractive. In turn, 
this  also  makes  moving  into  e-commerce  more  compelling  and  leads  to  improved  customer 
experiences when making payments. 

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http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=402 and  
http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=557  
Joint 
http://www.ecb.int/press/pr/date/2006/html/pr060504_1.en.html. 

the  European  Commission 

statement 

from 

and 

the  European  Central  Bank, 

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Payment  service  providers  (PSPs),  i.e.  banks  and  non-bank  PSPs,  are  able  to  benefit  from 
economies  of  scale  through  standardising  payment  instruments,  thereby  achieving  cost 
savings  after  the  initial  investment.  It  opens  access  to  new  markets,  both  for  increasing  the 
revenue  base  for  existing  payment  instruments  and  for  launching  innovations  on  a  broader 
scale. 

Technology providers, such as software vendors, processors and IT consultants, can base their 
development work and solutions on pan-European instruments, facilitating innovation across 
the EU Member States. 

For this vision to become reality for card, e- and m-payments, a number of additional issues 
need to be addressed, such as security, freedom of choice, unhindered technical and business 
innovation,  standardisation  of  the  various  components  and  interoperability.  The  following 
chapter explores these issues in more detail. 

4. 

THE NEED TO FOSTER AND ACCELERATE MARKET INTEGRATION 

In line with the above vision, five potential ways to stimulate the further integration of cards, 
e- and m-payments have been identified. 

4.1.  Market fragmentation, market access and market entry across borders 

A number of separate issues can be identified in this context. It is important to note that these 
issues,  while  historically  all  stemming  from  commercial  practices  for  payment  cards,  either 
are  applied  in  the  same  form  for  e-  and  m-payments  or  at  least  have  significant  spill-over 
effects which affect e- and m-payments indirectly, for example when an e- or m-payment is 
made through the use of a payment card. 

4.1.1.  Multilateral Inter-change Fees (MIFs) 

Under  the  ‘classic’  business  model  for  four-party  card  schemes,  inter-bank  fees  are  paid  by 
the  merchant’s  PSP  (the  acquiring  PSP)  to  the  cardholder’s  PSP  (the  issuing  PSP)  for  each 
card  transaction.  Interchange  fees  can  be  agreed  bilaterally,  between  issuing  and  acquiring 
PSPs,  or  multilaterally,  by  means  of  a  decision  binding  all  PSPs  participating  in  a  payment 
card scheme. More background on MIFs is provided in Annex 212. 

Competition authorities and regulators have been looking at interchange fees for some time. 
In  certain  non-EU  countries13,  they  have  been  addressed  by  regulation.  In  the  EU,  the 
European  Commission  and  national  competition  authorities  have  adopted  several  decisions 
prohibiting specific MIF arrangements under EU competition rules14. 

The  usual  justification  for  MIFs  is  that  they  provide  a  basis  for  issuing  PSPs  to  encourage 
consumers to use a payment card. Charging MIFs enables issuing PSPs to give out cards for 

12 

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14 

The annex includes in particular more details about the analysis conducted by DG Competition under 
Article 101 §3 TFUE of the appropriate level of MIF using the Merchant Indifference Test (MIT). 
Australia, USA. 
Decisions  in  Visa,  MasterCard,  Polish  MasterCard  Decision,  Hungarian  MasterCard  Decision,  Italian 
MasterCard Decision. 

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no  or  low  cardholder  fees  and  potentially  include  bonuses15  for  consumers  (e.g.  air  miles). 
This ‘balancing mechanism’ can create efficiencies through greater card use. 

The  existence  of  a  wide  variety  of  different  (levels  of)  fees  and  the  different  timelines  and 
scope of legal proceedings under way or completed at national and European level could lead 
to distortions in the Single Market. This could exacerbate market fragmentation, and  means 
that retailers can not yet enjoy the benefits of a Single Market in payment cards. 

In addition, high MIFs may act as entry barriers to low-cost card schemes and other payment 
systems (e.g. e-payments and m-payments). 

These characteristics of MIFs generally apply with respect to four-party schemes. Three-party 
schemes — under which there is only one PSP servicing both payers and payees — apply an 
‘implicit’ interchange fee that may raise similar issues of lack of competitive constraints. 

The  problems  of  high  MIFs  and  a  lack  of  transparency  (see  4.2)  appear  to  be  particularly 
relevant to merchants accepting commercial cards — i.e. payment cards issued to companies 
and  their  employees  in  order  to  allow  them  to  pay  for  work-related  expenses  (e.g.  business 
trips,  office  supplies)16  —  under  which  card  holders  may  be  incentivised  with  bonuses  and 
other advantages to make use of this means of payment. 

Questions 

1) 

2) 

3) 

Under the same card scheme, MIFs can differ from one country to another, and for 
cross-border  payments.  Can  this  create  problems  in  an  integrated  market?  Do  you 
think  that  differing  terms  and  conditions  in  the  card  markets  in  different  Member 
States reflect objective structural differences in these markets? Do you think that the 
application of different fees for domestic and cross-border payments could be based 
on objective reasons? 

Is there a need to increase legal clarity on interchange fees? If so, how and through 
which instrument do you think this could be achieved? 

If  you  think  that  action  on  interchange  fees  is  necessary,  which  issues  should  be 
covered  and  in  which  form?  For  example,  lowering  MIF  levels,  providing  fee 
transparency and facilitating market access? Should three-party schemes be covered? 
Should a distinction be drawn between consumer and commercial cards? 

4.1.2.  Cross-border acquiring 

Cross-border  acquiring  refers  to  a  situation  in  which  a  merchant  uses  the  services  of  an 
acquiring  PSP  established  in  another  country.  Under  this  arrangement,  not  only  do  all 
merchants  benefit  from  more  competition  on  Merchant  Service  Charges  (MCSs)  but 

15 

16 

Issuing banks may encourage the frequent use of the card by offering additional benefits or rewards like 
travel insurances, payment discounts or even by reimbursing a fraction of the price of purchased goods 
and  services. In  some  cases,  consumers  are  also  charged additional  fees  if  they  do not  pay  with  their 
cards frequently enough or do not spend a required amount of money within a given period. 
Commercial cards comprise three main subcategories: (i) business cards, which are typically issued to 
small business customers to whom — unlike in the case of consumer cards — no additional services are 
provided,  (ii)  corporate  cards,  which  are  typically  issued  to  medium  and  large  business  customers  to 
whom  additional  information  services  are  provided,  and  (iii)  purchasing  cards,  which  are  used  for 
commercial purchases and often offer VAT related invoicing services. 

