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DAVID S. EVANS: I’m David Evans. Today, I’m fortunate to have Gerard Hartsink, who’s the CEO of the European Payment Council. We’re going to be talking about what’s happening with the SEPA initiative.
Gerard, thank you very much for joining me today. Just for the benefit of people who aren’t following payments in the European Union closely, could you tell us just very briefly what the SEPA initiative is? For example, what does it mean to have a single euro payments area, and whose idea was it to do that?
GERARD HARTSINK: The SEPA initiative was initiated by the public sector, the European Commission, and the Governing Council of the ECB. They asked the banks to create an environment where it is possible for customers to pay and receive euros where there is no distinction anymore between domestic and cross-border. And for that reason, the European Payment Council created the Single Euro – single credit transfer and single direct debit rulebooks and implementation guidelines.
EVANS: And just briefly, you’re the head of the European Payment Council. Maybe just say a couple of words about what the European Payment Council is.
HARTSINK: The European Payment Council is a cooperation model of banks. Currently, we do have 74 members, including all the major banks in Europe, in 32 countries of Europe. It’s a bit more than the 27 countries that are members of the European Union, and I’m the Chair of the European Payments Council.
EVANS: Now, what’s the role as of today of the European Commission and the European Central Bank in terms of driving SEPA forward?
HARTSINK: The European Central Bank and its Governing Council, currently 16 countries, and the Managing Board of the European Central Bank, they take decisions how to move forward in the payment industry. For them, the message is very simple. One currency, one set of payment instruments, in particular, credit transfers, direct debits for euros, and a solution for cards.
The European Commission is taking care of the legislative part. So, for instance, what they decided on request of the European Parliament and the ECOFIN – and the ECOFIN is the body of the Ministers of Finance – and both together, they decided that, for instance, the Payment Services Directive should be created, and that it’s applicable not only in the euro area, currently 16 countries, but also in other markets of the EU 27, for instance, for the UK for the sterling, or Poland for the zloty.
EVANS: But it’s the understanding that both the Commission and the Central Bank are pretty active in trying to make SEPA a reality.
HARTSINK: Definitely. The European Commission was instructed by the European Parliament to do more to create SEPA. So they called this instruction too of the ECOFIN, the Ministers of Finance, and the European Commission, and the European Central Bank. And the European Central Bank, they were – they got this instruction of the Governing Council, work together to realize the SEPA.
EVANS: Now, last May, the Commission issued a report that seemed to express some displeasure over how quickly the banking industry was implementing SEPA. It noted, in particular, that the credit transfer scheme and the direct debit scheme, while they exist, aren’t really being used very much. Assuming you agree with that, why has it been so slow, and whose fault is it, if anyone’s fault, is it?
HARTSINK: SEPA credit transfers was launched in January 2008, and SEPA direct debit in November 2009. The pick-up of SEPA credit transfers – so the migration to SEPA credit transfers, is currently 9.3%, and for SEPA direct debit roughly 1%.
If you analyze the facts, the supply side, the banks, are ready to roll out, but the buy-side, in many member states, is not yet ready. That’s not true for all the euro countries. For instance, in Luxembourg, a lot of progress has been made for credit transfer, 100%. Finland is moving also very fast. But in a lot of member states, the buy side is not yet ready, and for that reason, there is a current debate to have an end date on the program. That was also asked for by the European Parliament and by the ECOFIN.
EVANS: So my understanding – and I may have this wrong – the Commission wants legislation to set a deadline. Is it the Commission that’s kind of driving this towards a deadline, or has Parliament already stepped in and said it wants to have a deadline?
HARTSINK: According to European law, the Commission has a certain task, and this task is being executed on request of the European Parliament and the ECOFIN, to come up with piece of legislation to set an end date for the migration in the euro countries, in particular, from the old format of credit transfer to the new format of credit transfer, and similar for direct debit.
EVANS: And what’s the view of the European Payment Council, or –
HARTSINK: The European Payment Council is crystal clear. We are very supportive for an end date. And it’s not only the European Payment Council. There is a so-called SEPA Council, where a lot – not only the Central Bank, but also the Commission has a seat. It’s co-chaired by the European Central Bank and the European Commission.
The banking industry, the supply side, has four seats in this council, and the buy side, being the merchants, being the corporates, being the SMEs and the consumers, and the public administrations, all five do have a seat. And together, so the buy side and the sell side together with the public sector, all are supportive that we have an end date as soon as possible.
EVANS: Any anticipation of what that end date is going to be?
HARTSINK: Well, the only formal position disclosed so far is the position of the governing council. The Governing Council of the ECB published an end date in their progress report, which was published two weeks ago. On page seven, at the bottom, you may find the recommendation of the Governing Council of the European Central Bank, being for credit transfer end date should be end 2012, and for direct debit end 2013.
EVANS: End of 2012 for credit and 2013 for debit.
HARTSINK: Yeah, that’s correct.
EVANS: The Commission also doesn’t seem to want a single standardized payment scheme for the European Union. Instead, it’s now looking for multiple interoperable schemes. What do they have in mind, and how would that impact the European banking industry, assuming I have this right?
HARTSINK: First, the Commission is executing a task, as I said already, on behalf of the European Parliament and ECOFIN, the clerk of Ministers of Finance. But it is a dialogue on the legislative approach. So there is no debate that there should be an end date. It’s more the legislative approach. And competition law in Europe makes that have the wording as they have.
From a banking perspective, we are not very pleased that they take a position that, from a competition law, there may be multiple schemes for credit transfer and direct debit. So for that reason, the EPC has taken a very strong position on that matter.
