1. Innovation in Retail Payments in Europe: Challenges and opportunities
Francisco Tur Hartmann
European Central Bank
Innovation in Retail Payments in Europe: Challenges and opportunities
Tirana, 25 May 2016

2. The goal – One single retail payments market
1. The way towards the integration of retail payments in Europe (SEPA)
The goal – One single retail payments market
From 28 payments markets…
… one single payments market
Cashless payments in euro in the EU (EEA) can be made under the same basic conditions, rights and obligations, regardless of country of location
=> SEPA credit transfer, SEPA direct debit

3. Achievements of the SEPA project
Over the past 14 years the ECB/Eurosystem has closely monitored and guided the efforts of market participants in the SEPA project
Market efforts triggered or mandated by EU legislative approaches
Delivered: harmonisation and integration of credit transfers and direct debits (Rulebooks)
Still ongoing: Card payments (Framework, interoperability of processors, and standardisation programme)

4. What trends will affect retail payments?
Increasing mobile telephone penetration, including smartphones
More-and-more time spent online (finding, messaging, shopping, keeping contacts, gaming, streaming, sharing experiences, …)
The ‘internet experience’ of information being easily accessible, available within seconds, and apparently ‘for free’ …
→ Warning: the users seem to have become quite lazy, impatient, and perhaps ‘penny-wise, pound-foolish’ .
… also is changing the requirements for businesses in the digital age, e.g. be proficient in internet technology, grasp new business models (data!), know and shape customer experience, and be quick.

5. Strategy and facilitation Euro Retail Payments Board
3. The importance of an appropriate governance structure
The future of euro retail payments requires multiple stakeholder involvement
SEPA
Legal Framework
Catalyst, Operator
Strategy and facilitation
The Euro Retail Payments Board (ERPB) (successor of the SEPA Council );
Includes high-level (board or CEO) members representing the demand and supply side, chaired by the ECB;
With links to national retail payments fora and committees (via NCBs).
European Commission
Euro Retail Payments Board
Eurosystem
Consumers, merchants, corporations, public administrations, payment institutions, banks

6. Payment initiation and account information services
4. Retail payments innovation – opportunities and risks
Instant payments
Payment initiation and account information services
Distributed ledger technologies
challenges/risks:
national solutions
lack of interoperability
(re)fragmentation
European influence on global providers

7. Fast, faster, and instant payments
Instant payments and faster settlement initiatives in Denmark, Poland, Sweden, UK, Costa Rica, Mexico, and Australia (2017)
End-user experience: real- or near-real-time retail payments:
Service available 24 hours a day, 365 days a year
Funds (almost) immediately available for use by the payee
Immediate confirmation to the payee
Various models as regards clearing and settlement:
Instant clearing and settlement in RTGS
Instant clearing in ACH + deferred net settlement (cash or securities collateral)
Scheme
Clearing
Settlement

8. The move towards Instant Payments
Expected to leverage SEPA-based harmonisation and integration
ECB has started discussions with processors on how the clearing layer and the settlement layer could be arranged; and has reflected on a potential operational role for the settlement layer
Euro Retail Payments Board has investigated the scheme layer:
to develop an instant payment solution based on a new “instant payment scheme” itself based on the SEPA Credit Transfer;
to set up a representative group to give guidance with regard to development;
instant payment solutions in euro should be developed at pan-European level or should -if developed for the national level- become interoperable with other instant payment solutions (at least those based on same underlying payment instrument).
European Payments Council consulted market on draft Rulebook, to be adopted by Nov 2016 for market implementation by Nov 2017.

9. Payment Initiation Services
New type of providers that use existing online bank accounts held with banks to offer services to e-commerce merchants
Currently, these providers operate either with or without (!) the permission of the bank servicing the payment account
European legislation (PSD2) will allow “access” in the form of:
Right to use another provider to initiate a payment from your bank account
Obligation on that provider to identify itself to your bank
Obligation on your bank to inform that provider on execution of payment order
Obligation on both providers to communicate securely 9

10. 4.2 Payment initiation and account information services

11. Distributed ledger Technology
Location,
Distributed ledger Technology
A distributed ledger is a shared record of either transactions or account balances for a given set of assets and users
With distributed ledger technologies (DLTs) users can modify accounts in the shared distributed ledger
Blockchain technology is only one type of DLT and bitcoin one implementation of blockchain technology
Any relevance for payments?
DLTs
BLOCKCHAINS
BITCOIN
DLTs and their potential use in post-trading
Name of the Author

12. SEPA: More efficient retail payments in Europe
5. Concluding remarks – issues at stake
SEPA: More efficient retail payments in Europe
The work towards SEPA for cards is still ongoing
Retail payments governance at European level => ERPB
Innovation bring new opportunities (and risks)
should not lead to (re) fragmentation (common standards, interoperability)
Pan-European instant payments by end 2017
Harmonisation and standardisation for payment initiation services
Opportunities of distributed ledger technologies in retail payments market
Sufficient influence of European stakeholders on global payment service providers

13. Francisco Tur Hartmann
Disclaimer
The views expressed in this presentation are those of the speaker and do not necessarily reflect those of the European Central Bank.