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companies can also appoint a single acquirer for their transactions, resulting in administrative 
efficiencies and cross-border competition. 

However,  a  number  of  problems  hinder  the  development  of  cross-border  acquiring.  Apart 
from the difference in technical standards (covered in 4.3.) a series of rules and arrangements 
applied  by  international  card  schemes  can  make  cross-border  acquiring  less  attractive  for 
merchants: 

– 

– 

– 

International  card  schemes  apply  special  authorisation  regimes  and  special  scheme 
fees/license fees to acquirers offering cross-border services. 

Cross-border  acquirers  must  pay  issuing  PSPs  the  domestic  MIF  applicable  in  the 
country of the point of sale. This prevents merchants from shopping for the cheapest 
acquirer, although the cross-border PSP has typically not signed up to the domestic 
MIF concerned, which is set by the PSPs in the country concerned. 

Cross-border  acquirers  may  also  be  at  a  disadvantage  in  countries  where  domestic 
PSPs  have  parallel  networks  of  bilateral  interchange  fee  agreements.  This  impedes 
the development of cross-border competition as acquirers have to pay the official full 
MIF amount. 

Questions 

4) 

5) 

Are there currently any obstacles to cross-border or central acquiring? If so, what are 
the reasons? Would substantial benefits arise from facilitating cross-border or central 
acquiring? 

How  could  cross-border  acquiring  be  facilitated?  If  you  think  that  action  is 
necessary, which form should it take and what aspects should it cover? For instance, 
is  mandatory  prior  authorisation  by  the  payment  card  scheme  for  cross-border 
acquiring justifiable? Should MIFs be calculated on the basis of the retailer’s country 
(at  point  of  sale)?  Or,  should  a  cross-border  MIF  be  applicable  to  cross-border 
acquiring? 

4.1.3.  Co-badging 

Co-badging  combines  different  payment  brands  on  the  same  card  or  device.  Nowadays,  the 
most  promising  way  for  new  entrant  schemes  to  access  the  market  could  be  to  convince 
issuing PSPs to co-badge their payment cards that carry an existing (international) scheme’s 
brand with the new entrant’s brand. This would allow consumers to choose between brands 
when paying (provided the merchant accepts both brands), taking into consideration possible 
bonuses from their issuing PSP (air miles, etc.) and the possible incentives from the merchant 
(surcharging, rebating, steering). 

It  is  not  clear  at  this  stage  whether  and  if  so,  to  what  extent  the  rules  of  existing  schemes 
allow brands that now also compete with them in national markets to figure on the same card. 
Schemes  may  also  impose  reporting  requirements  or  charges  on  issuers  and  acquirers  for 
transactions carried out with cards carrying their brand, even if their brand is not used in those 
transactions. The SEPA Cards Framework has a rule on the basis of which the issuing PSP, in 
consultation with the consumer, can pre-select the brand to be used on a co-badged card at the 
point of sale. Therefore, co-badging could also raise competition issues if it is used to restrict 
or unduly influence the choice of the brand and/or payment instrument. For the time being the 

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co-badging  issue  is  limited  to  cards  but  in  the  future  it  will  increasingly  apply  to  mobile 
payments. 

Questions 

6) 

7) 

What  are  the  potential  benefits  and/or  drawbacks  of  co-badging?  Are  there  any 
potential  restrictions  to  co-badging  that  are  particularly  problematic?  If  you  can, 
please quantify the magnitude of the problem. Should restrictions on co-badging by 
schemes be addressed and, if so, in which form? 

When  a  co-badged  payment  instrument  is  used,  who  should  take  the  decision  on 
prioritisation  of  the  instrument  to  be  used  first?  How  could  this  be  implemented  in 
practice? 

4.1.4. 

Separating card schemes and card payment processing 

Some  card  schemes  have  subsidiaries  that  process  the  transactions  and  are  in  a  position  to 
impose the use of this subsidiary on scheme participants. This constitutes an entry barrier to 
processors  and  new  card  schemes  which  could  be  overcome  by  effectively  separating  card 
scheme  management  from  card  payment  processing  entities.  Separation  would  therefore 
increase competition between card schemes and between processors and would allow banks to 
participate in only one compliant infrastructure. The SEPA Cards Framework (SCF) provides 
for  separation  between  scheme  management  and  processing  but  does  not  lay  down  specific 
arrangements. 

The  result  of  the  current  lack  of  a  common  interoperability  framework  is  a  segmented  card 
processing  market.  The  technical  and  business  procedures  for  clearing  and/or  settling 
payments between banks that use different infrastructures therefore need to be improved. The 
development of scheme independent processing standards would also aid the implementation 
of separation between scheme and processing entities. 

Questions 

8) 

9) 

Do you think that bundling scheme and processing entities is problematic, and if so 
why? What is the magnitude of the problem? 

Should  any  action  be  taken  on  this?  Are  you  in  favour  of  legal  separation  (i.e. 
operational  separation,  although  ownership  would  remain  with  the  same  holding 
company) or ‘full ownership unbundling’? 

4.1.5.  Access to settlement systems 

In  contrast  to  banks,  payment  institutions  as  defined  by  Directive  2007/64/EC  on  payment 
services in the internal market (PSD)17 and e-money institutions do not have direct access to 
clearing  and  settlement  systems.  Under  Article  2(b)  of  the  Settlement  Finality  Directive 
(SFD), only credit institutions and investment firms may participate in designated settlement 
systems. As a result, other PSPs claim to be unable to compete with banks on an equal basis 
as they are obliged to use the services of a bank to settle payments. 

Questions 

17 

Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment 
services in the internal market, OJ L 319, 5.12.2007, p. 1. 

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10) 

11) 

Is  non-direct  access  to  clearing  and  settlement  systems  problematic  for  payment 
institutions and e-money institutions and if so what is the magnitude of the problem? 

Should a common cards-processing framework laying down the rules for SEPA card 
processing  (i.e.  authorisation,  clearing  and  settlement)  be  set  up?  Should  it  lay  out 
terms  and  fees  for  access  to  card  processing  infrastructures  under  transparent  and 
non-discriminatory criteria? Should it tackle the participation of Payment Institutions 
and E-money Institutions in designated settlement systems? Should the SFD and/or 
the PSD be amended accordingly? 