It cannot be, too, that we are asked by the public sector to create SEPA credit transfer and SEPA direct debit scheme to get rid of all the schemes in the euro area in particular, and that we end up only with one credit transfer and direct debit scheme, but that the legislate only since last couple of months take the provision that, for competition reasons, they can not have a law that mandates only the credit transfer and direct debit schemes of the European Payment Council. So we disagree with the Commission on that matter.
EVANS: And that desire for multiple schemes, that’s coming from the European Parliament, as opposed to DG –
HARTSINK: No, not coming from the European Parliament. As I said, competition authorities in Europe feel that you cannot mandate a private entity to be the scheme owner of the European schemes. However, European Payment Council was mandated from the start to take care of this deliverable SEPA credit transfers and SEPA direct debit scheme.
So the banks are very surprised that this is going on. And not only the banks. There is a trade association of all clearinghouses in Europe, the European Association of Clearinghouses association. They also have a very strong view that it would not be wise to allow multiple schemes, because then the SEPA objective will not be realized.
EVANS: Just so that I’m clear on where the pressure for multiple schemes is coming from, is it DG Comp at the Commission, is it the competition authority of the member states, or both of those?
HARTSINK: As far as we understand currently, it’s mainly for competition reasons, so it’s DG Competition, but together with the competition authorities in the EU 27 member states. The combination is called the European Competition Network, and they have taken the view that you cannot mandate a private entity with this as far as they mention more public authority type of task, being the scheme.
EVANS: Very good. Thank you. The Commission’s holding a public hearing this Wednesday on SEPA. What’s that about?
HARTSINK: This has to do with two topics. The first topic has to do with the general approach, and that has to do with the topic I just explained. Second, it has to do with the business model for direct debit.
EVANS: Let me turn to a somewhat related topic. There’s still uncertainty about interchange fee regulations in the European Union. There’s tension between policymakers who, on the one hand, would like to encourage the emergence of a European card scheme that could compete with the ones that one thinks of as having their roots in the United States. And the competition authorities, including DG Comp, that seem to be determined to lower the fees for interchange fees.
Assuming I’m right about that – and correct me if I’m wrong – do you have any prediction on how that’s going to get resolved, or how that tension is going to get resolved?
HARTSINK: Not specifically. The European Commission only has a legal role for cross-border. Member states themselves do have a role from a competition perspective for the domestic part.
What is the status? Don’t mix up interchange for direct debit and interchange for cards. All competition authorities organized in the European Competition Network make a clear distinction the profile of the instrument. Direct debit is very different from the profile of a card pay payment.
But focusing on direct debit, the direct debit, in the regulation 924/209, so published last year, clarity has been given what can be done for direct debit up to November 2012. And in that regulation, it says that it is possible for cross-border to have an interchange of max 8.8 eurocent per transaction, up to November 2012. It is also possible to continue with the current arrangements at national level up to that date.
What is not yet clear what will happen after November 2012. That is part of the dialogue, and that’s why, during the hearing, this topic will become clear, I hope, what to do afterwards.
EVANS: Maybe this is not something you want to comment on, but do you think we’re going to see a European card scheme next year?
HARTSINK: EPC itself decided not to create a card scheme, an additional card scheme, as requested by the public authorities. However, we are very well aware that there are currently three initiatives, Monet, EAPS, and PayFair. Look at their websites or give a call to the manager.
What is the EPC doing? The EPC is creating an overview of all standardization. Apart from we created a SEPA card framework that was already launched in June 2008. And the core of the card framework is unbundling of services to customers, being consumers or merchants. Second layer, the scheme in itself, and there are multiple international and domestic schemes. The third layer is the processing layer. And the card framework has a three-layer structure, which should be unbundled according to this framework.
The majority of the scheme already confirmed to the EPC that they are already compliant with the SEPA card framework or are in the process to become so.
So in the card framework, there is a clause that says, do more on standardization. The EPC is working on standardization, not only from a banking perspective, but there is the card stakeholders’ group, with five representatives of five different sectors, being the banks nominated by the EPC, being the retailers nominated by the key retailers’ organization, being the processors, five processors, being the technology vendors, and being the five schemes. And they nominate the five representatives in the card stakeholders’ group.
Together, those 25 people work on the book of requirements. The book of requirements is downloadable on our website. The first four chapters have to do with requirements for standardization. Chapter 5 has to do with standards for security, and Chapter 6 has to do with the requirements for certification. And we already agreed to create the certification management body in Europe.
EVANS: OK, that’s very helpful. Last question for you. The U.S. Congress imposed very stiff regulations on the card industry in the last year or so. Tough regulations on credit card terms, debit interchange fees are under regulation by the Fed, and likely to be forced down. And there’s also, in the U.S., a new federal authority that has sweeping powers to regulate the industry, called the Consumer Financial Protection Bureau.
From what you said, looking at Brussels and the member states, do you see much interest in similar regulation?
HARTSINK: I think the majority of banks feel that there is enough regulation in Europe. But the American case is definitely not the same as the European case. It looks alike, but it’s different. For instance, credit cards in Europe are –
EVANS: Used much less.
HARTSINK: – used for different purposes. It’s mainly a payment vehicle. Europe is dominantly a debit card environment. U.S., well, personal loan is mostly done in a credit card. In Europe, it’s possible in the majority of the member state to have a personal loan on your bank account and using a debit card. So we cannot compare these two worlds. Though it looks alike, but there are so many differences. And I cannot comment on the American regulation. I do not know the details.
EVANS: OK, that’s very helpful. Gerard, thank you very much for your time today.
Transcript: What’s Next in Payments in Europe
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