[Dave Birch] When I took one for the team and went to the SEPA session at the International Payments Summit. I did learn something new, which was that at the current rate of progress it will take about 50 years (the actual estimate was 47 years) to migrate European credit transfers to the SEPA Credit Transfer (SCT), which is not bad I suppose. After all, it takes time to develop and integrate new systems, and banks have other priorities. Neverthless, it is fair to observe that progress is slow.

What I was mainly interested in was the zeitgeist around the Payment Services Directive (PSD) rather than SEPA itself. That’s because it will have more of an impact on more of our customers. Selfish, I know. But the thinking is straightforward: for our financial sector customers in the payments business, the PSD introduces new consumer rights and so forth and this will cause them some hassle. One particular impact, which may well be under-emphasised in strategic evaluations of the PSD, is the panoply of new customer rights that come with the PSD. These include transparency. So (under articles 36 and 37) your card issuer has to tell you (when you’re buying a meal in a Greek restaurant) the maximum execution time for a payment, all charges payable and a breakdown of those charges and the actual (or reference) exchange rate. Gulp. That sounds like the Greek restaurant will have to give a British cardholder a couple of pages of A4 and make sure that the customers reads them before they punch in their PIN.

You’d think that a key impact of the PSD would be pan-European, but a couple of people I overheard were definitely sceptical. In fact, some people think it is likely to entrench national markets for the time being. I saw Bob Lyddon give a talk about this recently and he made the point that the combination of national “gold plating”, the mixed adoption of the rights of derogation and different interpretations of non-negotiable elements after national transcription (ie, the process of turning the directive into national law) means that there is a high likelihood of national markets becoming more different, not more similar. (And one country, Sweden, is opting out of it at the moment.) Thus, although a Payment Institution (PI) can theoretically passport, national differences mean that costs and complexity will not reduce for the time being.

Anyway, the point is that for banks, the PSD comes at an interesting time when transaction banking is becoming more central to strategy. The threats from both new entrants and substitutes are, according to Bob (and I agree with him), high. In these circumstances, regulation is turning from a moat that competitors cannot cross into a millstone around the incumbents necks.

For customers outside of the financial sector who want to start their own payments business (such as, to repeat the obvious examples, mobile operators and retailers), the PSD provides a way forward and since they will have to implement new systems, they can incorporate the requirements of the PSD from the beginning. This should mean that the Commission’s goal of increased competition in the payments business is at least plausible. But while the talk about competition is around non-banks, I expect that around a quarter to a third of European banks will end up setting utheir own PIs in order to restructure their own payments businesses. I have long suspected that moving payments businesses into an “arms length” subsidiary regulated under the PSD rather than as a credit institution would have significant benefits for a great many banks. And with all the talk of “payment factories” (and now, at every payments conference I find myself at recently, service-oriented architecture payment factories), I can see that consolidating payments system business models and technology models is a viable strategy to reduce costs and improve services. As I overheard at the IPS, a bank’s payments business could do much better once it is freed from bank structures and decision-making.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. Insightful post, Dave.
    As a lawyer operating in this space I can safely say that the PSD, the E-money directive and the Consumer Credit Directive (not to mention the Distance Selling and E-commerce Directives) are all great examples of how EU regulation fails to catalyse cross-border markets, regardless of single market policy, though sometimes they help grow national markets. There’s a long list of other cross-border issues that need to be resolved before you get to the regulatory bit, like those arising from different language and culture; consumers’ preference for national operators; no access to creditworthiness information; problems related to tax, employment practices etc.; different consumer demand in different Member States; differing stages of market development and so on.
    The best anyone can really hope to achieve at this point is weaving together a series of national solutions with a thin layer of centralised management somewhere tax effective, with access to a decent air miles programme. That at least leaves you a reasonable option to fuse it all into a single offering at some point, rather than try to integrate completely standalone businesses.

  2. the greek restaurant is a bad example, because it is neither a card issuer nor a payment service provider.
    also, articles 36 and 37 are about payments not covered by a framework contract: this is not the case of card payments. 😉

  3. Citizens and companies in SEPA will be able to make credit transfers in euro as simply and as easily throughout SEPA from 2010 as they are accustomed to do on a national basis today. The Scheme also provides a common basis on which banks are able to offer new and innovative services.

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