4.1.6.  Compliance with the SEPA Cards Framework (SCF) 

The SCF developed by the EPC was not fully implemented on 1 January 2011, as originally 
scheduled, as many of its underlying elements are not actively applied. The SCF’s potential 
impact is not limited to payments in euro. Whilst the SCF covers general purpose cards used 
to make payments and cash withdrawals in euro throughout the SEPA area, PSPs and schemes 
operating in non-euro SEPA countries have an incentive to be SCF compliant in order to be 
able  to  handle  euro  transactions.  Under  the  SCF,  non  SEPA-compliant  incumbent  payment 
schemes for euro transactions will in principle be phased out of the market. This implies that 
non-compliant  schemes  will  disappear  after  full  SCF  implementation.  The  SCF  defines 
obligations for cards to be SEPA compliant: card payments must be guaranteed by the issuing 
PSP  and  the  EMV  (Chip  and  PIN)  standards  implemented  in  full.  These  technical 
requirements also impact/limit the business models to be applied in the European Union with 
the  advantage  that  for  the  systems  that  are  allowed,  a  single  integrated  European  market  is 
created. 

Questions 

12) 

What is your opinion on the content and market impact (products, prices, terms and 
conditions) of the SCF? Is the SCF sufficient to drive market integration at EU level? 
Are  there  any  areas  that  should  be  reviewed?  Should  non-compliant  schemes 
disappear after full SCF implementation, or is there a case for their survival? 

4.1.7. 

Information on the availability of funds 

In many business models for payment services, prior information on the availability of funds 
— necessary for authorisation and/or payment guarantee of a specific payment transaction — 
is  a  key  element.  As  keepers  of  the  bank  account,  banks  have  a  ‘gateway  function’  that 
effectively determines the viability of many business models. Even if for certain new payment 
services  consumers  would  agree  that  information  on  the  availability  of  funds  on  their  bank 
account is given to payment service providers of their choice, banks may refuse to give other 
payment  service  providers  access  to  this  information.  Given  the  importance  of  secure 
payments and confidence in the payment system in general and the fact that banks are subject 
to supervision, such refusals may be justified in some cases. However, it creates a conflict of 
interest for banks, which may have an incentive to refuse to cooperate, despite the willingness 
of their customers. This could unduly hinder the emergence of safe and efficient alternative 
payment solutions, even if they are subject to prudential requirements. 

Questions 

13) 

Is there a need to give non-banks access to information on the availability of funds in 
bank accounts, with the agreement of the customer, and if so what limits would need 

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to be placed on such information? Should action by public authorities be considered, 
and if so, what aspects should it cover and what form should it take? 

4.1.8.  Dependence on payment card transactions 

Worldwide,  card  use  continues  to  grow.  Global  transaction  volumes  rose  by  9.7 %  between 
2009 and 2010. Cards remain the preferred non-cash payment instrument, with a market share 
of more than 40 % in most markets18. Given the increasing use of payment cards, including in 
the e-commerce world, it is likely that there will be a growing number of companies whose 
activities are effectively dependent on being able to accept payments by card. In that case, the 
question  arises  whether  it  is  in  the  public  interest  to  define  objective  rules  describing  the 
circumstances  and  procedures  under  which  card  payment  schemes  may  unilaterally  refuse 
acceptance. 

Questions 

14) 

Given  the  increasing  use  of  payment  cards,  do  you  think  that  there  are  companies 
whose  activities  depend  on  their  ability  to  accept  payments  by  card?  Please  give 
concrete examples of companies and/or sectors. If so, is there a need to set objective 
rules  addressing  the  behaviour  of  payment  service  providers  and  payment  card 
schemes vis-à-vis dependent users? 

4.2. 

Transparent  and  cost-effective  pricing  of  payment  services  for  consumers, 
retailers and other businesses 

The  real  cost  of  these  payment  services  is  often  opaque,  both  for  consumers  and  for 
merchants, which leads to higher payment costs in the EU economy. The lack of transparency 
mostly  applies  to  the  cards  market,  but  links  between  cards,  e-  and  m-payments  have 
implications  for  all  these  payment  methods.  Furthermore,  increased  transparency  in  pricing 
should be seen as a way to reduce the costs of payment transactions for all parties involved 
and ultimately optimise costs across the EU for the benefit of payment service users. Another 
issue  related  to  the  pricing  of  payment  services  concerns  micro-payments,  i.e.  low-value 
payments,  which  by  their  nature  are  often  made  by  card,  internet  or  mobile  payments. 
Payment  fees  are  often  perceived  as  excessive,  both  by  consumers  and  merchants  because 
they usually represent a significantly higher share of the transaction value than is the case for 
large-value payments. This situation may have contributed to the development of alternative 
digital currencies. 

4.2.1.  Consumer — merchant relationship: transparency 

Consumers are seldom aware of the full cost of using specific payment instruments, i.e. the 
costs that are not only imposed on them directly, but also on the payees (merchants). If the 
cost of using different payment instruments (e.g. different card brands, cash, cheques) is the 
same for consumers, they tend to believe that their choice of payment method is irrelevant to 
the merchant. Consequently, consumers base their selection of a payment instrument either on 
convenience or on potential benefits they could otherwise obtain by using a specific method 
of payment. 

However, the payment instrument chosen by the consumer may not be optimal in terms of the 
full cost to the economy. Merchants typically include their transaction costs in the prices of 

18 

World Payments Report 2011, p. 10, CapGemini, RBS and EFMA. 

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goods  and  services  they  offer.  The  end  result  is  that  all  consumers  pay  more  for  their 
purchases in order to cover the real cost of more expensive payment methods used by some. 

Making the total cost of using different payment instruments more transparent could therefore 
drive  down  total  payment  costs  in  the  economy.  This  could  be  achieved  by  providing 
information  to  the  consumer  on  how  much  the  use  and/or  handling  of  a  particular  payment 
instrument  costs  the  merchant.  In  this  context,  it  would  be  important  to  assess  the  likely 
impact  of  greater  transparency  on  consumer  behaviour,  focusing  on  better  understanding 
consumers’ reactions and their needs. 

Questions 

15) 

Should  merchants  inform  consumers  about the  fees  they  pay  for  the  use  of  various 
payment  instruments?  Should  payment  service  providers  be  obliged  to  inform 
consumers  of  the  Merchant  Service  Charge  (MSC)  charged  /  the  MIF  income 
received from customer transactions? Is this information relevant for consumers and 
does it influence their payment choices? 

