Retail Payments 2011 en

OESTERREICHISCHE NATIONALBANK
EUROSYSTEM
The future of retail payments:

opportunities and challenges
A joint conference of the

European Central Bank
and the Oesterreichische
Nationalbank
12-13 May 2011
Editors
Christiane Burger
Thomas Lammer
Heiko Schmiedel
Doris Schneeberger
EUROSYSTEM
THE FUTURE OF RETAIL PAYMENTS:

OPPORTUNITIES AND CHALLENGES
A JOINT CONFERENCE OF THE

EUROPEAN CENTRAL BANK
AND THE OESTERREICHISCHE
NATIONALBANK
12-13 MAY 2011
EDITORS
CHRISTIANE BURGER
THOMAS LAMMER
HEIKO SCHMIEDEL
DORIS SCHNEEBERGER
© European Central Bank, 2011
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60066 Frankfurt am Main
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All rights reserved. Reproduction for

educational and non-commercial
purposes is permitted provided that the
source is acknowledged.
ISBN 978-92-899-0815-3 (online)

C O NTENTS
Preface 4 7 E f f i c i e n t a n d c o m p e t i t i v e
retail payment markets –
1 E x e c u t i v e s u m m a r y 5 panel session 36
2 O p e n i n g r e m a r k s b y W o l f g a n g 8 K e y n o t e s p e e c h : I n n o v a t i o n
Duchatczek 8 in retail payments 38
3 T r a n s f o r m a t i o n o f t h e b a n k i n g 9 R e t a i l p a y m e n t s :
business and its impact on innovations, security
retail payments: governance, and financial inclusion –
efficiency and integration – panel session 40
panel session 11
1 0 C l o s i n g r e m a r k s b y G e r t r u d e
3.1 Introductory remarks for the Tumpel-Gugerell 43
panel session 11
3.2 Panel discussion 13 A n n e x ES
1 Press Release 46
4 P a y m e n t s b e h a v i o u r 2 Conference Programme 48
and the usage of payment
instruments – academic
session 16
5 C r e a t i n g a c o m p e t i t i v e r e t a i l
payments market 20
5.1 Trust in payment systems and

the implications of fraud –
academic session 20
5.2 Customers’ benefits from an
integrated retail payments
market and their readiness for
change – practitioners’ session 22
5.3 Card payments, network
effects and surcharging –
academic session 24
5.4 Role of central banks in
retail payment processing:
competitor, facilitator or
partner for cooperation? –
practitioners’ session 27
5.5 Card payments, household
finance and interchange fees –
academic session 30
6 K e y n o t e s p e e c h : O p e n i n g
financial services markets –
t h e E u r op e a n a pp r o a c h 34
ECB
The future of retail payments: opportunities and challenges
October 2011 3
Preface
The way people are paying is continuously changing, as a result of innovations in retail payments, a
pursuit of greater efficiency and regulatory changes. This changing environment creates opportunities
for some and challenges for others in the retail payments sector. The impact of these changes on the
future of retail payments was the main theme of the biannual retail payments conference organised
by the European Central Bank (ECB) in cooperation with the Oesterreichische Nationalbank
(OeNB) on 12 and 13 May 2011 in Vienna. More than 200 high-level policy-makers, financial
sector representatives, academics and central bankers from Europe and other regions attended this
conference, reflecting the topicality of and interest in the retail payments market.
The aim of the conference was to better understand current developments in retail payment markets
and to identify possible future trends, by bringing together policy-making, research activities and
market practice. A number of key insights and conclusions emerged, as summarized later in this
document.
We would like to thank all participants in the conference. In particular, we would like to
acknowledge the valuable contributions and insights provided by all speakers, discussants, session
chairpersons and panellists, whose names can be found in the annexed conference programme.
Their main statements are summarised in this document.
Behind the scenes, a number of colleagues from the ECB and the OeNB contributed to both the
organisation of the conference and the preparation of these conference proceedings. In alphabetical
order, many thanks to Nicola Antesberger, Stefan Augustin, Michael Baumgartner, Christiane Burger,
Stephanie Czák, Susanne Drusany, Henk Esselink, Susan Germain de Urday, Monika Hartmann,
Monika Hempel, Wiktor Krzyżanowski, Thomas Lammer, Tobias Linzert, Alexander Mayrhofer,
Hannes Nussdorfer, Simonetta Rosati, Daniela Russo, Wiebe Ruttenberg, Heiko Schmiedel,
Doris Schneeberger, Francisco Tur Hartmann, Pirjo Väkevainen, Katharina Wolner-Rößlhuber and
Juan Zschiesche Sánchez.
Gertrude Tumpel-Gugerell Wolfgang Duchatczek

Former member of the Executive Board Vice Governor
European Central Bank Oesterreichische
Nationalbank
ECB
4 The future of retail payments: opportunities and challenges

October 2011
1 Executive
summary
1 Executive summary The two-day event was centred on four main
themes:
Retail payment markets have been developing
rapidly throughout the last decade. In Europe a • the transformation of the banking business
number of legal and regulatory measures have and its impact on retail payments;
been adopted with the aim of achieving an
integrated single market for payments. In other • payments behaviour and usage of payment
regions (e.g. Australia, Canada and the United instruments;
States) retail payments have recently also been
subject to regulatory and legal interventions. • the creation of a competitive retail payments
The market-initiated Single Euro Payments Area market;
(SEPA) project has accelerated the development
of the European retail payments market into • future challenges and opportunities in retail
one that is based on increasingly integrated banking and payments.
and more competitive market structures.
Technological innovations have facilitated these The following paragraphs highlight a number
fundamental changes. Other regions have had of key messages and conclusions that emerged
similar experiences or even more significant from the debate on these themes.
changes in the field of payment innovations and
developments. Although there is a widespread It was widely acknowledged that retail
belief that developing and increasing the payments are a cornerstone of retail banking
integration of the retail payments market is and consequently banks’ business case. As the
likely to generate macroeconomic benefits, it financial crisis has shown, Europe has benefited
may also involve challenges regarding risks and substantially from the level of integration and
security threats. Against this background, it is innovation achieved so far in the field of retail
important to understand the economic factors payments and banking. However, more work
driving future developments and to take a needs to be done to achieve a fully integrated
forward-looking perspective that anticipates the and innovative European retail payments market.
factors likely to influence developments in the It further emerged from the discussions that
retail payments market. retail payment integration should be understood
not as harmonising payments behaviour but as
In this context the ECB organised the second harmonising instruments, standards, rules and
biannual retail payments conference, this systems.
time in cooperation with the Oesterreichische
Nationalbank. The conference took place in For Europe, it was recognised that the SEPA
Vienna on 12-13 May 2011. Its objectives project is on the right track and that a lot has
were twofold: first, to improve the general been achieved over recent years. However,
understanding of payment economics more work needs to be done, in particular in
(and related disciplines) in the field of retail the area of the standardisation of card payments
payments and, more specifically, to help identify and the migration towards the SEPA payment
possible developments and dynamics that will instruments. In this respect the Eurosystem
shape the future payment landscape; and second, welcomes the European Commission’s proposal
to provide a forum for debate and interaction for a regulation setting an end date for migration.
among market participants, policy-makers and Moreover, it is important to involve users and to
researchers. ensure the acceptance of the SEPA instruments.
ECB
The future of retail payments – opportunities and challenges
October 2011 5
In this respect, a few speakers mentioned reason central banks are interested in the field of
network effects as an obstacle to integration retail payments. While the role of central banks
and innovation and argued in favour of in offering large-value payment systems is
intervention by public authorities to address the generally accepted, the future of retail payment
coordination failure in payment innovations and processing in an integrated market and the
in the standardisation of the security of retail operational involvement of central banks is still
payments. Other speakers said that the policy subject to intensive discussions.
strategy should be clear and the regulatory
environment stable and consistent in order to A large part of the conference was dedicated to
win support from banks for change. the discussion of issues related to card payments.
Country-level evidence demonstrates that
Research work in this field has concluded merchants’ perception of the cost of different
that payments behaviour differs considerably payment instruments affects acceptance as
across cultures and countries. In fact, a marked well as surcharging decisions. Merchants who
persistence of traditional payment habits can be find payment cards expensive are less likely
observed across European countries. Despite to accept them and more likely to surcharge
the relatively high cost of cash when it comes their customers for card payments. Merchants
to payments above a certain threshold, cash facing competition accept debit card payments
continues to be used extensively for day-to- relatively more often and are less likely to
day payments at the physical point-of-sale. surcharge their customers for debit card use than
One reason why the use of cash is high in some merchants with monopoly power.
countries is the budget monitoring and memory
feature of cash. Further country evidence shows The discussion on the possible and/or allowed
that other factors also play an important role level of multilateral interchange fees in the
in consumers’ payment decisions, i.e. speed, field of cards and the methodology to be used
merchant acceptance and low transaction- for calculation has not been conclusive so far.
specific fees. Empirical evidence shows that Therefore, increased clarity on the business
debit and credit cards are used for higher-value model for cards seems to be needed to increase
transactions because of perceived safety, record planning security for issuers and acquirers.
keeping, rewards and the possibility of delaying
the settlement of the payment. The provision of consumer credit in payment
networks plays an important role in efficient
Another important topic addressed during the pricing and competition between debit card
conference and closely linked to perceived and credit card networks. Moreover, academic
safety related to fraud in retail payments. Even research has shown that merchant fees and
if financial stability is not directly affected by reward programmes generate an implicit
the overall level of fraud losses, fraud incidents monetary transfer to credit card users from
can have downward effects on card usage. On non-credit card (debit card, cheque or cash)
the basis of evidence from the analysis of debit payers because merchants generally do not set
card payments and media coverage of security differentiated prices per payment instrument
incidents, however, it can be concluded that the to recoup the costs of fees and rewards. Since
effects seem to be economically relatively small credit card users are on average wealthier than
compared with other influencing factors. This persons without a credit card, this monetary
suggests that consumer confidence in the debit transfer also benefits higher-income families
card is relatively high and robust. to the disadvantage of lower-income families.
Accordingly, reducing merchant fees and
Efficient and secure payment systems are a key card rewards would likely increase consumer
concern for central banks worldwide, for which welfare.
ECB
6 The future of retail payments – opportunities and challenges

October 2011
1 Executive
summary
It was generally accepted that innovations
in retail payments will make everyday life
more convenient by offering easier access to
payment instruments. In addition, innovation
may also be a chance to decrease the number
of unbanked and underbanked people, i.e. it
could be a powerful tool for financial inclusion.
Several speakers pointed out that innovations in
retail payments are taking place more rapidly
than ever and that banks and regulators should
adapt quickly to their changing business and
technological environment.
The remainder of these conference proceedings

is structured as follows. Section 2 contains the
opening and welcome remarks by Wolfgang
Duchatczek (Oesterreichische Nationalbank).
Section 3 presents a summary of the first
panel session, chaired by Gertrude Tumpel-
Gugerell (European Central Bank), including
her opening remarks. Section 4 highlights the
discussions on payments behaviour and the
usage of payment instruments. Sections 5 and 7
deal with issues relating to the creation of an
efficient and competitive retail payments market.
Sections 6 and 8 give keynote speeches on
opening financial services markets by Cecilio
Madero Villarejo (European Commission) and on
innovation in retail payments by David S. Evans
(Market Platform Dynamics). Section 9 highlights
the key messages from the panel session on
innovations, security and financial inclusion.
The conference presentations and papers are

available on the ECB’s website.1
1 http://www.ecb.europa.eu/events/conferences/html/ecb_oenb.
en.html
ECB
October 2011 7
2 Opening remarks by Wolfgang Duchatczek
Wolfgang Duchatczek (Oesterreichische Nationalbank)
Ladies and gentlemen, introduced parallel sessions, we unfortunately

had to decline a number of high-quality papers,
It is my pleasure to welcome you to the with which we could have easily filled the
conference “The future of retail payments: agenda for a third and fourth conference day.
opportunities and challenges” and I would like to This proves that retail payments are, despite
thank Ms Gertrude Tumpel-Gugerell, Member the economic crisis, very much in the focus of
of the Executive Board of the European Central academic research. But retail payments are not
Bank, for the excellent cooperation during the only a topic of academic interest; they have a
planning and organisation of this joint ECB- real impact on banks’ P&L and are of major
OeNB conference held today and tomorrow macroeconomic relevance.
here in Vienna. This conference is not only the
second biannual joint retail payments conference One of the lessons learned from the financial
but has been organised on the special occasion crisis is that safe and stable payment systems help
of Ms Tumpel-Gugerell’s farewell as Member to reduce the uncertainty in the financial system.
of the Executive Board of the ECB, since her It has definitely paid off that the financial sector
term is due to expire by the end of this month. invested great effort in enhancing the safety
and efficiency of the payments infrastructure
Looking at the intensive agenda for the coming prior to the crisis. And while other business
two days, you will see that this event brings areas have shown some volatility during the
together a very distinguished group of high-level past few years, payments have remained an
speakers from central banks, regulatory bodies, important source of steady income for banks.
market players and universities. We were in According to Capgemini’s World Payments
the lucky position that our call for papers had Report 2010, payments volumes continued to
triggered the submission of numerous high- expand. However, payment service providers
quality academic papers. Although we have cannot take this development for granted, since
ECB

