A number of local payment systems concentrate the clearing and settlement of all retail national transactions. In addition, the execution of cross-border payments go through several dedicated arrangements such as international card schemes, banking “clubs” or the EBA’s STEP 2 system. The SEPA project aims to put an end to such fragmentation by introducing, as from 2008, European payment instruments which are going to replace national ones by end-2010. The vision is that by end2010 all retail payments in euro are carried out as easily, efficiently and safely across Europe as within national borders. For this vision to become a reality, a key enabler is that retail payment infrastructures become interoperable and consolidate. The outcome of theses changes on retail payment systems is uncertain. It may lead to various structures, ranging from a natural monopoly exercised by one infrastructure that would encompass most national and cross-border payment flows, to the competition between several systems. However, whatever the structure, the challenge will be to find the right balance between two objectives: (1) reaping economies of scale and scope and (2) fostering competitive market conditions and behaviours. 1.2. Keeping pace with technological progress  The second issue for payment infrastructures consists in keeping pace with technological progress. Payment systems are made up of IT networks, hardware and software. As a consequence, technological progress is a key driver for enhancing the way payment systems are designed, operated and used. I will highlight a few significant examples of recent technological developments.

The first half of the nineties experienced a major transformation in the design of large-value payment systems with the widespread introduction of real-time gross settlement (RTGS) systems. In a second step, further advances in information technologies have made possible new designs like the so called “hybrid systems”, i.e. systems that settle in real-time but, at the same time, minimise liquidity needs thanks to highly sophisticated optimisation mechanisms. In short, advances in information technology allowed large-value payment systems to settle faster, with a lower amount of liquidity and at a lower cost. On the retail payments side, technological progress should also allow safety and efficiency gains beyond those which have resulted, for instance, from the implementation of cheque truncation or those that are expected from introduction of the EMV (Europay Mastercard Visa) technology for card payments. Innovation has definitely an important role to play in order to keep the SEPA project futureoriented and promote the use of new delivery channels for retail payments like the internet and mobile devices, or new types of services like electronic invoicing. However, this flow of innovations come together with the entry in the payments market of new actors which do not always offer the same level of security as the traditional suppliers of those services, namely credit institutions. There is obviously a trade-off between, on the one hand, encouraging innovation by facilitating access to the payments market and, on the other hand, ensuring the safety of payments provided by setting prudential requirements on their suppliers.