4.2.2.  Consumer  —  merchant  relationship:  rebates,  surcharging  and  other  steering 

practices 

Another option to increase the transparency of pricing in the consumer-merchant relations and 
to  stimulate  the  use  of  the  most  efficient  payment  instruments  could  be  the  systematic  and 
comprehensive  use  of  rebates,  surcharging  and  other  steering  practices  (e.g.  selective 
acceptance of certain cards only above a certain amount, explicit indication of the preferred 
means  of  payment)  by  the  merchant.  This  could  create  incentives  to  use  the  most  efficient 
payment  means.  In  accordance  with  the  ‘user  pays’  principle,  costs  should  in  principle  be 
borne by those who use a specific service and not distributed between a wider group. 

It is also justified to consider the potential abuse which could arise from surcharging, such as 
the  lack  of  transparency  and  the  lack  of  practical  alternative  payment  instruments  to  avoid 
paying  a  surcharge19.  This  has  been  a  particular  issue  in  certain  economic  sectors  (e.g.  the 
airline  industry).  Surcharging  should  not  be  used  as  an  additional  revenue  source  by 
merchants but should be limited to the real cost of using a payment instrument, as established 
in Article 19 of the Consumer Rights Directive20. 

Article 52(3) of the PSD explicitly empowers merchants to use surcharging and rebating for 
the use of a given payment instrument21. However, Member States may still prohibit or limit 
surcharging (but not rebating) under certain conditions. Member States have chosen to apply 
this  provision  in  starkly  different  ways  in  their  territories.  Differing  national  choices 
significantly  increase  the  complexity  of  the  Single  Market  and  generate  confusion  for  both 
consumers and merchants, in particular in cross-border transactions. 

Questions 

19 

20 

21 

These  reduce  the  extent  to  which  consumers  shop  around  and  compare  full  price  offers,  resulting  in 
consumers  detriment,  according  to  the  UK  Office  of  Fair  Trading  (OFT),  ‘Payment  surcharges  — 
Response to the Which? super-complaint’, June 2011. 
Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer 
rights, OJ L304, 22.11.2011, p. 64 
However, the PSD does not apply to payments in cash or by cheque. 

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16) 

Is there a need to further harmonise rebates, surcharges and other steering practices 
across  the  European  Union  for  card,  internet  and  m-payments?  If  so,  in  what 
direction should such harmonisation go? Should, for instance: 

– certain methods (rebates, surcharging, etc.) be encouraged, and if so how? 

–  surcharging be generally authorised, provided that it is limited to the real cost of 
the payment instrument borne by the merchant? 

– merchants be asked to accept one, widely used, cost-effective electronic payment 
instrument without surcharge? 

–  specific  rules  apply  to  micro-payments  and,  if  applicable,  to  alternative  digital 
currencies? 

4.2.3.  Merchant — payment service provider relationship 

Transparency  in pricing the  payment instruments and  the real costs  of  payment transactions 
could also be improved by addressing the merchant–payment service provider relationship. 

Some  rules  applied  by  card  schemes  currently  make  it  difficult  for  merchants  to  influence 
consumer  decisions  on  the  choice  of  a  payment  instrument  and  limit  their  own  ability  to 
accept  only  selected  cards.  This  facilitates  the  application  of  high  MIFs  by  PSPs,  hence 
potentially  increasing  the  cost  of  card  payments  and  stifling  competition.  The  rules  in 
question are: 

– 

– 

– 

No Discrimination Rule (NDR), under which retailers are prohibited from directing 
their  customers  towards  the  use  of  the  payment  instrument  they  prefer  through 
surcharging, offering rebates or other forms of steering. 

Honour  All  Cards  (HAC)  Rule,  under  which  merchants  are  obliged  to  accept  all 
cards within the same brand, even if the fees related to them are not the same22. 

Blending practices, applied by card acquirers. As a result of blending only an average 
fee for card payments is charged to merchants by their acquirers and the merchant is 
not informed about the MSCs applied for the various individual categories of cards. 

Changes in the card scheme rules and in practices of the acquirers could give merchants more 
power when negotiating with acquiring PSPs, in particular at MSC level, whilst at the same 
time  improving  the  ability  of  merchants  to  influence  consumers’  decisions.  It  could  drive 
down the cost of card payments in the economy and increase the chances of new, competing 
schemes getting accepted by merchants. 

Questions 

17) 

Could changes in the card scheme and acquirer rules improve the transparency and 
facilitate  cost-effective  pricing  of  payment  services?  Would  such  measures  be 

22 

In practice the HACR can be seen as two separate rules: honour all issuers (e.g. if a merchant accepts 
Visa cards issued by local banks it should also accept foreign cards); and honour all products (e.g. if 
a merchant  accepts  consumer  credit  cards  it  must  also  accept  more  expensive  commercial  cards).  In 
general we do not see a problem with the honour all issuers rule, but are concerned by the competitive 
impact of honour all products. 

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effective  on  their  own  or  would  they  require  additional  flanking  measures?  Would 
such  changes  require  additional  checks  and  balances  or  new  measures  in  the 
merchant-consumer relations, so that consumer rights are not affected? Should three-
party  schemes  be  covered?  Should  a  distinction  be  drawn  between  consumer  and 
commercial  cards?  Are  there  specific  requirements  and  implications  for  micro-
payments? 

4.3. 

Standardisation 

European  payment  users  (companies,  consumers,  merchants)  will  fully  benefit  from 
competition,  freedom  of  choice  and  more  efficient  payment  operations  if  cross-border 
interoperability  is  achieved.  This  applies  to  all  electronic  payments  and  involves  multiple 
actors in the payment process, depending on the payment method. However, standardisation 
of  the  various  components  (e.g.  protocols,  interfaces,  applications,  services)  needs  to  be 
carried out thoroughly23 in order to minimise the risk of foreclosure of potential competitors 
or innovation. 

Card payments 

As  described  above,  a  card  payment  involves  data  exchange  between  the  acquiring  and 
issuing PSP (A2I domain) but also between the merchant (potentially by means of a physical 
payment terminal) and the acquiring PSP (T2A domain). 

In  the  T2A  domain,  there  is  a  lack  of  common  standards  across  borders  and  in  many  cases 
even domestically. There are a few private initiatives setting technical specifications, such as 
the  EPAS  (Electronic  Protocol  Application  Software)  and  the  C-TAP  (Common  Terminal 
Acquirer  Protocol).  However,  these  projects  often  develop  in  isolation  and  in  different 
directions,  driven  by  diverging  commercial  interests.  The  fragmented  standardisation  work 
has a threefold effect. First, the lack of common standards limits the range of potential service 
providers to domestic acquiring PSPs and therefore hampers the achievement of a competitive 
Single  Market  for  payment  services.  Second,  merchants  have  to  maintain  different  systems 
and  protocols  for  managing  data  exchange  in the  acquiring  process  —  at  least  one  for  each 
country they operate in, but in many cases even more, thereby reducing the opportunities to 
centralise operations and limiting efficiency gains. Third, the lack of common standards in the 
T2A domain often prevents debit cards from being accepted abroad — a consumer experience 
which is not in line with the Single Market and a common currency for cash payments in the 
Member States of the euro area. 