October 2011
2 Opening remarks
by Wolfgang
payment behaviour is continuously evolving processed via correspondent banking instead
Duchatczek
and some major trends can be observed: of multilateral clearing services. The overall
especially incumbent providers like banks volumes of payment transactions flowing
face the challenges of market integration and through unregulated correspondent banking
concentration, new technologies (e-payments, arrangements are still significant. Any instability
mobile payments and contactless payments) and in such arrangements may have a negative
increasing competition from non-banks. effect on the smooth functioning of the financial
system. Therefore, a clearing house with final
Moreover, retail payment revenues are coming settlement in central bank money is from a
increasingly under pressure because of increased security and stability point of view essential.
competition, the high interest of competition
authorities in the field of retail payments, I have to admit that we have quite a busy
regulatory initiatives and substantial investment conference schedule ahead of us, but the
needs due to the trends just mentioned. programme as well as today’s evening reception
should allow the discussion of all relevant issues
Regulators and competition authorities have to and still provide the opportunity to raise any
find the optimal balance between regulation, critical question. I have already briefly touched
cooperation and competition and provide the upon one or the other topic of our conference,
market with sufficient planning security based but let me give you nevertheless a quick
on clear and consistent decisions at the national overview of the next two conference days.
as well as the European level.
Immediately after my intervention we will
One example is the SEPA migration end discuss the transformation of the banking
date. Only rapid and complete migration to business and its impact on retail payments,
SEPA payment instruments will generate the in particular on governance, efficiency and
full benefits of a fully integrated payments integration. This session will be chaired by
market. In this context self-regulatory efforts Ms Gertrude Tumpel-Gugerell. The following
have proven not to be sufficient. Therefore the academic session will provide fundamental
European Commission’s proposed regulation insights into payments behaviour and the usage
regarding a binding SEPA migration end date is of payment instruments. After the lunch break
an important and necessary step. When it comes we will have two parallel streams: an academic
to multilateral interchange fees in the field of and a practitioners’ session, which both will
card payments, one of the main topics of our discuss a number of very topical issues, such as
conference, the Eurosystem has been asking for trust and fraud in payment systems, customer
more guidance to allow the market to progress in benefits of an integrated payments market and
its business case considerations for an additional the role of central banks in shaping the future
European card scheme. of retail payment markets. Leading academics
in the field of payments research will present
In my opinion the role of central banks as their work regarding network effects and
catalyst will become even more relevant in surcharging. So you will be spoilt for choice,
future. In some markets, however, central but you can change between the two streams
banks are operationally involved in retail during the break.
payments processing as well. This involvement
is sometimes seen as critical, and this is one of This evening a reception will be hosted
the reasons why we have dedicated a specific within the premises of the Oesterreichische
session to the discussion on the role of central Nationalbank, and Mr Ewald Nowotny,
banks in retail payments. In a number of Governor of the Oesterreichische Nationalbank,
countries, however, retail payments are still will give the dinner speech.
ECB
October 2011 9
Tomorrow morning we will continue with the
discussion on how to create a competitive retail
payments market and will analyse topics such
as competition, interchange fees, innovation,
efficiency and security. We are grateful that two
distinguished keynote speakers have agreed to
contribute to our conference: Mr Cecilio Madero
Villarejo (European Commission) will provide
us with his insights on “Opening financial
services markets – the European approach” and
Mr David S. Evans (Market Platform Dynamics)
will tell us how we are likely to pay in the future,
thanks to the expected “Innovation in retail
payments”. The conference will be concluded
by the closing panel, which will outline the
future challenges in the payments business.
We are confident that the balanced mix of

keynote speeches, policy panels and academic
as well as practitioners’ sessions will be
interesting for all of you. The first indication
is the high number of registrations; more than
200 people are here today, despite the fact that
this conference is by invitation only.
But I don’t want to continue keeping you in

suspense and therefore I would like to welcome
the first high-level policy panel, chaired by
Ms Gertrude Tumpel-Gugerell. This panel
brings together the views of central banks
from inside and outside the EU, a commercial
bank with a strong focus on central and eastern
Europe and a major global consulting company.
The discussion will focus on the transformation
of the banking business and its impact on the
governance, efficiency and integration of retail
payments.
I wish all of us a successful and interesting

conference, and I would kindly ask Ms Gertrude
Tumpel-Gugerell to start with the first panel.
ECB

October 2011
3 Transformation
of the banking
3 T r a n s f o r m a t i o n o f t h e b a n k i n g b u s i n e s s a n d i t s i m p a c t o n r e t a i l business and
payments: governance, efficiency and integration – panel session its impact on
retail payments:
governance,
3 . 1 I n t r od u c t o r y r e m a r k s f o r t h e p a n e l s e s s i o n efficiency and
integration –
panel session
Gertrude Tumpel-Gugerell (European Central Bank)
Ladies and gentlemen, and Ms Júlia Király, Deputy Governor at the

Magyar Nemzeti Bank. From the private sector,
It is a great pleasure for me to be here in I am pleased to welcome Mr Rainer Hauser,
Vienna – the town where I studied and where Member of the Management Board at UniCredit
I spent a good part of my life. It is also a great Bank Austria, and Mr Bertrand Lavayssière,
pleasure to be here at this conference, which Managing Director at Capgemini. I hope we
has been organised by the two central banks will have an interesting discussion, and I am
that have shaped my professional career – looking forward to hearing your views on our
the Oesterreichische Nationalbank and the discussion topic.
European Central Bank. And, last but not least,
it is also a great pleasure for me to chair the The theme of this panel session is the
first panel session, which brings together five transformation of the banking business and
renowned representatives from the public and its impact on retail payments. Let me start
private sector. my introduction with the observation that
almost as we speak, Vienna is celebrating
From the public sector, I would like to welcome the Wiener Festwochen, a festival of music
(in alphabetical order) Mr Giovanni Carosio, and the performing arts. It will feature 41
Member of the Governing Board at the Banca productions from 23 countries – an impressive
d’Italia, Ms Feriha Imamović, Vice Governor demonstration of the internationalisation and
at the Central Bank of Bosnia and Herzegovina, universality of art.
ECB
October 2011 11
As is the case for art, the banking business the banking industry for this. As we all know,
has become more and more international. This it takes two to tango, and migration can only
is demonstrated by the increase in foreign succeed if the supply and demand sides share
assets and liabilities in banks’ balance sheets. the same aims. Thus, one of the lessons learned
In Europe, the internationalisation has been is that the involvement of the demand side in
driven to some extent – but not exclusively – the governance of the integration process is
by the economic and monetary integration of necessary to facilitate migration.
the EU. Advances in information technology
have also contributed substantially in enabling Last but not least, the integration process at
banks to offer financial services not only at European level requires a readiness to discard
national level but to foreign businesses and some national models and habits. Probably this
individuals, too. is the most difficult part of the transformation
of the retail payments market. The media in
The expansion of the potential customer base some countries report that bank customers
has opened possibilities for synergy effects and cling to familiar national payment instruments
efficiency gains. It has also made those banks and national account numbers, which they are
that succeeded in creating an international loath to change. However, if change is made
customer base less vulnerable to local shocks. mandatory, as was the case with the cash
However, the success of the internationalisation changeover to the euro, the process is often
of the banking business also depends on even faster than necessary. And when it comes
a number of factors such as legal certainty, to adopting new technological devices – the
technical standardisation, sound governance mobile phone, MP3 players, tablet PCs – people
and, last but not least, a readiness to discard embrace them quickly. Thus, I expect that the
some national models and habits. adoption of the proposal for a SEPA migration
end date will finally unlock the potential for
In the area of retail payments, the groundwork integration and efficiency gains in the European
necessary to enable European integration retail payments market.
has been largely done. The Directive on
Payment Services (PSD) and the Regulation on In the conference on retail payments integration
cross-border payments provide the legal basis and innovation held at the ECB two years ago,
for the provision of pan-European payment we established that despite the financial crisis,
services. The payments industry – represented the retail payments business has been resilient,
by the European Payments Council (EPC) – providing reliable and regular revenues. Before
provided technical standardisation by developing the crisis, the fact that the retail payments
payment schemes and frameworks, although business is a substantial source of revenue in
standardisation in the area of cards still needs banking, accounting for up to 25% of total
to be further pursued. The European Payments bank revenues, was often neglected. Now, the
Council also provided the governance structure observation that banks with a balanced business
for the design and implementation process of model have been in a better position to cope
the payment schemes and frameworks. with the crisis has led to a better recognition
of the importance of retail banking and retail
It is at the final stage, at the point of migration to payments.
the payment schemes and frameworks, that the
integration process has stalled. SEPA migration Still, despite their resilience and stable nature,
as a self-regulatory process has not achieved retail payments revenues cannot be taken for
the required results. The banking industry’s granted. They are under pressure from different
self-imposed deadline of December 2010 for directions: increasing competition, substantial
SEPA instruments to be in general use has not investment needs to keep up with customer
been met. It would be simplistic to only blame demands and technological progress, and a
ECB

October 2011
3 Transformation
of the banking
more decisive stance on the part of competition and thereby of society as a whole, slipped too business and
authorities. With regard to the pricing of much into the background. In short, the public its impact on
payment products, payment service providers service function of banks, which is particularly retail payments:
governance,
have to face the paradox that on the one hand, relevant in the field of payments and loans, efficiency and
they are being pressurised to ensure more price has been neglected. integration –
transparency, and on the other, direct pricing panel session
would probably result in an increase in pricing Now, it is time for me to hand over to the
that would neither be accepted by the customers panellists. I am interested to hear your views
nor by the regulators. on the key issues relating to the transformation
process of the banking business, in particular
The financial crisis has not only led to a better as regards retail payments. What are the
recognition of the importance of retail banking prerequisites for and barriers to successful
and retail payments: it has also sharpened the integration in the field of retail banking and
focus on banking governance. In recent years, payments? What does an efficient retail
many banks were giving increasing priority to payments market look like? Which governance
the interests of the shareholders. Consequently, models are appropriate to steer the retail
it can be argued that the interests of the clients, payments market?
3.2 Panel discussion
From left to right: Rainer Hauser, Giovanni Carosio, Feriha Imamović, Gertrude Tumpel-Gugerell, Júlia Király, Bertrand Lavayssière
The panel session on the impact of the view that the payment sector is very much a
transformation of the banking business on retail network business and that new developments in
payments was chaired by Gertrude Tumpel- this network suffer from coordination failures.
Gugerell (European Central Bank). Giovanni He therefore argued in favour of intervention by
Carosio (Banca d’Italia) focused on the scope public authorities to address these coordination
of intervention by public authorities in the field failures and possibly to create incentives to
of retail payment systems. He expressed the shift to more efficient forms of payment. In this
ECB
October 2011 13
respect he mentioned especially the security of for example the Regulation on cross-border
payment systems as an area for intervention. payments in the Community or the Payment
In other areas public authorities could take a less Services Directive. However, it is difficult for
interventionist approach and foster efficiency the bank to explain to its customers that this
and a level-playing field for payment service requires a change in behaviour or systems, given
providers by promoting innovation, transparency that the benefits are not always immediately
in the pricing of the different payment perceived by the customer, such as with the
instruments, and fair and transparent access need to use IBANs and BICs. Mr Hauser
requirements for payment infrastructures, and said that regulation does not always follow
by creating the conditions for fair competition. customer needs. In this respect he clearly saw
In terms of governance, he said that the views of a need for the standardisation of domestic and
all stakeholders should be considered and that cross-border internet payments, but on the
he, therefore, welcomed the work of the SEPA other hand felt there was no demand from his
Council. Nevertheless, as the SEPA Council customers for European account mobility.
as a stakeholder group cannot take operational
or legally binding decisions, he saw a need for Júlia Király (Magyar Nemzeti Bank) also
industry groups to develop technical standards. mentioned network problems and the promotion
Finally he called for a single body where the of efficiency as the main reasons for public
various overseers could meet. authorities to take action in the field of
payment services. The network character of the
Feriha Imamović (Central Bank of Bosnia payment sector requires the involvement of all
and Herzegovina) explained the importance stakeholders to address the network problems.
of well-developed retail payment systems for In Ms Király’s view the central bank should act
economic development. She mentioned that the in the interest of the public and take into account
use of cash for retail payments is still high in the overall social efficiency in its consideration
her country. Lower cash levels would, however, of whether to regulate. She said that according
increase the liquidity of banks and reduce to a study from the Magyar Nemzeti Bank the
security risks. She therefore argued that banks social costs of payments amount to 1.5% of
should raise awareness of and promote efficient GDP in Hungary, of which two-thirds relate to
means of payment. As regards cross-border the cost of cash. The study also showed that if
payments she referred to the establishment of an payment behaviour in Hungary was the same as
international clearing and settlement institution in some Scandinavian countries, cost savings of
with some neighbouring countries. As a result 0.4% of GDP could be achieved. She therefore
prices for cross-border payments with these felt that the central bank could not be neutral
countries are in the same range as domestic as regards the choice of payment instruments,
payments. In general, she said that the future of but should promote those instruments which
retail payments should focus on the reduction of are most efficient from a societal point of view.
risks and costs, a higher resilience of systems She felt that public authorities should lead the
and transparent prices. The main challenge way by making use of the most efficient means
for Bosnia and Herzegovina in the field of of payment.
payments would be the accession to the EU and
the associated adaptation of national laws and Bertrand Lavayssière (Capgemini) focused on
technical infrastructures. the question of how regulation could ease the
transformation of the payment system landscape
Rainer Hauser (UniCredit Bank Austria) from an external consultant’s point of view.
focused in his presentation on the way His central message was that the regulation of
the commercial bank can meet customer the industry (ROI) should not be incompatible
requirements and fulfil regulatory requirements. with the return on investment (ROI) of that
Regulation can be good for the customer, industry. He said that banks are concerned about
ECB

