Going against the trend? European integration for retail payments Wiebe Ruttenberg Joint ECB-MNB Conference, Budapest, November 2012 ECB-CONFIDENTIAL

Contents 2 I. Why do retail payments matter?II. What has been achieved so far?III. What about the future?

3 I. Why do retail payments matter? Efficient, robust, standardised, integrated retail payment systems Facilitate trade Increase competition and innovation Foster financial integration Completion of the EU monetary union

4 I. Why do retail payments matter? Social costs of retail payment instruments 0.96 % GDP or 45 billion euro for participating countries 1 % GDP or 130 billion euro for all EU27 ECB Occasional Paper; Social and private costs of retail payment instruments (2012) Bank stability and performance Effective retail payment services entail higher bank stability Higher performance through more developed retail payment services ECB Working Paper; Return to retail banking and payments (2009) Social relevance of retail banking Taking deposits, providing credit to real economy, and provision of payment services to firms and households are key public services Evidence positive impact of retail payments on economic growth Advisory Committee on the Future of Banks in the Netherlands (“Restoring Trust”, April 2009) UK HM Treasury (“Banking reform: delivering stability and supporting a sustainable economy”, June 2012) ECB (work in progress); Retail payments and economic growth (2012)

I. Retail payments on the agenda of many authorities 5 Worldbank National Central Banks Bank for International Settlement - CPSS European Commission European Central BankInternational Monetary Fund Federal Reserve System

I. Why is the ECB involved? One of the basic tasks to be carried out through the ESCB is to “promote the smooth operation of payment systems” Article 127(2) of the Treaty on the Functioning of the European Union “the ECB may make regulations, to ensure efficient and sound clearing and payment systems” Article 22 of the Statute of the European System of Central Banks and of the European Central Bank 6

I. Catalyst mandate Source: Eurosystem’s third SEPA Progress Report (June 2003) 7 Actions to be taken under the Eurosystem’s catalyst role Monitoring of progress of and cooperation with the banking industry and the EPC in particular Eurosystem offers assistance in developing cross-border services for payment instruments Increase of transparency and analysis on retail issues Cooperation with the European Commission

I. ECB as a catalyst Interacting with: Banking industry: establishment of SEPA credit transfers and SEPA direct debits EU legislator: the Payment Services Directive, Regulation on Cross-border Payments, SEPA End- date Regulation, Green Paper on Cards, Internet & Mobile, etc. EU Competition authority: cards, direct debit, internet payments, etc. National Central Banks: from reactive to proactive stance 8

II. What has been achieved so far? Stylised facts and figures Retail payment markets show healthy growth Convergence of retail payment markets SEPA update 9

II. Retail payment markets show healthy growth 10

II. Retail payment markets show healthy growth 11

II. Retail payment markets withstood turmoil times 12  Growth in euro area payments volumes below the 12-year average in 2011 due to financial turmoil and European economy downturn  But payments growth being still far above average GDP growth  Substantial differences across European payments markets CAGR (GDP) CAGR (GDP) Total euro area4.5% (1.2%)2.3% (1.4%) Total non-euro area6.5% (2.0%) 7.7% (1.7%) Total all EU 275.1% (1.4%)4.1% (1.5%) Note: “CAGR” is Compound Annual Growth Rate for the volume of non-cash transactions Source: European Central Bank Statistical Data Warehouse

II. Convergence of retail payments, volume  Some convergence in payment behavior in EU for all payment instruments  except cheques & e-money  Euro introduction accelerated speed of convergence 13 Notes: Convergence is measured as the decrease in the dispersion of payment instrument use across countries. Source: ECB (2012) forthcoming.

II. Convergence of retail payments, value 14 Notes: Convergence is measured as the decrease in the dispersion of payment instrument use across countries. Source: ECB (2012) forthcoming.  Some convergence in payment behavior in EU for all payment instruments  except cheques & e-money  Euro introduction accelerated speed of convergence

15 II. SEPA update Fees for cross-border credit transfers have dropped by around 90% between 2001 and (EU Regulation 2560/2001 and 924/2009) Transaction time has decreased from 3.3 days in 2001 to max. 1 day in (EU Payment Services Directive / 2007) EMV migration of cards was 88% and of terminals 94% in the EU-27 end-Q (market self-regulation)

III. What about the future? 16

III. What about the future?  Retail banking and - with it - retail payments will continue to have high social relevance  The financial crisis should not slow down retail payment integration, as this affects trade, financial integration and EU markets competitiveness  Vision for ECB role in retail payments:  transfer knowledge as expertise and influence centre in retail payments;  manage at EU level the political and policy dialogue with financial industry, end-users, EU legislator and other EU authorities;  have an equal, mutual respected and trusted relationship with the EC (MARKT, COMP, SANCO);  increase European influence on global level. 17

III. What about the future? (2) 18 Migration deadline for SCT and SDD (Feb 2014) constitutes the start of a new era in European retail payments Migration deadline SCT/SDD An effective social dialogue will be key for the future development of an integrated, competitive and innovative European retail payment market Social dialogue

III. What about the future? (3) 19 Cards Innovation Security Governance SEPA at global level

Conclusions  Retail banking and - with it - retail payments will continue to have high social relevance  The financial crisis should not slow down retail payment integration, as this affects trade, financial integration and EU markets competitiveness  Evidence shows that financial integration through convergence of payments behaviour is happening, but at a slow pace  Europe and beyond: SEPA continues to drive change  An integrated and efficient market of secure payment services in Europe is a moving and dynamic target  Need strong public authorities to set the framework 20

Thank you for your attention! Questions and comments?