In  the  A2I  domain,  the  situation  is  similarly  unsatisfactory.  Inter-bank  payment  processing 
(authorisation,  clearing  and  settling  of  transactions)  is  currently  based  on  different  rules  of 
individual  card  schemes.  Full  separation  of  scheme  and  processing  (see  4.1.4)  will  require 
scheme interoperability standards for A2I processing. Industry-driven standardisation efforts 
in A2I area are currently limited and have not yet achieved much traction across all market 
actors. 

A  third  issue  concerns  certification.  For  each  country  and  card  scheme,  there  are  different 
criteria  and  evaluation  procedures  for  the  mandatory  certification  of  chip  cards,  payment 

23 

Part 7. Standardisation Agreements, Guidelines on the applicability of Article 101 of the Treaty on the 
Functioning of the European Union to horizontal cooperation agreements, OJ C 11/1, 14.1.2011. 

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terminals  etc.  These  certification  procedures  are  crucial  to  ensure  payment  security  but 
because they are not harmonised across Europe they result in excessive cost redundancies for 
card and terminal manufacturers. The market-driven OSeC (Open Standards for Security and 
Certification) and CAS (Common Approval Scheme) initiatives were launched to address this 
issue.  While  initial  progress  has  been  promising,  the  initiatives  have  yet  to  yield  tangible 
results in the marketplace. 

The EPC has set up an overarching Cards Stakeholder Group (CSG) with representatives from 
key  sectors,  i.e.  merchants,  card  payment  processors,  card  schemes,  PSPs  and  technical 
providers.  The  CSG  is  developing  a  SEPA  Cards  standardisation  volume,  a  fifth  version  of 
which  was  published  in  December  2010.  The  aim  of  the  volume  is  harmonisation  of  SEPA 
standards  so  that  ‘any  SEPA  card  could  technically  work  at  any  SEPA  terminal’  and  to 
promote  harmonised  certification  procedures  and  standards.  However,  at  this  stage  it  has 
produced limited concrete results in terms of creating a genuine integrated market for cards. 

E- and m-payments 

In  October  2010,  the  EPC  and  the  global  association  of  mobile  operators  GSMA  published 
a paper  outlining  the  roles  and  responsibilities  of  mobile  operators  and  banks  in  the 
management  of  contact-less  applications24.  The  banking/card  sector  and  mobile  network 
operators  have  thus  initiated  discussions  on  cooperation  and  standardisation.  Nevertheless, 
tangible results have yet to be achieved and several important gaps still need to be filled to 
achieve  a  stable  ecosystem  built  on  coherent  m-payment  business  models  that  work  across 
borders. 

Standardisation work on m-payments should ensure full interoperability between m-payment 
solutions  and  favour  open  standards  to  enable  consumer  mobility.  In  addition,  given  the 
specificity  of  m-payments,  standardisation  should  address  the  issue  of  portability  of 
m-payment applications (i.e. how payment applications follow consumers when they change 
mobile network operators). 

The lack of common standards seems to be less of an issue for e-payments. This is partly due 
to the use of the internet as a common platform with defined communication protocols. Even 
if  initiated  in  the  internet,  e-payments  are  then  often  processed  as  regular  card  payments  or 
through  online-banking  platforms.  They  are  therefore  negatively  affected  more  by  a  lack  of 
inter-operability  between  actors  in  the  payment  process  chain  (see  4.4.)  than  by  a  lack  of 
standards.Finally, standardisation should also ensure that e- and m-payment solutions offered 
to consumers are easy to access and user-friendly. 

Questions 

18) 

Do  you  agree  that  the  use  of  common  standards  for  card  payments  would  be 
beneficial? What are the main gaps, if any? Are there other specific aspects of card 
payments,  other  than  the  three  mentioned  above  (A2I,  T2A,  certification),  which 
would benefit from more standardisation? 

19) 

Are  the  current  governance  arrangements  sufficient  to  coordinate,  drive  and  ensure 
the  adoption  and  implementation  of  common  standards  for  card  payments  within 

24 

http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=423 

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a reasonable timeframe? Are all stakeholder groups properly represented? Are there 
specific ways by which conflict resolution could be improved and consensus finding 
accelerated? 

Should  European  standardisation  bodies,  such  as  the  European  Committee  for 
Standardisation  (Comité  européen  de  normalisation,  CEN)  or  the  European 
Telecommunications  Standards  Institute  (ETSI),  play  a  more  active  role  in 
standardising card payments? In which area do you see the greatest potential for their 
involvement and what are the potential deliverables? Are there other new or existing 
bodies that could facilitate standardisation for card payments? 

On  e-  and  m-payments,  do  you  see  specific  areas  in  which  more  standardisation 
would  be  crucial  to  support  fundamental  principles,  such  as  open  innovation, 
portability of applications and interoperability? If so, which? 

Should European  standardisation bodies, such  as  CEN  or  ETSI,  play  a  more  active 
role  in  standardising  e-  or  m-payments?  In  which  area  do  you  see  the  greatest 
potential for their involvement and what are the potential deliverables? 

20) 

21) 

22) 

4.4. 

Interoperability between service providers 

Cooperation  is  a  key  requirement  in  a  network  industry  such  as  payments,  as  any  payment 
requires an agreement between the payer’s payment service provider and the payee’s payment 
service provider. To ensure that any payment can reach any beneficiary without detriment to 
the actors and intermediaries involved, a higher level of coordination is desirable in the form 
of full interoperability. 

In line with the Commission’s proposal for credit transfers and direct debits, the principle of 
interoperability could be applied in the cards market, in addition to addressing the obstacles 
mentioned above, particularly for the choice of the acquirer and the commercial rules. 

4.4.1. 

Interoperability in the domain of m-payments 

The  mobile  payment  market  in  Europe  is  still  in  its  infancy.  One  of  the  main  barriers  to 
widespread  take-up  of  m-payments  seems  to  be  a  stalemate  between  Mobile  Network 
Operators  (MNOs),  traditional  PSPs  (banks)  and  other  players,  such  as  manufacturers  or 
application developers. MNOs seem to be seeking to retain control of the business, at least in 
their role of security manager for the service. At the same time, e-payment players are seeking 
to extend their reach to the mobile environment (for both remote and proximity payments). 