October 2011
3 Transformation
of the banking
the consequences of new regulation in terms of business and
investments and revenue streams. This means its impact on
they do not want to be confronted with too retail payments:
governance,
many changes in their business environment. efficiency and
In the view of Mr Lavayssière, there are too integration –
many parties involved in the discussions on panel session
the regulation of the payment sector, which
adds to the uncertainty for the banks as regards
investments. In the SEPA project too there
are still many uncertainties. He, therefore,
suggested that clarity should be created and
SEPA instruments should be implemented at the
same time everywhere.
Summing up, the discussion focused on the role

of central banks versus competition authorities
and the fact that the different public policies as
regards market integration and competition are
sometimes conflicting in their implementation.
The panel agreed that in principle regulation
needs to take into consideration network effects
and competition policy should not impede the
development of certain technical standards.
It was also acknowledged that competition
policy sometimes assumes that there is already
a fully integrated single market for payment
services although this is not the case yet.
In her concluding remarks Ms Tumpel-Gugerell
said that if the founding fathers of the euro had
included some rules on the standardisation of
payments, progress could have been made much
faster. Nevertheless, she reminded the audience
that much has already been achieved and that the
current work provides the potential for further
integration and efficiency.
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October 2011 15
4 Payments behaviour and the usage of payment instruments – academic
session
From left to right: Ulf von Kalckreuth, Leo Van Hove, Kim P. Huynh and Heiko Schmiedel
Leo Van Hove (Vrije Universiteit Brussel) use cash as a means to better monitor their
chaired the academic session on payments expenses, i.e. to control their remaining and
behaviour and the usage of payment instruments. future remaining liquidity or budget.
The first paper, “Using cash to monitor liquidity –
implications for payments, currency demand 2. Who are these consumers heavily relying on
and withdrawal behaviour was presented by cash? The authors say that keeping track of
Ulf von Kalckreuth (Deutsche Bundesbank) liquidity via cash use is a strategy adopted
and co-authored by Tobias Schmidt (Deutsche mainly by those consumers who have a
Bundesbank) and Helmut Stix (Oesterreichische liquidity constraint and need to monitor
Nationalbank). The paper starts from two their expenses closely. These consumers
empirical observations: first, the high cash typically have limited information
use in Germany, which is only declining very processing capabilities and need a quick
slowly despite the wide availability of cashless and practical way to check their residual
payments (90% of German adults own a debit budget. For these “pocket watchers” cash
card) and, second, the high heterogeneity is an attractive alternative to electronic
in the consumer profiles and demographics payments, as a glance in their pocket
of cash users. Various studies have recently immediately and easily informs them of
highlighted how habit persistence, differences their remaining cash.
in the relative costs of using the alternative
payment instruments and individual comfort- The proposed theoretical model was tested using
with-technology attitudes explain only part detailed data on payment and cash withdrawal
of this phenomenon. The paper addresses two behaviour of German consumers, drawing on
questions in this respect. the 2008 survey “Payment Habits in Germany”
carried out by Ipsos on behalf of the Deutsche
1. What makes cash so attractive to certain Bundesbank. The survey included 2,292
consumers? The paper argues that cash has interviews and allowed detailed information to
a “memory function” and some consumers be recorded on more than 25,500 transactions on
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4 Payments
behaviour and the
the basis of a payments diary kept by participants cash relative to alternative payment instruments, usage of payment
in the seven days after the initial interview. also in the light of financial innovations. More instruments –
specifically, the paper investigates the effect of academic session
The estimation results confirmed the model’s three types of factor on the probability of cash,
testable assumptions that, compared with other a debit card or a credit card being used, i.e.:
consumers, pocket-watchers on average (i) use
cash more intensively (ii) withdraw cash less (i) consumer socio-economic characteristics
often and for higher amounts, and hence hold (e.g. income, age, education, employment
larger cash balances (iii) tend to use payment status, marital status);
(debit) cards only for payments of a relatively
higher amount and (iv) hold fewer payment (ii) attributes of the payment instruments, both
cards. The authors concluded that while the in terms of consumer perceptions (e.g. ease
liquidity monitoring function of cash may not of use, acceptance, record keeping, risk of
be the only explanation for cash use persistence, fraud, counterfeiting and theft, cost) and in
the evidence on pocket-watchers helps to explain terms of conditions of use (e.g. portfolio
resistance to adoption of cheaper payment features, monthly and transactions fees,
instruments which may be (or be perceived as) participation in a reward programme or
more costly in terms of information processing revolving credit programme);
for the purpose of liquidity monitoring. Finally,
the authors found support for the pocket-watching (iii) transaction features (value, type of
hypothesis in the analysis of the data correlation purchased good, day of the week,
structure. Some results – as the expected sign acceptance at point of sale, top reasons for
of the correlation between the cash share of choosing the specific payment method.
the total payments made and the withdrawal
frequency – held true also when tested on data The authors employed a discrete-choice
available from (partly) similar surveys carried multinomial logit model estimated on micro data
out in Austria and in Italy. The latter result from a sample of participants in the Method of
suggests that pocket-watching as a rational Payment survey commissioned by the Bank of
strategy to monitor remaining liquidity may not Canada in 2009. The survey data were obtained
necessarily be typical of German consumers but from a detailed questionnaire complemented by
could represent a broader phenomenon among a three-day diary compiled either in computer-
certain (i.e. information and budget-restricted) based form (online diary, which was optional) or
consumers. in paper form (offline diary, which was intended
to capture (also) the segments of the population
The second paper, “Will that be cash, debit, or without internet access). The dataset used for
credit? How Canadians pay”, was presented the study was a sub-sample of the original
by Kim P. Huynh (Bank of Canada) and survey and combined the information obtained
co-authored by as Carlos Arango and Leonard from the online and offline questionnaires and
Sabetti (Bank of Canada). The focus of this transactional data covering 2,352 diaries and
paper is on consumers’ payment choices at 10,368 transactions.
the point of sale. In Canada credit and debit
card use has grown rapidly, but cash remains The main results of the analysis are, first, that
predominant for lower-value transactions (those above the threshold of CAD 25 (up to which
below CAD 25). Understanding consumers’ cash is predominant), consumers use both debit
payment choices at the point of sale (and the and credit cards without a clear dominance of
switching patterns among alternative payment one type of card over the other, a result which
methods) is thus relevant for the central bank, for contradicts the common view that Canada
instance to enable it to anticipate the demand for is a debit card-intensive economy. Second,
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October 2011 17
portfolio effects are strong, as shown by the the elasticity for different transaction values
“use commitment” effect of fees. For instance, between CAD 5 and 125, substitution
a credit card fee increases the probability of the patterns imply that, on average, for a 10%
card being used by 5%, while a monthly debit increase in the dollar value of rewards the
card fee and unlimited free transactions increase probability of the credit card being used
the probability of the debit card being used by increases by not more than 1.2%. These
10%. Credit card rewards also play a significant elasticities highlight that the effect of
(positive) role in the probability of using the rewards on credit card usage is inelastic.
card. On the other hand, this effect is muted if
the user is revolving the credit card debt instead Finally, the authors find that, among the point-
of paying it in full. In this respect, the authors of-sale factors influencing the payment choice,
also investigate the relationship between card cash is preferred by consumers when they
use and participation in reward programmes, perceive either debit or credit cards not to be
where the reward is usually linked to the value welcome, and for certain types of purchase
of the payment. For this purpose they define (e.g. entertainment).
various measures aimed at capturing the pattern
of substitution. Among consumers’ perception factors, results
show that Canadian consumers prefer using
• First, they calculate an extensive margin debit cards to cash when security is an important
(which captures the difference in the element. By contrast, cash is preferred when the
predicted probability of a credit being speed of the payment is important and when the
used card when a reward programme is consumer has a fear of overspending (a result
introduced, keeping all other characteristics that interestingly confirms the reliance on cash
such as the consumer profile and the by some financially constrained users, which
transaction value equal) and an intensive was addressed in the previous paper).
margin (which reflects the change in
the extensive margin with a marginal The discussant for both papers was
change in transaction value). Based on the Heiko Schmiedel (European Central Bank). He
assumption that rewards are on average praised the two papers, which he found were
1% of the transaction value (a measure in complementary in investigating consumers’
line with the market practices of Canadian choices in different cultural backgrounds and in
financial institutions) and taking a marginal the light of non-monetary incentives.
transaction value change of CAD 1, the
authors’ computations show that rewards’ As regards the first paper, the discussant
extensive and intensive margins are small noted that interesting points for reflection
at transaction values of below CAD 25 could be, first, the interest of central banks
(a segment in which consumers prefer cash in understanding the implications of such
to cards). However, as transaction value preferences for cash for the wider efficiency of
increases above CAD 50, the positive effect retail payments. Second, from a methodological
of rewards on credit card use is relatively point of view, he suggested that the pair-wise
high, with the increase in the credit card testing of the correlation of variables on the basis
market share taking place at the expense of of data from Austria and Italy (two countries
debit cards. where the use of cash is high, similar to the
German market) could be extended, subject to
• Second, they propose a discrete data availability, to countries with a less cash-
approximation of credit card reward focused economy (e.g. the Netherlands or some
elasticity. Reward programmes vary by Scandinavian countries). Third, he suggested
financial institution and type of card. analysing how alternative cashless payments
According to the authors’ computations of rank in terms of “pocket watching”, easiness
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October 2011
4 Payments
behaviour and the
of use or capabilities. Fourth, he saw some to elements playing a role in consumers’ usage of payment
limitations of the “pocket watcher” argument, as rational choices, an academic topic of practical instruments –
financially constrained consumers would need to relevance for both consumers and the payment academic session
monitor all and not only cash-related expenses. industry. However, it was also observed that
These consumers would qualify as “account the rationality of this choice is often limited by
watchers” rather than “pocket watchers”. supply-side constraints. For example, it is not
Finally, he recommended expanding the paper’s uncommon that even when merchants accept
conclusions by reflecting on the implications various payment methods in principle, in practice
of pocket-watching behaviour for financial they may explicitly discourage the use of certain
innovation (e.g. the potential for developing payment options. Another way the rationality
more sophisticated services relating to cashless of the consumer’s choice could be negatively
payments to meet the expenses-monitoring affected is that consumers are not explicitly
needs of consumers). charged a fee reflecting the higher costs of cash
handling compared with more efficient cashless
As for the second paper, the discussant noted payments. In this respect, it was suggested that
some limitations in the underlying data survey it may be useful to investigate how consumers
which in his view could be considered for future rank cash and cashless payment options in
surveys. For example, three-day diaries may not terms of their (perceived) costs. Second, the
capture certain relevant day-of-the-week effects, emergence of payment-accessory services in
which could be investigated by extending the some countries shows how the adoption of
survey to a full week. Furthermore, combining more efficient cashless payments could be
online and offline survey results may in his supported by innovation: examples are mobile
view overlook relevant differences in payment telephone text messages confirming to the user
behaviour between users comfortable with the execution of a payment (but not yet the
technology and more traditional users. Turning remaining account balance), or the diffusion
to the econometric analysis, he further suggested of card readers that the consumer can use to
considering a nested logit model to relax the verify the residual credit line. Third, as regards
assumption of proportional substitution patterns the finding that cash remains predominant for
in discrete choice models. Next, pointing to payments of low value it was noted that in some
the paper’s result that the use of revolving countries the existence of fees for electronic
credit dampens the positive impact of reward transactions below a certain threshold may also
programmes on the use of credit cards (owing play a role. However, because cash use is also
to the card being used more for its consumption persistent in countries (such as Germany) where
smoothing function than purely for its payment such fees do not exist, it was suggested that the
function), he proposed considering a similar academic debate could benefit from a deeper
effect for debit cards, which may also be analysis of the determinants of cross-country
supported by account overdraft facilities differences and similarities in the adoption of
(a feature that is common in some countries). payment instruments.
Finally, he suggested developing the discussion
of the policy context surrounding the pattern
of substitution among payment instruments by,
for instance, looking at the implications of the
paper’s findings for surcharging, interchange
fees and pricing as factors steering consumers’
choices.
In the ensuing discussion, a number of comments

were made by the audience. First, it was noted
that both papers present evidence pointing
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October 2011 19
5 C r e a t i n g a c o m p e t i t i v e r e t a i l p a y m e n t s m a r k e t
5 . 1 T r u s t i n p a y m e n t s y s t e m s a n d t h e i m p l i c a t i o n s o f f r a u d – a c a d e m i c
session
From left to right: Harry Leinonen, Anneke Kosse, Martin Summer, Marianne Verdier
The academic session on trust in payment for losses as a result of fraud, payment platforms
systems and the implications of fraud was will let the merchant bear the full liability.
chaired by Martin Summer (Oesterreichische However, from a welfare maximisation point of
Nationalbank). view this is not optimal, since there would be
no incentive for the payment platform to invest
In their paper “Fraud, Investments and in fraud detection. The model also shows that
Liability Regimes in Payment” Marianne in a monopolistic situation payment platforms
Verdier (Université Paris Ouest Nanterre) and could use liability regimes to generate extra
Anna Creti (Université Paris Ouest Nanterre profits from merchants. One of the lessons that
and Ecole Polytechnique) analyse how liability can be learnt from the paper is that even though
regimes (be they established by regulation or by regulators could regulate the interchange fees
the private sector itself) affect the merchant’s that the merchant’s acquirer has to pay to the
and the payment platform’s incentives to invest card issuer, the payment platform is still able
in the prevention of fraud with electronic to influence the costs of the electronic payment
payment instruments. A payment platform is instrument for the merchant by changing the
defined in their paper as the platform which liability regime.
organises the interaction of payments between
merchants and consumers. The model developed The discussant of the paper, Harry Leinonen
by Verdier and Creti shows that a profit- (Bank of Finland), said that the work shows
maximising payment platform will choose a how difficult it is to model the behaviour of
level of liability for merchants which reflects all stakeholders in the payment process. As an
a trade-off between minimising the expected example he mentioned the migration from the
loss as a result of fraud and maximising the magnetic stripe to the EMV chip, which will only
transaction volume. According to their model be accomplished if the right incentives are set
this will mean that if consumers bear no liability for all stakeholders in the payment chain. One of
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October 2011
5 Creating
a competitive
his comments on the paper was that it does not and holiday effects, as well as for the effects of
retail payments
distinguish between the types of merchant, rainy days.
market
although it is evident that a large e-commerce
retailer will take different investment decisions The results of the study show that newspaper
on fraud prevention and will react differently articles on skimming fraud do impact debit
compared with a small kiosk retailer. During card usage, but only to a limited extent and
the discussion with the audience it was noted in for the period of one day. The impact for
this respect that the different types of merchant articles on fraud at POS terminals is different
will also respond differently to liability shifts. from that for articles on fraud at ATMs. In the
Further, Mr Leinonen remarked that if the paper long-term equilibrium debit card payments are
assumes monopolistic situations, it should 1.2% lower on days when newspaper articles
acknowledge that monopolies do not determine on skimming at POS terminals are published.
their prices on the basis of costs. This would Interestingly, the effect of newspaper articles
mean that the cost of fraud in monopolistic on skimming at ATMs was found to be positive,
situations is less relevant. He also noted that in the sense that in the long-term equilibrium
although the paper assumes that the merchant debit card payments increase by 1.1% the day
bears the costs of fraud, ultimately the consumer after a newspaper article on skimming at ATMs
always pays for all the costs related to fraud and is published. It seems that articles on ATM
investments in fraud prevention. He said that skimming deter some people from withdrawing
in this regard the social planner’s point of view cash at an ATM and they use their debit card
and the consumers’ point of view should be the instead of cash, but only for one day after the
same. During the discussion it appeared that in event. Ms Kosse found no evidence that news
reality merchants may not want to adopt fraud on skimming in a certain city has a different
prevention measures proposed by the payment impact on the payment behaviour in that city
platform because they are concerned that these from that at the national level.
technological measures may prevent consumers
from buying their products. In his review of the paper the discussant,
Harry Leinonen (Bank of Finland), said
Overall the paper was appreciated as it that the model that was used in the study to
contributes to a better understanding of the analyse fluctuation in POS and ATM usage
impact of liability regimes on the interests of the was very interesting and should be exploited
various stakeholders in the payment process. further. He was, however, somewhat sceptical
on the causality found between the newspaper
In her paper Anneke Kosse (De Nederlandsche articles on skimming and debit card usage,
Bank) investigates the impact of newspaper given that only 3 out of 1,000 inhabitants in the
articles on skimming fraud on the use of debit Netherlands would have changed their behaviour
cards in the Netherlands. For her research for one day as a result of the newspaper articles
Ms Kosse counted and analysed Dutch national on skimming. He noted in this respect that
and regional newspaper articles on skimming also other news (such as on cash robberies)
fraud at automated teller machines (ATMs) or weather factors (such as temperatures and
and at point-of-sale (POS) terminals from sunshine) could have influenced consumers’
1 January 2005 to 31 December 2008. The data payment behaviour. The most important aspect
on the newspaper articles were compared with mentioned by Mr Leinonen and repeated during
daily debit card transaction data, broken down the discussion was that it would be interesting
by zip code, covering the same period. In order to analyse the impact of news on skimming on
to address the variability in the debit card usage, those consumers who do not use debit cards,
the debit card data were corrected for calendar and to determine the extent to which such news
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October 2011 21
prevents them from starting to use cards. In her However, earlier studies based on surveys have
answer Ms Kosse explained that this could not be shown that people who are more concerned
taken into account in the study, which analyses about the security risks associated with cards
payment behaviour at a macroeconomic level. tend to use more cash.
5 . 2 C u s t o m e r s ’ b e n e f i t s f r o m a n i n t e g r a t e d r e t a i l p a y m e n t s m a r k e t
and their readiness for change – practitioners’ session
From left to right: Peter Jameson, Daniel Ochsner, Stefan Augustin, Luca Poletto and Mark Roemer
This panel – chaired by Stefan Augustin companies have already gained the benefits of
(Oesterreichische Nationalbank) – brought SEPA and where they see potential for further
together the views of two companies operating improvement.
major payment factories, i.e. Würth Finance and
Global Transaction Bank Siemens Financial Peter Jameson (Bank of America Merrill Lynch)
Services and two important commercial banks, was of the opinion that SEPA migration is an
i.e. Bank of America Merrill Lynch and BNP important first milestone in a long journey
Paribas. Mr Augustin started the session towards a truly integrated single market and the
by saying that there is still a lack of SEPA advantages that accrue from it. Corporate clients
awareness, for which reason SEPA instruments – have seven major expectations from SEPA:
as measured by the SEPA indicators – are first and foremost harmonisation, followed by
so far barely used by public administrations, centralisation, standardisation, geographical
companies and consumers. Therefore more reach, competition, security and full end-to-
communication on the SEPA project and end straight through processing. As regards
its benefits for stakeholders is important. the perceived lack of user readiness for SEPA,
It is expected that the creation of SEPA will Mr Jameson was not surprised that, in the
increase consolidation among European banks absence of legislative pressure, adaptations
and payment processors, owing to the fact were not progressing as expected by public
that the payments industry is a volume-driven authorities. Therefore a regulation with specific
business relying heavily on economies of scale. deadlines would help all relevant stakeholders
The aim of this panel was a discussion of the to focus their minds and reduce the uncertainty
extent to which banks and globally operating about timing. The payments industry has been
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5 Creating
a competitive
successful in ensuring that SEPA is “the best According to Mr Poletto, a close collaboration
retail payments
of breed”, but as soon as SEPA migration end between companies and banks as well as strong
market
dates are decided a much greater communication sponsorship and commitment on the part of all
effort will be needed to explain to customers in-house stakeholders (IT, treasury, etc.) will be
how they can take advantage of SEPA. Among important factors for a smooth and successful
corporations it is recognised that SEPA has migration. BNP Paribas offers its SEPA services
generated immediate cost savings, as regards in 22 European countries and tries to actively
fees for cross-border payments as well as support its customers’ SEPA migration.
lower investment costs for technology platform
updates. Mr Jameson is pleased that the interest Daniel Ochsner (Würth Finance) stated that,
in SEPA seems to be returning, as companies are in view of the SEPA initiative, Würth Finance
getting slowly back to normal business after the had already optimised its payment factory some
economic crisis. He expects that companies and years ago. As a result of these optimisation
banks will work much closer together to ensure efforts, it had been able to reduce its IT support
the success of SEPA in the months to come. and administration costs as well as its banking
fees by up to 50 %, which corresponds to
Luca Poletto (BNP Paribas) expects that more an annual cost reduction of about €100,000.
and more companies will thoroughly analyse In Mr Ochsner’s opinion SEPA is a perfect
their payment (initiation) value chain with opportunity for companies to improve their
special focus on the potential for rationalisation, payment factory, upgrade systems, optimise
streamlining and optimisation. As a consequence processes, standardise payment formats and
banks will be forced to continuously improve and consequently decrease costs significantly. As
enhance their services. But banks will not only Würth Finance is “SEPA ready”, companies
face pressure from the demand side, competition of the Würth group are benefiting from the
on the supply side is likely to increase as well. possibility of executing SEPA payments via
The Payment Services Directive makes it a lot Würth’s payment factory without major SEPA
easier for newcomers to enter the payments migration investments. Payment centralisation
market with innovative services and/or low cost within Würth Finance has increased its
service platforms. bargaining power vis-à-vis banks as a result
of higher volumes and increased flexibility
While the migration of the SEPA credit transfer to switch to a new banking partner. However,
(SCT) is slowly but surely progressing, the SEPA SEPA also creates challenges, and according to
direct debit (SDD) has not taken off yet. For Mr Ochsner it remains to be seen whether small,
Mr Poletto, the reason for this is a combination locally operating companies are able to benefit
of several factors: the greater complexity of from SEPA, as the migration can lead to high
direct debit products compared with credit investment costs (IT resources, administrative
transfers, the concern among a number of burden, etc.). Another challenge Mr Ochsner
customers as regards the reachability of the sees is the tendency of different communities
debtor’s bank as well as the need for companies to introduce variants of the SEPA formats at
to implement new mandate management tools. a national level, which could undermine the
It goes without saying that the migration to SDD standardisation efforts. For Mr Ochsner some
will be less difficult in those countries where challenges are still to be solved, e.g. the SEPA
the legacy direct debit scheme is similar to the migration end date as well as companies’
SDD scheme. BNP Paribas helps its customers unreadiness for change due to crisis-induced
to evaluate their rate of operational readiness reductions in IT budgets.
to migrate to SEPA (e.g. with check-lists). In
addition, customers are encouraged to evaluate Mark Roemer (Global Transaction Bank
how beneficial a migration would be for their Siemens Financial Services) explained the
organisation (e.g. the potential cost reduction). SEPA experience within Siemens. The Siemens
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October 2011 23
group holds in total 750 bank accounts within Finally, he said that, for companies like Siemens
the euro area. For payment execution it currently and Würth, competition between banks is of
uses local payment and clearing systems and course beneficiary. However, banks should
EDIFACT as the standard payment format compete on products and services and not on
for communication with banks. Siemens’s different technical standards.
strategic objective would be to hold only one
account for all its euro payments, which could During the questions and answers session the
trigger substantial cost savings (e.g. as regards panellists representing corporate customers
account fees, communication interfaces, said that for their respective companies
one-off implementation costs, operational risk online e-payments are less important, owing
and complexity of the payments value chain). to their focus on business-to-business, but
SEPA can be seen as the enabler and driver of e-invoicing is a key issue for both companies.
this optimisation vision. In principle Siemens is It was discussed whether innovation is an
ready for change, but beforehand certain issues issue that is sometimes neglected by banks and
have to be resolved to allow it to maintain its which is mainly tackled by other institutions.
operational quality in the SEPA world. From a Mr Jameson agreed that this was the case and
customer’s perspective, Mr Roemer criticized emphasised that it is important to look beyond
the fact that SEPA credit transfers above SEPA migration and to also focus on the
€50,000 are often still subject to high cross- more innovative parts of the payments value
border charges. Moreover, the implementation chain. Mr Poletto added that cooperation and
of the IBAN and BIC in certain countries is competition are prerequisites for innovation.
still lagging behind, and public administrations As SEPA will foster competition it is more than
often require local accounts (e.g. for tax likely that this might also enhance innovation.
payments). Mr Roemer is convinced that SEPA Direct debits are less relevant for Würth and
is the right way forward, and that it can provide Siemens. In general the SDD is likely to become
huge benefits for Siemens. With reference to relevant in those countries where consumers
the migration end date regulation, Mr Roemer are already very much direct debit-oriented.
pointed out that clear guiding principles are Companies see the need to adapt the existing
needed in order to avoid a series of legacy SCT in order to better meet the requirements of
formats being simply defined as niche solutions. business-to-business payments.
5 . 3 C a r d p a y m e n t s , n e t wo r k e f f e c t s a n d s u r c h a r g i n g – a c a d e m i c s e s s i o n
From left to right: Özlem Bedre-Defolie, Nicole Jonker, Cornelia Holthausen, David Henriques
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5 Creating
a competitive
Cornelia Holthausen (European Central Bank) The no-surcharge rule inflates merchant fees,
retail payments
chaired the academic session on card payments, decreasing merchant demand for electronic
market
network effects and surcharging. The main payment networks. Therefore, if the cross-group
question for this session was whether a surcharge network effect is strong, consumer demand and
rule is desirable or not. by implication electronic payment networks’
profits will both sharply decrease.
The first paper, “To surcharge or not to
surcharge? A two-sided market perspective According to the authors, imposing a no-
of the no-surcharge rule”, was presented surcharge rule has a number of effects. First, it
by David Henriques (Stern School of softens competition among electronic payment
Business, New York University) and co-authored networks and unbalances the fee structure in
by Nicholas Economides (Stern School of favour of cardholders and to the disadvantage
Business, New York University). The paper of merchants. Second, a no-surcharge rule
uses a three-party model (consumers, merchants seems to be a profitable strategy for electronic
and proprietary electronic payment networks) to payment networks only if the network effect
analyse the impact of a no-surcharge rule on the from merchants to cardholders is sufficiently
electronic payment system and, in particular, weak. Third, a no-surcharge rule is socially
on competition among electronic payment (un)desirable if the network externalities from
networks, network pricing to merchants and merchants to cardholders are sufficiently weak
consumers, electronic payment networks’ (strong) and the merchants’ market power in the
profits and social welfare. The no-surcharge goods market is sufficiently high (low).
rule imposes on merchants the requirement to
charge the same final good price regardless of The resulting policy advice is that regulators
the means of payment chosen by the customer. should decide on whether a no-surcharge rule is
The theoretical model does not distinguish appropriate on a market-by-market basis instead
between each type of payment card (debit, credit of having a uniform regulation for all markets.
or prepaid).
The second paper, “Card acceptance and
The analysis of the elasticity shows that i) the surcharging: the role of costs and competition”,
platform’s profit maximisation problem can be was written and presented by Nicole Jonker
decomposed into two steps: setting the total (De Nederlandsche Bank). The aim of this study
fee level and setting relative fees, ii) consumer is to gain insight into the factors influencing
demand for payment services becomes less merchants’ acceptance and surcharging
elastic with respect to merchant fees under decisions, using survey data collected among
the no-surcharge rule, and iii) the absence of 1,008 merchants in the Netherlands in 2007. In
surcharge variations among electronic payment this year 70% of the retailers in the Netherlands
networks holds back network competition, accepted debit cards; every fifth debit card
resulting in higher total fee levels. accepting retailer in the Netherlands surcharges
debit card transactions below a threshold of
In addition, the paper shows that the no- €10.10 (average surcharge: €0.24). Only 28%
surcharge rule rebalances the relative fees in of retailers accepted credit cards, of which
favour of cardholders and against the merchants. 13% surcharged credit card transactions. Thus
It also investigates under which circumstances a significant share of merchants do surcharge
the no-surcharge rule is a profitable strategy debit card payments.
for electronic payment networks. One finding
is that a no-surcharge rule strategy increases The expectation is that in countries where
electronic payment networks’ profits only consumers mainly use cash and debit cards at
if the cross-group externality exerted by the point of sale, a further substitution of cash
merchants on cardholders is sufficiently weak. by debit card payments could bring considerable
ECB
October 2011 25
economic benefits for society as a whole. authorities. The results suggest that lifting this
Moreover, it is assumed that such a substitution rule might stimulate specific merchants to start
would be favoured by higher card acceptance at accepting payment cards and might increase
points of sale and a reduction of surcharging by card use among consumers.
merchants.
The paper finds empirical support for the
The paper derives four hypotheses related to the predictions of economic theory with regard
influence of transaction costs and the effect of to the effects of costs and competition on card
competition on card acceptance and surcharging. acceptance, i.e. that a decrease in unit transaction
According to the author, merchants are sensitive costs increases card acceptance and leads to less
to the cost of accepting card payments, especially surcharging (in the case of debit cards), and
fixed costs. The statistical analysis supports the that competition affects card acceptance and
results from the theoretical literature, suggesting surcharging decisions. These decisions seem to
that if card acceptance increases average unit depend on the type of card as well as on national
transaction costs, merchants will be less likely peculiarities. In the Netherlands, the possibility
to accept cards (hypothesis 1) or become more of surcharging debit cards seems to have
likely to surcharge their customers for using stimulated card acceptance among merchants
them (hypothesis 2). that would otherwise not have accepted them.
However, if regulators consider limiting the
The paper assumes that the possibility to use of surcharges legally, the author advises
surcharge has fostered card acceptance among balancing the advantages and disadvantages of
Dutch merchants that would otherwise not such a measure carefully and taking into account
accept card. Surcharging may therefore lower the possible impact on the pricing decisions of
the barrier to card acceptance for merchants. acquiring banks, the card acceptance decisions
of merchants and the payment behaviour of
The results also reveal that costs are not the consumers.
most important factor explaining merchants’
acceptance and surcharging decisions. The discussant for both papers was Özlem
Competition seems to be at least as important. Bedre-Defolie (European School of
The effect of competition on card acceptance Management and Technology). She summarised
in the Netherlands depends on the type of the main findings of both papers and commented
card. Having moderate competition compared on the research done. With regard to
with having monopoly power encourages the paper presented by David Henriques,
merchants to accept debit cards (hypothesis 3a), the discussant pointed out that a no-surcharge
and to accept them without surcharging rule has no impact on the retail price for cash
(hypothesis 4a). In a perfect competitive market users, implying that under a no-surcharge rule
Dutch merchants also become more likely to merchants do not pass through card acceptance
accept credit cards (hypothesis 3b). Merchants costs to the cash price. In addition, the paper
that are local monopolists and accept debit card assumes that a no-surcharge rule has no impact
payments surcharge their customers significantly on the merchants’ card acceptance conditions,