It seems likely that private players controlling the standards and, hence interoperability, will 
dominate  the  whole  payment  chain:  the  device  itself,  the  application  platform  and  security 
management.  In  this  situation,  there  is  a  serious  risk  of  fragmentation  through  proprietary 
solutions. In addition, the importance of other sectors potentially involved in interoperability 
without playing a leading role in the standardisation strategy should not be overlooked, such 
as public transport (payments for ticketing) or health (health insurance card-based payments) 
sectors. 

4.4.2. 

Interoperability in the domain of e-payments 

The EPC has decided against setting up its own online banking scheme, proposing instead to 
formulate  an  interoperability  framework  that  allows  competition  between  various  schemes 

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and enables individual banks to decide which scheme to join. For the time being, no non-bank 
service  providers  have  been  allowed  to  join  this  work25.  Three  bank-based  schemes26  have 
undertaken  a  ‘proof  of  concept’  exercise  to  test  interoperability  between  schemes.  It  is  too 
soon to ascertain whether this project could be successfully scaled up to an EU wide scheme. 

At  the  same  time,  EBA  Clearing,  a  clearing  and  settlement  operator  with  close  to  70 
shareholder  banks,  has  announced  an  online-banking  based  e-payment  initiative.  A  pilot 
scheme is expected to be launched in May 2012. 

4.4.3. 

Interoperability and competition 

Technical  interoperability  should  be  distinguished  from  commercial  interoperability,  i.e.  the 
ability for merchants to choose acquirers and for customers to choose issuers irrespective of 
their location. It is also important to address the challenges of interoperability in three-party 
schemes as compared to four-party schemes. 

Questions 

23) 

24) 

Is  there  currently  any  segment  in  the  payment  chain  (payer,  payee,  payee’s  PSP, 
processor,  scheme,  payer’s  PSP)  where  interoperability  gaps  are  particularly 
prominent? How should they be addressed? What level of interoperability would be 
needed  to  avoid  fragmentation  of  the  market?  Can  minimum  requirements  for 
interoperability, in particular of e-payments, be identified? 

How  could  the  current  stalemate  on  interoperability  for  m-payments  and  the  slow 
progress  on  e-payments  be  resolved?  Are  the  current  governance  arrangements 
sufficient  to  coordinate,  drive  and  ensure  interoperability  within  a  reasonable 
timeframe? Are all stakeholder groups properly represented? Are there specific ways 
by which conflict resolution could be improved and consensus finding accelerated? 

4.5. 

Payments security 

The  security  of  retail  payments  is  a  crucial  prerequisite  for  payment  users  and  merchants 
alike.  Consumers  are  justifiably  alerted  by  frequent  press  coverage  of  fraud  and  data  abuse 
incidents  and  are  therefore  particularly  sensitive  to  security  issues  for  card  and  internet 
payments.  The  public  consultation  on  the  future  of  e-commerce  in  the  internal  market 
confirmed  this  and  identified  payments  security  as  one  of  the  key  hurdles  preventing  the 
widespread adoption of electronic commerce. 

Security  requirements  most  importantly  concern  the  prevention  of  fraud.  The  continuous 
replacement  of  signature-based  cards  (equipped  with  a  magnetic  stripe  for  card  reading)  by 
‘Chip and PIN’ (EMV-compliant) cards has helped reduce fraud significantly at the point-of-
sale at European level. At the end of 2010, around 90 % of all point-of-sale card terminals and 
80 % of all payment cards in the EU were EMV-compliant. While this helped to drive down 
card fraud in physical payment transactions, fraudulent activity is now increasingly moving to 
remote card transactions, in particular to payments over the internet. Remote card transactions 
represent only a minor share of all card transactions but already account for the majority of all 

25 

The European Commission has opened a case regarding standardisation in order ensure interoperability 
in the field of ePayments: 

http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39876  
26 

iDEAL (Dutch), EPS (Austrian) and Giropay (German). 

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fraud cases. Non-card e-payments are also vulnerable to fraud. Potential remedies for online 
banking  or  other  internet  payment  transactions  include  what  is  known  as  two-factor 
authentication, i.e. the use of a PIN in combination with a one-time transaction code received 
through an SMS or token device, for example. However, the trade-off between security, speed 
and ease of use should be taken into account. 

A second important issue in this field is data protection. All payment means referred to in this 
document  imply  the  processing  of  personal  data  and  the  use  of  electronic  communication 
networks. Sensitive customer information should stay within a secure payment infrastructure, 
both  in  terms  of  processing  and  storing  data.  Directives  95/46/EC27  and  2002/58/EC28  lay 
down the legal framework applicable to the processing of personal data in the EU and govern 
processing  activities  carried  out  in  this  context  by  different  actors  involved  in  a  payment 
operation.  This  is  a  key  responsibility  for  all  market  actors  involved  in  the  payment 
transaction. It is crucial that authentication mechanisms for payment transactions are designed 
from the outset to include the necessary measures to ensure compliance with data protection 
requirements.  The  number  of  parties  having  access  to  authentication  data  during  or  after  a 
payment  transaction  should  be  restricted  to  those  who  are  strictly  necessary  to  perform  the 
transaction. 

Furthermore, an integrated market for secure internet payments could potentially facilitate the 
fight  against  websites  offering  illegal  content  or  selling  counterfeited  products.  Subject  to 
appropriate pre-established procedures, PSPs could be required to refuse executing financial 
transactions on websites which have previously been identified as illegal.  

Questions 

25) 

26) 

27) 

28) 

27 

28 

Do you think that physical transactions, including those with EMV-compliant cards 
and proximity m-payments, are sufficiently secure? If not, what are the security gaps 
and how could they be addressed? 

Are  additional  security  requirements  (e.g.  two-factor  authentication  or  the  use  of 
secure payment protocols) required for remote payments (with cards, e-payments or 
m-payments)? If so, what specific approaches/technologies are most effective? 

Should  payment  security  be  underpinned  by  a  regulatory  framework,  potentially  in 
connection with other digital authentication initiatives? Which categories of market 
actors should be subject to such a framework? 

What are the most appropriate mechanisms to ensure the protection of personal data 
and compliance with the legal and technical requirements laid down by EU law?? 