more often than merchants who face at least an assumption that should be further examined.
moderate competition. They use surcharging The discussant argued that two issues need
as a way to extract as much consumer surplus to be distinguished: one is that surcharging
as possible from card holders. The levels of the has an effect on card usage and that there
surcharge fee and the threshold they use support is price discrimination with respect to the
this conclusion. The “no-surcharge” rule which type of payment. The other is the merchants’
some card companies impose on merchants is cost pass-through that exists even under a
under pressure from regulators and competition no-surcharge rule.
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October 2011
5 Creating
a competitive
Regarding the paper by Ms Jonker, the For example, independent merchants more
retail payments
discussant noted that merchants who surcharge likely to find fixed costs of debit cards high than
market
card payments might overstate their costs chain stores. Small-sized merchants are more
from card payments to justify the surcharging. likely to find variable costs of debit cards high
She added that including market power as than larger merchants.
an explanatory variable might improve the
identification of competition effects versus A number of comments were made by the
sector effects. audience. With regard to the second paper, it was
noted that the costs of cash are not considered.
With regard to the different sectors analysed, The author confirmed that merchants sometimes
she noted that fuel stations sell homogeneous overlook cash costs as they focus on the fees
goods, whereas fashion stores might be paid to other parties. In addition, the discussion
highly differentiated, and therefore the results focused on the potential consequences of
are not easy to compare. In addition, she surcharging in countries where card usage is still
proposed including the merchant size and type low and whether a surcharge could negatively
(independent/chain) as explanatory variables. affect card usage.
5 . 4 R o l e o f c e n t r a l b a n k s i n r e t a i l p a y m e n t p r o c e s s i n g : c o m p e t i t o r ,
f a c i l i t a t o r o r p a r t n e r f o r c o o p e r a t i o n ? – PRA C TITIONERS ’ SESSION
From left to right: Günter Ernst, Gerard Hartsink, Wiebe Ruttenberg, Gian Bruno Mazzi, Matthias Schmudde, and Coen Voormeulen
Wiebe Ruttenberg (European Central Bank) field [retail payment clearing and settlement
chaired this practitioners’ session, which infrastructures] is threefold: first, retail payment
brought together representatives of national systems have to be able to process the SEPA
central banks, privately owned clearing houses instruments and to be fully interoperable;
and a multinational bank. He introduced the second, existing market infrastructures should
topic by referring to the fourth SEPA Progress consolidate in order to exploit economies of
Report, which had already stated in 2006 that scale; and third, modern technology should
“The ultimate objective of the SEPA in this allow further cost reductions to be made. It is
ECB
October 2011 27
expected that, as a result, the number of retail part; the core clearing service itself could
payment clearing and settlement infrastructures offer huge consolidation potential. Bilateral
and the costs related to their services will links between clearing services might not be
decrease substantially.” the best way forward to meet the challenges
of the coming decade, e.g. SEPA migration
While some progress on reachability and by 2014 and innovative payment solutions.
interoperability has been made, the consolidation For Mr Hartsink it is obvious that at present
process is by far slower than originally expected, competition policy is more important in Europe
and many clearing services are still focusing on than integration policy, which makes it difficult
national markets. For cross-border transactions, for banks to agree on a joint approach on
these clearing services often cooperate bilaterally. innovative services.
Not only has consolidation been slow; some
communities have even decided to start new Günter Ernst (GSA – Geldservice Austria)
clearing services from scratch, in some cases confirmed that Austria is one of the countries
with central banks acting as facilitators and/or in which a new clearing service is currently
operators. The panellists were asked to reflect on being set up – an initiative supported by the
the current situation and the developments in the vast majority of Austrian commercial banks.
field of clearing in the next ten years. The Oesterreichische Nationalbank is acting
as enabler for the establishment, and from
Gerard Hartsink (ABN AMRO Bank) November 2011 GSA will act as operator.
expressed his surprise at this development, In comparison with the current situation
since rule books for SEPA payment instruments in Austria, in which payments are mainly
are in place and the migration to SEPA has exchanged bilaterally, the clearing service
already started. He is of the opinion that legacy should facilitate settlement in central bank
payment instruments should be phased out, money, reduce banks’ exposure due to netting,
which would technically not be a problem. increase security and facilitate monitoring.
Public authorities (including national central As a result, total savings of between €9 and
banks) should only become actively involved in 14 million are estimated for participating banks.
clearing in case of market failure – which is not The Austrian clearing service has no intention
the case in Europe. From an individual bank’s of becoming a pan-European solution, since
perspective, three factors are crucial for the cross-border transactions can be processed
decision on outsourcing of payment services: efficiently via bilateral links and/or EBA
cost, risk and especially customer service. Apart Clearing’s STEP2. National central banks can
from the possibility of outsourcing payment play an important facilitating role in overcoming
services to clearing houses, small banks could the still existing technical fragmentation,
also consider seeking partners among the bigger and SEPA could induce harmonisation and
commercial banks. Outsourcing might help consolidation in the next ten years.
to solve the problem that many banks are still
not able to ensure SEPA-reachability despite Gian Bruno Mazzi (SIA-SSB) highlighted
having signed the adherence agreements. the fact that SIA-SSB is in fact the result of
For Mr Hartsink, market pressure might not a merger. Nevertheless, there are two further
yet be strong enough to trigger considerable privately owned clearing houses in Italy, as
consolidation in the payment services market, well as the Banca d’Italia’s clearing service for
but in the medium term three clearing houses the processing of the public administration’s
seems to be a likely outcome for Europe. payments. For him, national central banks
When looking at the payments value chain, should – as defined in their statutes – ensure
central banks are important for the settlement the smooth functioning of payment services.
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October 2011
5 Creating
a competitive
They can fulfil this requirement by acting as operations and the principle of cost recovery is
retail payments
an overseer, catalyst and/or operator. While fulfilled. For Mr Schmudde, bilateral clearing,
market
Austria is an interesting case study for a interoperability links and Europe-wide clearing
public-private joint venture, other countries do solutions will continue to exist in parallel in
not have national clearing houses at all (e.g. the years to come.
Ireland). Owing to the fact that the core clearing
service only accounts for 5-10% of the whole Coen Voormeulen (De Nederlandsche Bank),
payments value chain, service providers have as a representative of a national central bank
to offer additional services on top of the core without active involvement in retail payments
clearing and settlement. Without doubt there is processing, referred to the Dutch situation,
still a large over-capacity as regards clearing which has considerably changed in the past
services in Europe, and national clearing houses 20 years. 20 years ago two Dutch clearing
will not be able to realise the same economies service companies were operational; however,
of scale as big, pan-European clearing service without providing interoperability and at the cost
providers. In addition, the model of bilateral of low efficiency. As a result of a consolidation
links between clearing services is too complex process there is now only one clearing house
owing to the high number of connections active in the Netherlands, while efficiency has
needed, for which reason a centralised clearing considerably increased. For Mr Voormeulen,
platform seems to be the best solution in the this is evidence that consolidation can have
medium to long term. positive and private companies should operate
clearing services because they tend to be
Matthias Schmudde (Deutsche Bundesbank), more efficient. A small number of clearing
representing a national central bank active services, offered by the private sector, would
in the field of retail payments processing, be sufficient for Europe. This would make the
explained the role of the Deutsche Bundesbank role of public authorities (including national
as operator of the only German clearing central banks) even more important, since
house. The Deutsche Bundesbank has been also in this case effective interoperability and
participating in the pan-European STEP2 the introduction of standards are essential to
service since 2003 and has established bilateral overcoming technical obstacles, which could
links to several other European clearing houses. again trigger further consolidation. For the time
While Mr Schmudde is of the opinion that being interoperability is still to be improved,
SEPA will finally lead to a certain degree of for example De Nederlandsche Bank acts as
consolidation, he has doubts that a “one size fits intermediary for the link between Equens and
all” approach, i.e. forbidding national clearing STEP2. In the medium term the need for De
houses, would be feasible or reasonable. Nederlandsche Bank’s involvement should
When it comes to the question of who should cease, and in the long term interoperability
operate clearing services, there is no reason as such should become obsolete, since the
why central banks should not fulfil this role remaining clearing services would compete at
as long as oversight is strictly separated from the European level with each other.
ECB
October 2011 29
5 . 5 C a r d p a y m e n t s , h o u s e h o l d f i n a n c e a n d i n t e r c h a n g e f e e s – a c a d e m i c
session
From left to right: Scott Schuh, Stuart E. Weiner and Elizabeth Foote
Stuart E. Weiner (Kansas State University) methodology to calculate two types of implicit
chaired the session on card payments, household monetary transfer: 1) the transfer between
finance and interchange fees. The first paper, cash buyers and credit card buyers and 2) the
“Who gains and who loses from credit card transfer between low-income and high-income
payments? Theory and calibrations”, was households. The results for both types seem to be
presented by Scott Schuh (Federal Reserve economically significant and robust to changes
Bank of Boston) and co-authored by Oz Shy in the assumptions made. It is assumed that all
(Federal Reserve Bank of Boston) and Joanna households pay the same price for an available
Stavins (Federal Reserve Bank of Boston). product, i.e. there is no difference between cash
and card buyers. “Cash” includes all payment
The study aims to prove the existence of a instruments other than credit cards. Moreover,
welfare transfer in the United States due to the the retail price includes the full merchant fee,
use of credit cards and related reward programs. and the rewards to card users are not funded via
For the paper a structural model of a simplified banks’ revenue from borrowing activities.
representation of the US payments market
was constructed to show consumer payment The results indicate that every year there is a
choice. It was calibrated with US micro data on monetary transfer, of USD 50 on average from
consumer credit card use and related variables. cash-using households to card-using households.
The three main parties are households, Therefore, each card-using household receives
merchants and banks. The term “banks” includes an average premium of USD 240 from cash
issuers and acquirers of payment cards, and card users. There are also differences between
companies. The authors used an accounting convenience and revolving credit card users,
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October 2011
5 Creating
a competitive
the latter subsidising the former (revolvers when choosing and using payment instruments.
retail payments
USD -511 and convenience USD 833). In Merchants, by contrast, need to take the
market
addition, low-income households pay USD 83 decision to accept only one payment card type
and high-income households receive USD 361. and the related per-transaction merchant fee.
Credit card spending and rewards are positively They form a heterogeneous group. The card
correlated with household income, and there networks are responsible for setting consumer
is evidence for a regressive transfer from low- and merchant fees.
income to high-income households, considering
a pass-through rate for the merchant fee of The framework designed consists of two
above 50%. For public policy purposes, several periods. In period one (“day”), the consumer
possible recommendations are made, such as decides subscribing to a payment card because
“cost-based pricing”, i.e. charging differential of the existing liquidity gap in the event of a
prices according to the use of the payment potential purchase. In this case, a credit line or
instrument, and the provision of full information an overdraft will be needed, and the merchants
on fees and related costs. Furthermore, a will choose whether to accept the related card.
possible redistribution to compensate the low- In period two (“night”), the consumer can
income households, increased competition receive income and reimburse the used credit
from alternative payment instruments, and line or overdraft. At the end of that period
regulating fees and rewards could bring possible card networks incur credit losses and realise
improvements for the overall welfare situation. total profits.
The second paper, “Consumer credit and payment The authors tested three different scenarios. For
cards” was presented by Elizabeth Foote the first scenario they assumed a monopolistic
(London School of Economics) and co-authored network situation for debit cards. In such
by Wilko Bolt (De Nederlandsche Bank) and a “debit card-only” world, default risk and
Heiko Schmiedel (European Central Bank). funding cost have no effect on consumers or
The main research question of this paper is: merchants. The characteristics of an overdraft
how does the provision of consumer credit affect facility for cash and debit cards are nearly the
pricing of debit and credit cards? As in the first same; hence the only benefit for consumers is the
paper, a model of payment cards was developed extra security over cash but not the opportunity
comprising three types of agent – consumers, to obtain extra credit. In a “credit card-only”
merchants and payment network providers – world, the merchant is affected by the default
and two different business models for consumer risk and the funding cost for credit card use.
credit. Credit is offered through debit cards via an Credit cards provide a credit opportunity for
overdraft on a current account, or through credit consumers in period one. In this case there is
cards via a credit line including a grace period. In competition between the credit card and the
this model “payment network providers” stands overdraft facility for cash. As a result, higher
for the banks, which are issuer and/or acquirer expected costs of servicing overdrafts could
of credit cards, and infrastructure providers. lead to lower credit card merchant fees, and
The paper analyses the impact of the decisions the acceptance ratio for credit cards increases.
of the three agents regarding monopolistic and For the last scenario, the authors analyse the
competitive payment pricing arrangements for effects of competition between debit and credit
debit and credit cards. card networks. The competition between these
two card types may cause a drop in the payment
The consumers have to decide whether to fees and increases the complementarity of the
subscribe to a payment card and pay a fixed types for consumers. In a situation where there
subscription to bridge a possible liquidity gap in is competition, default risk and funding affect
their financing capabilities. The consumer agent both card types, with a stronger effect on credit
group is homogeneous and utilitly maximizing cards. Nevertheless, banks offering debit cards
ECB
October 2011 31
gain revenues from consumers maintaining a Regarding the second paper, the discussant
positive current account under the condition of praised the way credit provision is being
consumers using credit instead of debit cards. modelled the scenario of competition between
Consequently, discouraging the use of debit debit and credit cards. As in the other paper,
cards by raising the debit card fee would be some assumptions have been made to develop
a step towards the possibility of debit cards the model, but a merchant accepting only
being driven out of the market in equilibrium one of the two card types is a clear restriction
due to the complementarity between credit and compared with the real world. Interchange fees
debit cards. are indirectly modelled through the merchant
service charges in the paper. The paper explains
The results support the idea of having different very well the complicated situation of network
interchange fees for debit and credit cards banks’ pricing decisions and thereby influencing
because no extra credit is provided through debit the setting of interchange fees in the industry.
cards. Nevertheless, debit cards are affected
indirectly by default risk. Increased competition The interchange issue and its pricing is a
between the two business models for consumer very controversial topic worldwide. In the
credit would result in downward pressure on United States, as an example, the Durbin
fees. Further research will be made on the search Amendment attached to the Dodd-Frank Act is
for socially optimal fees in card payments and intended to focus on this. Durbin may empower
the related consumer credit market. the Federal Reserve System with the ability to
set standards and levels for debit interchange
The discussant for both papers was Stuart E. fees, routing restrictions and discounting. Thus
Weiner (Kansas State University), who chaired the Federal Reserve would be directly regulating
the session. In his opinion, both papers contribute industry prices, which has not happened ever
greatly to the existing literature in light of their before. In Mr Weiner’s view, the effect will
innovative approaches. The two papers focus be considerable, but the industry and market
on different core aspects of the payment card will adjust to it. The introduction of new rules
market, on the one hand the consumer welfare and regulations such as these will improve the
transfer due to the use of credit cards, and on the situation, though an ideal outcome will not be
other alternative business models for payment accomplished.
card types and the effects on related fees.
A number of comments were made by the
With regard to the paper presented by Mr Schuh, audience. With regard to the first paper the
the discussant referred to the transfer accounting assumption of the merchants’ pass-through rate
methodology, which is a novel approach to and the relative costs of not having payment
the specific topic. As for the welfare transfer cards or having a restricted card choice were
between cash and credit card users and from discussed. A question was raised about the
low-income to high-income households, intuition effect of the distribution of wealth regarding
had always suggested this, but there had never especially the income from dividends, which
been proven results. However, the paper relies is concentrated normally in the high-income
on several assumptions, especially on the pass- segment. Moreover, a comment suggested that
through rate of the merchant fee to consumers. the correlation between rewards and retail prices
Differential pricing would enhance overall could be taken into account for further analyses.
consumer welfare, and there are initiatives Concerning the second paper, it was mentioned
on the way, such as the Durbin Amendment that multihoming merchants, merchants
in the United States. The other implications accepting both card types, would be a possibility
and recommendations are reasonable, but the for further research. Another question dealt with
measurable effects are assumed by Mr Weiner the default risk affecting the merchant. The
to be doubtful. reason for this is that a higher default risk means
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October 2011
5 Creating
a competitive
the consumer has to pay a higher interest rate for
retail payments
the funding of the credit line or the overdraft.
market
The resulting consumer fee, therefore, is lower,
and the networks are forced to charge a higher
merchant fee. The Durbin Amendment proposal
and the possible interchange fee reduction were
also at the centre of a discussion. In the end it
was pointed out that consumers’ preference
for taking up credit or not is an intrinsic factor
which is difficult to measure or simulate.
ECB
October 2011 33
6 K e y n o t e s p e e c h : O p e n i n g f i n a n c i a l s e r v i c e s m a r k e t s – t h e E u r op e a n
a pp r o a c h
Cecilio Madero Villarejo (European Commission)
In his keynote speech “Opening financial services full integration. In the area of credit transfers
markets – the European approach”, Cecilio and direct debits, very substantial progress
Madero Villarejo (European Commission) has already been made. However, progress is
highlighted the importance of retail payments, relatively slow in the area of card transactions,
as they constitute a reliable and substantial as the European card payments market is still
share of bank revenues. He said that multilateral split along national lines and new card schemes,
interchange fees (MIFs) are currently the most in particular, are making it difficult for non-
controversial task in the payments sector. Point- banks to enter the market. Furthermore, the
of-sale MIFs for payment card transactions card payments market is a highly concentrated
account for a considerable share of revenue both market. The ECB is among those that have
worldwide and in the EU. strong concerns about the dominant role of the
two big players in the European card payments
Mr Madero Villarejo emphasised the relevance market. In line with the ECB’s opinion, the
of SEPA as an important step in moving European Commission also prefers a market
towards a fully integrated internal market where with at least three to four players in order
consumers and companies can enjoy the full to increase competition. A lack of common
benefits of the euro and the Single Market. In standards and market transparency as well as the
addition, the implementation of the Payment misuse of new payment technology are further
Services Directive should make it easier for new issues which have to be tackled by regulatory
players to enter the market and should promote bodies. Mr Madero Villarejo added that new
efficiency and competition. But in his opinion, payment methods – such as mobile phones and
there is still a lot to be done in order to achieve e-commerce – do not achieve the desired market
ECB

October 2011
6 Keynote speech:
Opening financial
penetration for several reasons. These difficulties services markets –
in the payments market, relating to cross-border the European
payments and e-commerce transactions in approach
particular, hinder complete market integration.
He concluded that the EU’s 2020 agenda and
the implementation of a SEPA migration end-
date are very important steps in addressing these
challenges.
Taking account of the obstacles and challenges

ahead, the policy panel, which came together
immediately after Mr Madero Villarejo’s
keynote speech, tried to find a balance between
efficiency and competition in retail payment
markets. This is crucial as it is expected that the
creation of SEPA will spur consolidation and
mergers among European payment processors
to more optimally realise economies of scale in
payments.
ECB
October 2011 35
7 Efficient and competitive retail payment markets – panel session
From left to right: Gilbert Lichter, Irmfried Schwimann, Wolfgang Duchatczek, Fred Bär and Giorgio Ferrero
The session on “Efficient and competitive internal fixed costs with external variable costs,
retail payment markets”, chaired by Wolfgang (iii) sharing the compliance burden and (iv) the
Duchatczek (Oesterreichische Nationalbank), transparency of the business model.
brought together the views of two automated
clearing houses, two commercial banks and a In the field of competition, Mr Bär was of the
competition authority. opinion that for banks, the importance of having
the ability to choose between different clearing
Regarding efficiency in the payments market, and settlement mechanisms for price, cost or
Fred Bär (VOCALink) pointed out that quality reasons will gradually diminish. From
the current regulatory initiatives may, at the a market efficiency perspective, the more the
beginning, lead to higher costs for banks and clearing process is seen as a pure utility service,
infrastructures. In the longer term, he noticed a the less logical it becomes to have multiple
trend towards consolidation of internal (banks) providers. But there are other reasons to justify
and external (market infrastructures) technical having more than one provider: avoiding
platforms. In his opinion, there will be an systemic risk concentration and retaining
increase in pressure on smaller players to share redundancy in operational provision of retail
development efforts and “consolidation will clearing.
become more attractive”. Standardisation is still
very much fragmented along national lines and, Giorgio Ferrero (Intesa Sanpaolo) illustrated
in his opinion, needs further progress because, the efficiency structure and the competition
at present, banks are not realising economics dynamics in the retail payments market from a
of scale. In this context, Mr Bär emphasised banking perspective. He began by emphasising
that there is increasing demand from the that safe and secure payment systems and
users (e.g. companies) to have multibank services are of common interest for banks
solutions with one standard on a national and and regulators. The resilience and security
an international level. He therefore observed of payment systems are taken for granted,
a drive within the market and envisages that and these factors are not given any credit by
a winning standard will emerge. As the key the general public: “the value of it, even in
criteria for sourcing decisions, he cited (i) the economic terms, is perceived only if there is
cost advantage from outsourcing, (ii) replacing a lack of it. It’s like the water from the tap”.
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October 2011
7 Efficient and
competitive
Strategic regulation to ensure resilient and in particular. However, further improvements retail payment
efficient payment systems and the adequate are necessary in a number of areas, especially in markets –
communication of its improvements is therefore the fields of payment cards and e-commerce. First, panel session
essential. As the payments market becomes the issue of standardisation has to be addressed,
more and more competitive, banks have to refine as standardisation reduces costs, increases
their operating models. Instead of investing competition and enables interoperability,
more in existing payment infrastructures, banks and therefore leads to benefits for customers.
should focus on achieving economies of scale. In this context, the standard-setting process
In this context, a balanced approach between should be accelerated, as progress is very slow
affordability, sustainability and availability at present. In the view of Ms Schwimann, it is
should be implemented. Regulatory bodies not the lack of standardisation itself that is an
should give banks enough time to implement issue for competition authorities, but rather the
regulatory standards and they should ensure that process of standard setting, in particular if it is
a level playing field is in place in the payments performed by private sector companies. In this
market. regard, all stakeholders should be involved in
the standard-setting process. Second, market
Gilbert Lichter (EBA Clearing) highlighted the transparency should be enhanced in terms
importance of the SEPA initiative and welcomed of “when, how much and how to pay”. In the
the implementation of the SEPA migration context of enhancing price transparency, she
end date. Regarding the migration to SEPA, pointed to surcharging as a possible solution.
he strongly believes that the Pan-European Third, Ms Schwimann saw a lack of alternative
Automated Clearing House (PEACH) concept is business models for cards, with the classic
the ideal solution. For efficiency reasons, every business model being based on MIFs. Although
PEACH has to offer collaboration between high MIFs are not formally prohibited, they
private and public sector clearing and settlement pose an entry barrier, and she pointed out that
mechanisms. A need for consolidation can MIFs must comply with competition rules.
be observed at the processor level, as scale A look into the future showed a lack of common
effects are non-existent at present. Mr Lichter rules for new payment methods, in particular
pointed out that the consolidation opportunities for online payments. It will be important
brought about by SEPA should not be missed to analyse these new payment methods and
as otherwise this will lead to increasing costs to gain an understanding of the high-tech
for banks. Regarding innovation, he was of payments business.
the view that SEPA is changing the borders of
collaborative space. A pan-European solution – The audience also highlighted the importance
also for online banking-based e-payments – is of a competitive and efficient retail payments
required for executing transactions, and this will market. Moreover, the question was raised
lead to a higher level of harmonisation and a whether more competition could be achieved
lower level of fees. Regarding the question of through new technical platforms, greater price
why there is currently no successful European transparency or new business models. Regarding
online banking-based e-payment solution, he innovation, it was pointed out that a combination
was of the opinion that innovation has less to do of new technical capabilities and improvements
with technology; the crucial point is being ready in the supply chain will be necessary to foster
to share. innovation.
Irmfried Schwimann (European Commission)

said she fully shared the European Payments
Council’s vision regarding SEPA and recognised
the progress that has been achieved in the field
of SEPA direct debits and SEPA credit transfers,
ECB
October 2011 37
8 Keynote speech: Innovation in retail payments
David S. Evans (Market Platform Dynamics)
Payments innovation is happening at an intense culture, but many of the developments are
pace. David S. Evans (Market Platform likely to either be rolled out globally or diffuse
Dynamics) sees a number of indications of rapidly across countries. Facebook Credits is
this. In the United States, venture capital firms an example of this. One development that is
are pouring money into payments. That is not extremely important and will have wide-ranging
surprising given recent successes of venture- implications is the simultaneous connection
backed firms such as Bill Me Later, which of point-of-interaction devices for senders and
was sold to eBay for almost USD 1 billion in receivers of payments to the internet and cloud-
2008, and Revolution Money, which was sold based software solutions. This includes the
to American Express for USD 300 million increasing use of mobile devices by consumers,
in 2010. Leading payments firms are announcing but also the development of internet-connected
frequent innovations and initiatives. Some of cloud-powered devices at the point of sale for
these involve collaborations with innovators, merchants.
such as Visa’s alliance with mobile financial
services provider Monitise. At the same time, The topic of payments innovation can lead
many significant “new economy” firms that are to some irrational exuberance. We have been
outside of payments proper have been entering hearing for half a century that cash will soon be
this area. These include Google, Facebook dead. The nature of the payments ecosystem is
and Amazon. such that innovation diffuses very slowly – or
at least has done. This is because new payment
The specifics of innovation vary country by systems need to get merchants and consumers
country because a large number of payments on board and in sufficient numbers to make
are still tied to domestic institutions and the system attractive to both. But consumers,
ECB