Directive  95/46/EC  of  the  European  Parliament  and  of  the  Council  of  24  October  1995  on  the 
protection of  individuals  with  regard  to  the  processing of  personal  data and on  the free  movement  of 
such data, OJ L 281, 23.11.1995, p. 31. 
Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the 
processing  of  personal  data  and  the  protection  of  privacy  in  the  electronic  communications  sector 
(Directive on privacy and electronic communications), OJ L 201, 31.7.2002, p. 37. 

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5. 

STRATEGY IMPLEMENTATION/GOVERNANCE 

5.1. 

Governance of SEPA 

Until now, SEPA has been predominantly run as a self-regulatory project, set up and managed 
by the European banking industry through the EPC, with the strong support of the ECB and 
the  Commission.  The  EPC  plenary  is  responsible  for  managing  the  SEPA  schemes  and  its 
frameworks, and for introducing new rules or changes to these schemes and frameworks. As 
regards  EPC  membership,  in  addition  to  banks,  currently  one  seat  is  given  to  payment 
institutions  but  other  payment  service  providers,  processors,  supply-side  market  actors  (e.g. 
software vendors, terminal manufacturers) and users are not represented. 

To improve stakeholder involvement in the governance of SEPA at EU level, the Commission 
and the ECB jointly set up a high-level governing body, the ‘SEPA Council’, in March 2010. 
It  brings  together  high-level  representatives  from  the  demand  and  the  supply  side  of  the 
payments  market.  Its  objective  is  to  promote  the  achievement  of  an  integrated  euro  retail 
payments market and to build consensus on the next steps towards completing SEPA. It has 
no legislative powers and cannot impose binding provisions. 

With  the  adoption  of  the  Regulation  establishing  technical  requirements  for  credit  transfers 
and  direct  debits  in  euros  a  more  active  involvement  of  the  EU  institutions  in  the  SEPA 
governance  may  be  useful.  In  this  context,  a  more  prominent  role  for  the  legislative  and 
regulatory  oversight  through,  for  example,  the  ECB,  the  Commission  or  the  European 
Banking Authority (EBA) could be considered. 

Questions 

29) 

How do you assess the current SEPA governance arrangements at EU level? Can you 
identify any weaknesses, and if so, do you have any suggestions for improving SEPA 
governance?  What  overall  balance  would  you  consider  appropriate  between 
a regulatory and a self-regulatory approach? Do you agree that European regulators 
and supervisors should play a more active role in driving the SEPA project forward?  

5.2. 

Governance in the field of cards, m-payments and e-payments 

To improve stakeholder involvement, the EPC has set up the Customer Stakeholders Forum 
(dealing  with  the  SEPA  Credit  Transfer  and  the  SEPA  Direct  Debit)  and  the  Cards 
Stakeholders Group (dealing with card payments). Both of these bodies are co-chaired by the 
EPC and representatives of end-users. On the self regulatory side, although it merits further 
clarification,  the  SEPA  Cards  Framework  (SCF)  adopted  by  the  EPC  —  with  the  status  of 
a voluntary  code  of  conduct  —  defines  the  principles  and  conditions  banks,  processors  and 
card schemes must follow to be SCF or SEPA compliant. However, and in spite of a strong 
incentive for operators willing to accept payments in euro to move to SEPA compliance, the 
SCF  does  not  have  the  unanimous  support  of  all  stakeholders  and  there  is  no  formal 
mechanism to interpret, monitor and enforce SEPA compliance for card schemes nor to settle 
any potential disputes. 

In areas such as creating a proper framework for e- and m-payments, integration efforts have 
been slow to produce tangible results, thereby delaying interoperability, innovation, increased 
choice and scale effects. Deadlocks and uncertainties may lead to market participants taking 
a ‘wait and see’ attitude. Given the current lack of commitment to such an important initiative 

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for  the  European  economy  as  a  whole,  achieving  an  integrated  market  requires  taking 
law 
a comprehensive  approach 
compliance and enforcement. 

involving  regulation,  self-regulation  and  competition 

Questions 

30) 

How  should  current  governance  aspects  of  standardisation  and  interoperability  be 
addressed? Is there a need to increase involvement of stakeholders other than banks 
and  if  so,  how  (e.g.  public  consultation,  memorandum  of  understanding  by 
stakeholders, giving the SEPA Council a role to issue guidance on certain technical 
standards, etc.)? Should it be left to market participants to  drive market  integration 
EU-wide  and,  in  particular,  decide  whether  and  under  which  conditions  payment 
schemes  in  non-euro  currencies  should  align  themselves  with  existing  payment 
schemes in euro? If not, how could this be addressed? 

31) 

Should  there  be  a  role  for  public  authorities,  and  if  so  what?  For  instance,  could 
a memorandum  of  understanding  between  the  European  public  authorities  and  the 
EPC identifying a time-schedule/work plan with specific deliverables (‘milestones’) 
and specific target dates be considered? 

6. 

GENERAL REMARKS 

Questions 

32) 

This  paper  addresses  specific  aspects  related  to  the  functioning  of  the  payments 
market  for  card,  e-  and  m-payments.  Do  you  think  any  important  issues  have  been 
omitted or under-represented? 

7. 

NEXT STEPS 

All  interested  parties  are  invited  to  submit  their  views  in  response  to  the  above  questions. 
Contributions  should  be  sent  to  the  following  address  to  reach  the  Commission  by 11 
April 2012 at the latest: markt-sepa@ec.europa.eu. 

Contributions  do  not  need  to  cover  all  questions  raised  in  this  Green  Paper.  Accordingly, 
please  indicate  clearly  the  questions  to  which  your  contribution  relates.  If  possible,  please 
give specific arguments for or against the options and approaches presented in the paper. 

As  a  follow-up  to  this  Green  Paper  and  on  the  basis  of  the  responses  received,  the 
Commission  will  announce  the  next  steps  by  the  second  quarter  of  2012.  Proposals,  if 
applicable,  will  be  adopted  by  the  fourth  quarter  of  2012  or  the  first  quarter  of  2013.  Any 
future  legislative  or  non-legislative  proposal  will  be  accompanied  by  an  extensive  impact 
assessment. 

Contributions  will  be  published  on  the  internet.  It  is  important  to  read  the  specific  privacy 
statement  accompanying  this  Green  Paper  for  information  on  how  your  personal  data  and 
contribution will be dealt with. 