October 2011
8 Keynote speech:
Innovation in
and especially merchants, have significant has introduced an open software platform and retail payments
sunk-cost investments, including learning, in has encouraged developers to write applications
existing ways of doing things. In addition, the for it. This has led to thousands of developers
complex payments system environment is very working on applications that integrate PayPal
difficult to change quickly. The experience of payment methods. MasterCard and Visa have
contactless payments in the United States shows announced plans for similar open software
just how difficult it is to persuade merchants platforms. The second development is Square.
and consumers to adopt what seems to be an This is a mobile device-based payment
innovative idea. processing system aimed at a move towards
small businesses. Small merchants can accept
Nevertheless, several interrelated technological payment transactions by attaching a small
revolutions are likely to spur innovation. device to a smart phone or tablet device. Larger
A key development is the fact that senders and equipment providers such as Verifone are going
receivers of money are all likely to be connected down a similar path of developing internet/
to the internet at the point of interaction and, wireless-enabled point-of-sale devices.
through the Internet, have access to cloud-based
software. Almost all consumers worldwide have While one needs to keep irrational exuberance
mobile phones, and increasingly these mobile in check and recognise that most predictions of
phones have internet connections and software innovation in payments either come to naught
platforms that enable the deployment of both or take far longer than anyone thought, the
local (client-based) and remote (cloud-based) development of open software platforms, cloud-
software. Merchants are likely to replace their based computing and internet connectivity could
point-of-sale terminals over time with ones that lead to very rapid innovation.
have internet connections and rely on cloud-
based applications instead of closed, client-
based software.
Once the connection between the mobile

devices and the point of interaction is
established – through the widespread
deployment of contactless, barcode or some
other technology – there will be the prospect
of rich software applications with which we
can work and interact on the buyer and seller
side of transactions. As we have seen with the
development of the “app stores” around the
iPhone and Android, the development of these
software platforms will stimulate entrepreneurs
from around the world to develop payment-
enabled applications. Software developers will
be able to integrate payments into a whole host
of innovative products and services. In thinking
about this we should recognise that one of the
greatest innovations in payments – the credit
card – is a mashup of payment functionality and
a lending facility.
This future can be seen today in two recent

developments. The first is PayPal X. PayPal
ECB
October 2011 39
9 R e t a i l p a y m e n t s : i n n o v a t i o n s , s e c u r i t y a n d f i n a n c i a l i n c l u s i o n –
panel session
From left to right: Massimo Cirasino, Declan Daly, Monique Goyens, Daniela Russo, Javier Perez and Chris Skinner
The panel session, which brought together be facilitated? Which payment types will
an interesting mix of experts to discuss see the most innovation in the coming five
the future challenges in retail banking and years? Who will be the main actors in this
payments, was chaired by Daniela Russo field?
(European Central Bank). Ms Russo opened
the discussion by explaining that the aim of • With regard to security, how can the right
this session was to discuss views on the future balance be struck between technical security
of retail payments, not only by considering and the development of innovations? How
technical innovations and the feasibility of can consumer trust in retail payments be
these innovations, but also by investigating the ensured? What are the barriers to increasing
consequences for payment security as well as the security in retail payments?
potential exclusion of certain groups of people
from these new technologies. She asked that • And finally, with regard to financial
special attention be given to the interrelation inclusion, who are the under and unbanked
between the three issues: innovations, security people? What are the reasons for financial
and financial inclusion. exclusion and to what extent does financial
exclusion also mean social exclusion? How
Furthermore, Ms Russo asked the panel to can innovations contribute to financial
discuss the following questions on payment inclusion? Are there lessons to be learned
innovation: from M-PESA’s success for emerging
markets and/or industrialised countries?
• Who initiates payment innovations and
which stakeholder groups have the greatest Ms Russo completed her introduction by
influence on payment innovations? highlighting the fact that central banks promote
What are the main barriers to innovation and security as well as innovation. It was for this
how can a culture of payment innovation reason that, following the publication of the
ECB

October 2011
9 Retail payments:
innovations,
seventh SEPA Progress Report, the European in developing countries. The experience of security and
Forum on the Security of Retail Payments was Western Union shows that the use of cash still financial
created to strive for further improvements in remains strong – with cash-to-cash remittance inclusion –
panel session
security. still being Western Union’s most important
business area. Mr Daly also argued that increased
Massimo Cirasino (World Bank) opened financial inclusion might help to reduce the use
the panel by presenting the Payment Systems of informal, non-regulated service providers.
Development Group, which is at the centre of This seems crucial, especially in the context
an international network and has as its main of consumer protection. In the global money
objective to reform payments, remittances and remittance industry, a key enabling factor is
securities settlement systems. He said that the an appropriate legal and regulatory regime. He
Global Payment Systems Survey (published also said that the EU regulatory framework does
in June 2011) indicates that, after 15 years of not yet encourage innovative money transfer
discussions and reforms, important progress products.
has been made worldwide in terms of the legal
framework and high-value payments. Today, Monique Goyens (European Consumers’
116 central banks have an RTGS system in Organisation BEUC) focused on the perspective
place. Nevertheless retail payment systems in of consumers and consumer protection. In her
developing countries still lag behind significantly opinion, existing business models and wrong
when compared with those of developed incentives are major barriers to innovation.
countries. As the market has not yet fixed the She also pointed out that dominant international
problem, central banks and stakeholders in card schemes compete to get as many banks
retail payments must work together to develop as possible on board with the result that small,
a clear strategy for future developments. and often efficient, national card schemes are
Therefore, the right balance has to be found disappearing. With reference to the discussion on
between cooperation and competition among surcharging, she claimed that consumers always
the stakeholders. The World Bank is supporting have to have a choice of at least two different
these initiatives with its retail payments strategy, means of payment, one of which always has to
which includes supporting tools such as a be accepted without surcharge. She pointed out
methodology for retail payments stocktaking, that the security of retail payments is the crucial
supporting the development of guidelines for factor for consumer trust in payment services,
government payments as well as supporting the and that there is a clear need for increased
development of legal frameworks for innovative transparency on fraud in order to steer consumers
retail payment mechanisms. towards more secure payment instruments.
Special attention should be given to online
Taking into account the situation in retail payments since they are frequent targets of fraud
payments in, especially, developing countries, anyway, and unsafe payment services should be
Declan Daly (Western Union) presented identified and banned. The development of new
Western Union’s business model. He stated that technologies in the area of retail payments might
in developing countries, 2.7 billion people are also promote financial inclusion. Nevertheless,
unbanked (72% of the adult population) and that from Ms Goyens’s perspective, access to a basic
even in developed countries, 160 million people bank account is the basis for inclusion into
(19% of the adult population) are still unbanked. normal economic and social life. This should be
In his opinion, non-bank payment service feasible in Europe.
providers often serve as a first entry point into
formal financial services. Lowering the access Javier Perez (MasterCard Europe) also
barrier seems to be the key factor for financial maintains that financial inclusion is crucial, and
inclusion, and mobile phones have huge it might be easier to achieve nowadays owing to
potential as access devices for retail payments increased connectivity thanks to technological
ECB
October 2011 41
progress and innovations. One possible solution
for unbanked people would be to focus on
pre-paid cards. But not only unbanked people
rely on cash: given that 78% of all payment
transactions in Europe are still made in cash,
the potential market for payment cards and
innovative retail payment instruments is huge.
In his view, the security of payment instruments
is a prerequisite for consumer confidence.
He explained that MasterCard therefore
continuously invests in fraud prevention
(e.g. EMV chip and PIN, PCI standards,
SecureCode) and detection. He also pointed out
that the combination of contactless technology
with innovative ways of initiating payments
(e.g. via mobile phone) will revolutionise the
payments world.
In his intervention, Chris Skinner (Balatro Ltd.)

emphasised the importance of technological
innovations as well as the incredibly high use
of social media. These social media companies,
in particular, are currently developing not only
their own payment solutions, but in a number of
cases also their own currencies. In his opinion,
information – and no longer labour or capital –
is the greatest future asset, and innovative
companies are already making use of it. Mobile
phones, in particular, are bringing major changes
to the retail payments industry, with “apps” the
major source of income.
Despite the very diverse backgrounds of the

panellists, the discussion led to the common
conclusion that financial inclusion is a top
priority for both developing and developed
countries and that this is a precondition for
social inclusion. Thanks to innovations in
information and communication technology,
access to financial and payment services may
well now be easier to achieve than in the past,
However, a proper regulatory and consumer
protection framework must also be ensured.
ECB

October 2011
10 Closing remarks
by Gertrude
1 0 C l o s i n g r e m a r k s b y G e r t r u d e T u m p e l - G u g e r e l l
Tumpel-Gugerell
Gertrude Tumpel-Gugerell (European Central Bank)
Ladies and Gentlemen, of this conference was of course on electronic

payments. Non-cash retail payments have
After two very intensive and extremely witnessed increased popularity in Europe and
interesting days of presentations and discussions other regions over the past decades and will
on the opportunities and challenges in retail continue to do so. For example, on average,
payments, it is my utmost pleasure to be able volumes of cashless payments in the euro area
to conclude this conference together with Vice have increased by 6% per year. In the euro area
Governor Duchatczek. card payments experienced the highest growth,
by about 10%, and have become the most
Let me recall the objective of this two day used non-cash payment instrument, with over
conference. 19 billion payments in 2009.
• Firstly, to put retail payments in the middle In this context, we take the ever increasing
of a debate between central bankers, market memory and processing capacity of our
participants, regulators and academics. computer equipment for granted – something
technicians often describe as “Moore’s law”,
• Secondly, to discuss the opportunities and named after Intel co-founder Gordon E. Moore.
challenges ahead of us in retail payments.
In fact it was yesterday, exactly 70 years ago,
Although we heard in the sessions on payments when the world’s first workable computer,
behaviour that cash still plays an important called Z3, was introduced in Berlin by Konrad
role in day-to-day payments, the main focus Zuse. Despite its being destroyed in the chaos of
ECB
October 2011 43
war, this date marks the foundation of something standards. Currently the European Parliament
we today take for granted. And even 30 years and the Council are discussing the European
ago, when the first Personal Computer of IBM Commission’s proposal for an end date to
was introduced, nobody expected the change SEPA migration. In my view these discussions
in all of our lives it would entail. This ongoing are progressing well, not least because of the
technical progress has already changed the way commitment of the Hungarian Presidency.
we pay and will even more substantially do in Another aspect in which public authorities have
future. The keynote speech of David Evans this been very active in the last year has been in the
afternoon as well as the outstanding panel we establishment of the SEPA Council. We, the
just listened to, gave an impression of how this ECB, and the European Commission recognised
development might look like. that having both the demand and the supply side
around the same table discussing SEPA-related
Similar to the amenities of technological issues in a transparent way is crucial for the
developments, we got used to the advantages the success of the project.
European integration has brought with it very
quickly. Sometimes we take these achievements Of course it is impossible to summarise these
even for granted. However, 15 years ago, we had two days of conference in a few minutes. In
no euro and only ten years ago euro banknotes fact the conference documentation is provided
and coins were introduced. online and we have already informed all
registered participants about the respective link.
When it was first launched in 1999 and then Moreover, we will publish a summary with the
when the euro cash changeover took place in key findings of the conference in due course.
2002, the euro was met with a certain degree At this point I would only like to mention some
of criticism and scepticism. Today, the euro is “headlines” which I took away from the two
the single currency for 17 countries, with a total days full of extremely interesting presentations
population of 330 million citizens. The euro has and discussions:
proved to be a resounding success.
• During our conference it has been widely
In 2002, the European banking industry laid acknowledged that retail payments are a
the foundation of the Single Euro Payments cornerstone of retail banking and the banks’
Area, by publishing the White Paper “Euroland: business case.
Our Single Payment Area!” In addition to the
banks, many stakeholders want to bring the • As the financial crisis has shown, Europe
SEPA project further and have contributed to its has benefited from the level of integration
progress so far. and innovation achieved so far. However,
there is still considerable room for more of
First, remarkable progress has been made by the same.
the payments industry in delivering SEPA,
by agreeing on common schemes for credit • Retail payment integration is not on the
transfers and direct debits, to be used throughout harmonisation of payments behaviour,
Europe. but on the harmonisation of instruments,
standards, rules and systems. Payments
Second, I believe that we should not forget the behaviour differs considerably across
role public authorities are playing to get SEPA cultures and countries. In fact we can still
up and running. They typically represent a major observe a strong persistence of payment
share of a country’s overall payments volume and habits. Moreover, there is country evidence
in a number of countries we see great progress that the cost of cash can be substantial and
by public administrations moving to SEPA there is room for efficiency gains.
ECB

October 2011
10 Closing remarks
by Gertrude
• Even if financial stability is not directly challenging years, in which the integration of
Tumpel-Gugerell
affected, fraud in retail payments could the European retail payments market was always
have a societal impact and effects on the one of the top priorities of my agenda. Although
use of different payment instruments. a lot has been achieved, the realisation of a fully
fledged Single Euro Payments Area will still
• Although customers have obvious benefits take one or the other year. However, knowing
of an integrated retail payments market, their the stakeholders involved in this project – a lot
readiness for change is not to be taken for of them are here today – I am convinced that
granted. However, as we learned yesterday, SEPA is in good hands.
especially companies doing cross-border
are in favour of SEPA and even ask for a
migration end date.
• The role of central banks in offering large

value payment systems is generally accepted
In contrast to that, the future of retail
payment processing in an integrated market
and the operational involvement of central
banks in it is still intensively discussed.
• Innovation in retail payments will not only

make our everyday lives more convenient
by offering easier access to payment
instruments, it might also be a chance to
further close the gap between the unbanked
and banked populations. Innovation might
be a tool to increase financial inclusion.
According to my assessment, the contributions

in the past two days have by far excelled the
expectations and ensured that the objectives for
this conference have been clearly met.
I would like to thank our co-organisers, the

Oesterreichische Nationalbank, for hosting this
event in Vienna and their excellent organisation,
as all of us have experienced the past two days.
With this in mind I would like to sincerely

thank all the speakers and participants of this
conference for their essential contribution to
the success of this event and I hope that this
conference will contribute to ensuring that we
succeed in mastering the challenges in retail
payments and seize the opportunities as well.
For me personally this has been the last

retail payments conference I have hosted as
ECB board member. These have been eight
ECB
October 2011 45
A n n e x ES
1 Press Release
13 May 2011
ECB a n d O e NB c a l l f o r a fa s t e r i m p l e m e n tat i o n o f t h e S i n g l e E u ro
Pay m e n t s A r e a
During their joint conference, “The future of retail payments – opportunities and challenges”,
representatives of the European Central Bank (ECB) and the Oesterreichische Nationalbank
(OeNB) called on the financial services sector to speed up the implementation of the Single Euro
Payments Area (SEPA). Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB,
and Wolfgang Duchatczek, Vice Governor of the OeNB, both emphasised that the SEPA project
is the logical consequence of the creation of the euro, and that only a prompt implementation of
SEPA will help to achieve an integrated and competitive European market for cashless payments
in euro.
Ms Tumpel-Gugerell stressed that given the slower than expected migration towards the new
pan-European payment instruments – the SEPA credit transfer (SCT) and the SEPA direct debit
(SDD) – joint action and increased effort is needed to finalise the transition. Therefore, the
Eurosystem, comprising the ECB and all national central banks of the euro area, calls for concrete
deadlines for this migration, i.e. the end of January 2013 for credit transfers and the end of
January 2014 for direct debits.
Ms Tumpel-Gugerell indicated that retail payment solutions offered throughout SEPA must be easy
to use and efficient, but also secure. Responsibility for the security of retail payments is shared by
regulators, payment service providers, retailers and consumers. To reduce the possibility of fraud,
the Eurosystem recommends that, within SEPA, payment cards are issued with only a chip and not
with a magnetic stripe, since the latter is an easy target for fraudsters.
Ms Tumpel-Gugerell recalled the need for at least one additional European card scheme, which
offers its service in competition with already existing international cards schemes. She also stressed
the importance of innovative payment solutions, and called for the emergence of European online
e-payment services based on online banking, secure card payments on the internet and mobile
payment solutions, all meeting consumers’ and merchants’ requirements.
Mr Duchatczek emphasised that for the implementation of an integrated payments market, joint
and coordinated action by all stakeholders at the European level as well as in the individual SEPA
communities is required. He confirmed that the implementation of SEPA is progressing well in
Austria and that nearly all Austrian banks are able to initiate SEPA credit transfers and direct
debits. In addition, owing to the decision of large companies to migrate early to SEPA direct debits,
Austria is currently the country with the highest share of such transactions executed in the new
SEPA format.
Mr Duchatczek supported the proposed EU regulation on SEPA migration end dates and highlighted
the crucial role of communication. In this regard, he drew attention to an ongoing OeNB information
campaign, as part of which experts from the OeNB visit all major cities in Austria to explain the
implications of SEPA to the people there.
ECB

October 2011
A n n e x ES
In view of the request to migrate to chip-only cards, Mr Duchatczek stressed that almost all
point-of-sale terminals and automated teller machines in Austria are already capable of using
“chip and PIN” for the authorisation of card transactions.
Lastly, Mr Duchatczek confirmed the establishment of a clearing house with final settlement in
central bank money in Austria, which not only should facilitate full migration to SEPA, but also
aims to increase security, quality and efficiency in the Austrian interbank payments market by
considerably reducing banks’ liquidity needs and costs. The new clearing service will become
operational in November 2011 and will be operated by Geldservice Austria, a private-public
partnership between the OeNB and commercial banks. The vast majority of Austrian retail
payments will then be processed via this clearing infrastructure. With the combined effort in the
customer-to-bank as well as the bank-to-bank domain, the OeNB together with the Austrian banks
are confident of being able to successfully meet the SEPA challenges ahead.
ECB
October 2011 47
2 Co n f e r e n c e P ro g r a m m e
A j o i n t c o n f e r e n c e o f t h e E u rop e a n C e n t r a l B a n k a n d t h e O e s t e r r e i c h i s c h e
N at i o n a l b a n k
T h u r s day, 1 2 to F r i day, 1 3 M ay 2 0 1 1
Vienna
T h u r s day, 1 2 M ay 2 0 1 1 : Mo r n i n g S e s s i o n
8:00 a.m. Registration
9:00 a.m. Opening remarks:

Wolfgang Duchatczek (Vice Governor, Oesterreichische Nationalbank)
Theme I
Transformation of the banking business and its impact on retail payments:
governance, efficiency and integration
9:15 a.m. Panel session:

Chair: Gertrude Tumpel-Gugerell (Member of the Executive Board, European
Central Bank)
Giovanni Carosio (Member of the Governing Board and Deputy Director
General, Banca d’Italia)
Rainer Hauser (Member of the Management Board, UniCredit Bank Austria)
Feriha Imamović (Vice Governor, Central Bank of Bosnia and Herzegovina)
Júlia Király (Deputy Governor, Magyar Nemzeti Bank)
Bertrand Lavayssière (Managing Director, Capgemini)
10:30 a.m. Coffee break
Theme II
Payments behaviour and the usage of payment instruments
11:00 a.m. Academic session:

Chair: Leo Van Hove (Professor of Economics, Vrije Universiteit Brussel –
Free University of Brussels)
Using cash to monitor expenditures – implications for payments, currency
demand and withdrawal behaviour
Ulf von Kalckreuth (Principal Economist, Deutsche Bundesbank)
Tobias Schmidt (Economist, Deutsche Bundesbank)
Helmut Stix (Research Economist, Oesterreichische Nationalbank)
Will that be cash, debit, or credit? How Canadians pay?
Carlos Arango (Principal Researcher, Bank of Canada)
Kim P. Huynh (Senior Analyst, Bank of Canada)
Leonard Sabetti (Bank of Canada)
Discussant: Heiko Schmiedel (Senior Market Infrastructure Expert, European
Central Bank)
ECB

October 2011
a NNEXES
12:30 p.m. Lunch
T h u r s day, 1 2 M ay 2 0 1 1 : A f t e r n oo n S e s s i o n
Theme III
Creating a competitive retail payments market
2:00 p.m. Parallel streams

– A
cademic session:
Trust in payment systems and the implications of fraud
Chair: Martin Summer (Head of Division, Oesterreichische Nationalbank)
Fraud, investments and liability regimes in payment platforms
Marianne Verdier (Assistant Professor of Economics, Université Paris Ouest
Nanterre)
Anna Creti (Professor, Université Paris Ouest Nanterre and École
Polytechnique)
Do newspaper articles on card fraud affect debit card usage?
Anneke Kosse (Policy Advisor, De Nederlandsche Bank)
Discussant: Harry Leinonen (Advisor to the Board, Bank of Finland)
– P
ractitioners’ session:
Customers’ benefits from an integrated retail payments market and their
readiness for change
Chair: Stefan Augustin (Director, Oesterreichische Nationalbank)
Peter Jameson (FI Product Management Head, Bank of America Merrill Lynch)
Daniel Ochsner (Head Central Settlement, Würth Finance)
Luca Poletto (Head of SEPA Offer, BNP Paribas)
Mark Roemer (Head of Global Transaction Bank, Siemens Financial Services)
3:30 p.m. Coffee break
4:00 p.m. Parallel streams
– A
cademic session:
Card payments, network effects and surcharging
Chair: Cornelia Holthausen (Adviser, European Central Bank)
To surcharge or not to surcharge?
A two-sided market perspective of the no-surcharge rule
David Henriques (Ph.D Visiting Scholar, Stern School of Business,
New York University)
Nicholas Economides (Professor of Economics, Stern School of Business,
New York University)
Card acceptance and surcharging: the role of costs and competition
Nicole Jonker (Senior Policy Advisor and Economist, De Nederlandsche Bank)
Discussant: Özlem Bedre-Defolie (Assistant Professor, European School
of Management and Technology)
ECB
October 2011 49
– P
ractitioners’ session:
Role of central banks in retail payment processing: competitor, facilitator
or partner for cooperation?
Chair: Wiebe Ruttenberg (Head of Division, European Central Bank)
Günter Ernst (Managing Director, Geldservice-Clearingservice Austria)
Gerard Hartsink (Senior Executive Vice President, ABN AMRO Bank)
Gian Bruno Mazzi (Managing Director, SIA-SSB)
Matthias Schmudde (Head of Division, Deutsche Bundesbank)
Coen Voormeulen (Division Director, De Nederlandsche Bank)
5:30 p.m. Close of conference day I
T h u r s day, 1 2 M ay 2 0 1 1 : E v e n i n g P ro g r a m m e
7:30 p.m. Evening reception

Venue: Oesterreichische Nationalbank, Otto-Wagner-Platz 3, 1090 Vienna
Pre-dinner statement:
Ewald Nowotny (Governor, Oesterreichische Nationalbank)
F r i day, 1 3 M ay 2 0 1 1 : Mo r n i n g S e s s i o n
Theme III
Creating a competitive retail payments market (cont.)
9:00 a.m. Academic session:

Card payments, household finance, and interchange fees
Chair: Stuart E. Weiner (Visiting Professor, Kansas State University)
Who Gains and Who Loses from Credit Card Payments?
Theory and Calibrations
Oz Shy (Senior Economist, Federal Reserve Bank of Boston)
Scott Schuh (Director Consumer Payments Research Center and Economist,
Federal Reserve Bank of Boston)
Joanna Stavins (Senior Economist and Policy Advisor, Federal Reserve Bank
of Boston)
Consumer credit and payment cards
Wilko Bolt (Senior Economist, De Nederlandsche Bank)
Elizabeth Foote (Teaching Fellow, London School of Economics)
Heiko Schmiedel (Senior Market Infrastructure Expert, European Central Bank)
Discussant: Stuart E. Weiner (Visiting Professor, Kansas State University)
10:30 a.m. Coffee break
10:50 a.m. Keynote speech:

Opening financial services markets – the European approach
Cecilio Madero Villarejo (Deputy Director-General, DG Competition,
European Commission)
ECB

October 2011
a NNEXES
11:15 a.m. Panel session:

Efficient and competitive retail payment markets
Chair: Wolfgang Duchatczek (Vice Governor, Oesterreichische Nationalbank)
Fred Bär (Managing Director, VOCALink)
Giorgio Ferrero (Head of Payment System Development and Strategy,
Intesa Sanpaolo)
Gilbert Lichter (Chief Executive Officer, EBA Clearing)
Irmfried Schwimann (Director DG Competition, European Commission)
12:30 p.m. Lunch
F r i day, 1 3 M ay 2 0 1 1 : A f t e r n oo n S e s s i o n
Theme IV
Future challenges in retail banking and payments
2:00 p.m. Keynote speech:

Innovation in retail payments
David S. Evans (Author and founder of Market Platform Dynamics)
2:30 p.m. Panel session:

Retail payments: innovations, security and financial inclusion
Chair: Daniela Russo (Director General, European Central Bank)
Massimo Cirasino (Head of the Payment Systems Development Group,
World Bank)
Declan Daly (Vice President Central Europe, Western Union)
Monique Goyens (Director General, BEUC)
Javier Perez (President, MasterCard Europe)
Chris Skinner (Chief Executive, Balatro Ltd)
3:45 p.m. Joint closing remarks:

Gertrude Tumpel-Gugerell
(Member of the Executive Board, European Central Bank)
Wolfgang Duchatczek
(Vice Governor, Oesterreichische Nationalbank)
4:00 p.m. Close of conference
ECB
October 2011 51
EUROSYSTEM
The future of retail payments:

opportunities and challenges
A joint conference of the

European Central Bank
and the Oesterreichische
Nationalbank
12-13 May 2011
Editors
Christiane Burger
Thomas Lammer
Heiko Schmiedel
Doris Schneeberger

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OESTERREICHISCHE NATIONALBANK

The future of retail payments:

A joint conference of the

THE FUTURE OF RETAIL PAYMENTS:

A JOINT CONFERENCE OF THE

All rights reserved. Reproduction for

ISBN 978-92-899-0815-3 (online)

5.1 Trust in payment systems and

Gertrude Tumpel-Gugerell Wolfgang Duchatczek

4 The future of retail payments: opportunities and challenges

6 The future of retail payments – opportunities and challenges

The remainder of these conference proceedings

The conference presentations and papers are

Wolfgang Duchatczek (Oesterreichische Nationalbank)

Ladies and gentlemen, introduced parallel sessions, we unfortunately

8 The future of retail payments – opportunities and challenges

We are confident that the balanced mix of

But I don’t want to continue keeping you in

I wish all of us a successful and interesting

10 The future of retail payments – opportunities and challenges

Gertrude Tumpel-Gugerell (European Central Bank)

Ladies and gentlemen, and Ms Júlia Király, Deputy Governor at the

12 The future of retail payments – opportunities and challenges

3.2 Panel discussion

14 The future of retail payments – opportunities and challenges

Summing up, the discussion focused on the role

16 The future of retail payments – opportunities and challenges

18 The future of retail payments – opportunities and challenges

In the ensuing discussion, a number of comments

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22 The future of retail payments – opportunities and challenges

24 The future of retail payments – opportunities and challenges

26 The future of retail payments – opportunities and challenges

28 The future of retail payments – opportunities and challenges

30 The future of retail payments – opportunities and challenges

32 The future of retail payments – opportunities and challenges

Cecilio Madero Villarejo (European Commission)

34 The future of retail payments – opportunities and challenges

Taking account of the obstacles and challenges

36 The future of retail payments – opportunities and challenges

Irmfried Schwimann (European Commission)

David S. Evans (Market Platform Dynamics)

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Once the connection between the mobile

This future can be seen today in two recent

40 The future of retail payments – opportunities and challenges

In his intervention, Chris Skinner (Balatro Ltd.)

Despite the very diverse backgrounds of the

42 The future of retail payments – opportunities and challenges

Gertrude Tumpel-Gugerell (European Central Bank)

Ladies and Gentlemen, of this conference was of course on electronic

44 The future of retail payments – opportunities and challenges

• The role of central banks in offering large

• Innovation in retail payments will not only

According to my assessment, the contributions

I would like to thank our co-organisers, the

With this in mind I would like to sincerely

For me personally this has been the last

46 The future of retail payments – opportunities and challenges

5.1 Trust in payment systems and