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Annex 1: Use of different payment instruments 

Graph 1: Non-cash payments in the EU — volume by payment instrument 

Source: ECB, Comparative tables, Retail transactions 

Table 1: Card payments in the EU (2009) 

Member State 

Number of 
payment 
cards 
issued per 
capita 

Number of 
card 
transactions 
per capita29 

Average 
value of 
card 
transaction 
per card 
(EUR) 

Number of 
POS 
transactions 
per card30 

Annual value 
of POS 
transactions 
per card 
(EUR) 

Belgium 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Luxembourg 

Malta 

Netherlands 

Austria 

Portugal 

1.78

1.54

1.37

1.22

1.35

1.62

1.35

1.15

1.54

2.00

1.55

1.83

1.24

1.89

92

30

116

72

8

47

107

24

40

109

27

125

46

100

55

64

17

73

101

46

49

80

87

76

63

42

63

39

52 

20 

85 

56 

5 

27 

80 

22 

25 

57 

18 

68 

28 

53 

2 843

1 247

1 405

4 237

487

1 234

3 905

1 788

2 072

4 166

1 108

2 902

1 395

2 060

29 
30 

Excludes e-money card transactions. 
Point-of-sale transactions; includes transactions at terminals located in the Member State and outside it. 

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Slovenia 

Slovakia 

Finland 

Euro area sub-total 

Bulgaria 

Czech Republic 

Denmark 

Latvia 

Lithuania 

Hungary 

Poland 

Romania 

Sweden 

United Kingdom 

Total EU27 

1.66

0.94

1.74

1.45

1.01

0.89

1.25

1.10

1.29

0.88

0.87

0.60

1.85

2.33

1.45

54

21

172

58

2

17

180

43

28

18

18

4

182

132

63

37

57

34

52

78

38

47

20

18

27

25

39

40

58

52

32 

15 

100 

40 

2 

21 

129 

37 

22 

21 

21 

7 

89 

56 

43 

1 187

596

3 402

2 066

138

813

5 875

698

384

1 028

539

251

2 735

3 294

2 194 

Source: ECB Payment Statistics, February 2011 

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Annex 2: Further background on MIFs 

A  MIF  can  be  a  percentage,  a  flat  fee  or  a  combined  fee  (percentage  and  flat  fee).  A  wide 
variety of MIFs are applied in the EU. Not all these fees are public. However, as a result of 
informal and formal settlements with the European Commission MasterCard and Visa Europe 
currently  publish  the  MIFs  they  have  established  (in  a  number  of  countries  MIFs  are 
established  by  local  banking  communities  in  the  framework  of  the  MasterCard  and  Visa 
systems, under which fees are generally not made public). For MasterCard and Visa Europe, 
depending  on  the  category  of  cards  and  the  country,  MIFs  vary  from  zero  (Maestro 
Switzerland)  to  1.62 %  (MasterCard  debit  cards  Poland)  and  1.90 %  (Visa  debit  cards  and 
commercial cards in Poland). 

Under  its  informal  settlement  with  the  Commission  MasterCard  has  reduced  its  MIFs  for 
cross-border consumer debit and credit cards to 0.20 % and 0.30 % respectively. Visa Europe 
has reduced its MIFs for cross border consumer debit card transactions and transactions with 
these cards in nine EU Member States to 0.20 %. The benchmark applied in these settlements 
as the so-called ‘merchant indifference test’. Under this test the MIF is set at the level where 
payment  with  a  card  does  not  result  in  higher  costs  to  retailers  than  a  payment  with  cash, 
making the retailer indifferent between the two means of payment. This level can therefore be 
seen as ensuring that merchants and their subsequent customers receive some of the benefit of 
the efficiencies allegedly generated by MIFs. In some instances competition authorities have 
accepted  formal  or  informal  settlements  on  specific  levels  of  inter-bank  fees  and  other 
conditions31. 

Four-party schemes and three-party schemes 

MIFs are applicable to point-of-sale transactions with payment cards i.e. transactions made by 
the cardholder at the merchants’ business. In a four-party scheme, the issuing PSP enters into 
a contract with the cardholder (payer) and the merchant contracts an acquiring PSP (or payee 
PSP) to acquire the card payments made at his terminal. For its services, the acquiring PSP 
charges the merchant what is known as merchant service charges (MSC). 

Interchange fees for such schemes are fees charged by the issuing PSP on transactions carried 
out with cards it has issued. The cost of these fees is borne by the acquiring PSPs and then 
passed  on  to  merchants  through  inflated  MSCs.  The  interchange  fee  therefore  effectively 
determines  to  a  large  extent  the  price  charged  by  PSPs  to  merchants  for  card  acceptance. 
Hence, MIFs have an impact on price competition between acquiring PSPs to the detriment of 
merchants  and  subsequent  purchasers32,  particularly  in  combination  with  other  business 
practices outlined in 4.1 and 4.2 of this paper. 

31 
32 

Visa, MasterCard, Pagobancomat, Groupement. 
See  the  Commission's  Decisions  addressed  to  MasterCard  and  Visa  —  Commission  Decision  of 
19.12.2007  relating  to  a  proceeding  under  Article  81  of  the  EC  Treaty  and  Article  53  of  the  EEA 
Agreement  —  Case  COMP/34.579  —  MasterCard,  Case  COMP/36.518  —  EuroCommerce,  Case 
COMP/38.580 — Commercial Cards; and Commission Decision of 8.12.2010 relating to proceedings 
under Article 101 of the TFEU and Article 53 of the EEA Agreement — Case COMP/39.398 — Visa 
MIF. 

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Three-party card schemes, sometimes referred to as ‘proprietary’ schemes, differ from four-
party schemes as the transaction only involves the payer/cardholder, the payee/merchant and 
the scheme, whereas in a four-party scheme, the transaction involves the payer/cardholder, the 
issuing  PSP  (or  payer  PSP),  the  payee/merchant  and  its  PSP  (the  acquiring  PSP  or  payee 
PSP).  This  means  that  the  schemes’  role  is  mostly  limited  to  providing  the  infrastructure  in 
the latter case. 

In a three-party scheme, only one PSP is involved, being at the same time the issuer and the 
acquirer. However, when licences are issued by the scheme to several PSPs to issue cards and 
to  acquire  transactions,  it  is  not  a  ‘pure’  three-party  scheme  but  resembles  a  four-party 
system. 

‘Pure’ three-party schemes do not have a MIF explicitly agreed between PSPs. There are only 
the fees paid by the cardholder (annual fees, fees per transaction, etc.) and Merchant Services 
Charges paid by the retailer. Nevertheless, the scheme may use the collected fee to subsidise 
one ‘leg’ or the other (i.e. the merchant or the cardholder), resulting in an implicit MIF. 

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