Card Notes
DEBIT CARDS
Pressure continues for third scheme in Europe
All the signs are that the European Central Bank, in its role as cheer-leader for a European debit scheme, is making progress towards its objectives. While the Euro Alliance of Payment Schemes looks capable of playing a role at the margin in some eurozone countries, the ‘Falkensteiner group’ of big eurozone banks is potentially a much more serious contender.
“I know that things are moving,” Jean-Michel Godeffroy, ECB director general for payment systems and market infrastructure, told delegates at the EFMA conference, Cards and Payments 2007, in Paris in September.
The ECB is not asking for a new card scheme by 2008, he noted: “We are saying, ‘If you don’t think now about the future, the future will never come – build on SEPA to bring the best of European tradition to new payment enterprises.’ Because it is costly, we recognize it will take time.”
Godeffroy added: “If the European Commission and ECB hadn’t put strong pressure on the banks, there would have been inertia. European schemes would have disappeared and been replaced by the international card schemes. By no means do we want to reserve the European card market to European schemes – we simply want actors who reflect the life we have in Europe”
World Payments Report, from Capgemini, ABN Amro and EFMA, notes the paradox that SEPA strives to make the payments system competitive and to change the cards system to ensure that any card will be handled by any terminal anywhere in Europe. But because SEPA calls for suppression of national schemes in order to spread card acceptance throughout Europe, this creates conditions favourable to the existing international card schemes.
MasterCard and Visa have strong market positions through their links to acquiring and issuing banks. In cross-border payments, they benefit from established brands among the different players – banks, merchants, consumers – and the fact that they already have a pan-European presence.
For the moment, the international card schemes have a privileged situation because they are the only organizations with full international reach, and can therefore comply most easily with the SEPA Cards Framework (SCF).
World Payments Report notes the strong pressure from the EC and ECB to review the option of a new pan-European card scheme. “I don’t see the political will behind this backing off,” says Bertrand Lavayssière, MD global financial services at Capgemini: “It’s a matter of national pride.”
Core members of the ‘Falkensteiner Group’ are thought to include UniCredit, Société Générale, ING and Deutsche Bank, from the largest eurozone markets, France, Germany, Italy, and the Netherlands.
Without mentioning any specific names, World Payments Report comments that banks from those four countries could potentially reach their entire national markets, which together represent 71% of card payments volume in the eurozone.
“This would be a real answer to the request of the ECB to create a new European card scheme,” the report says: “Banks should move quickly to gain most of the card payments volumes and to compete with the existing card schemes.”
At the EFMA event, it was being speculated that the Falkensteiners might seek to co-opt Visa Europe/V Pay as their vehicle. On the face of things, this would still leave only two international schemes plus EAPS in Europe. Under this scenario, however, Visa International would also operate in Europe, on a basis yet to be defined, providing services to non-eurozone banks and, perhaps, global services to eurozone banks.
In a presentation at the EFMA event, Visa Europe president Peter Ayliffe did nothing to discourage the speculation. He noted the ECB’s call for a new European debit card scheme to be “equivalent to the schemes originated in the US, Japan or China,” and its description of this as “a largely political objective” which “the banks are invited to share.”
“We couldn’t agree more – and V Pay ticks all the boxes,” Ayliffe said: “Of course, when the ECB was describing this new European scheme, it wasn’t actually talking about V Pay – I know that and you know that. But V Pay does already look and feel just like the ECB’s preferred solution.”
A key factor for the EC and ECB is to retain data in Europe, Lavayssière points out: “The idea is coming from a political debate, because SWIFT data was held in the US and viewed by US authorities – so it’s a sovereignty issue and not to be negotiated.” Visa Europe, on this view, would have to demonstrate that all data relating to European cardholders was held and backed up exclusively in Europe.
Visa Europe’s structure as a member-owned European entity “is not window-dressing, it is not spin, it is fact,” Ayliffe added: “I urge the regulators to acknowledge this reality. Visa Europe is not in any sense a US organization. Here in Europe, Visa and MasterCard are not in any sense interchangeable. They are two completely different types of organization, two entirely different business models, with two very different agendas, competing more aggressively than ever before.”
Of course, developments of this nature would attract a response, particularly from MasterCard. World Payments Report comments that at present, banks do not believe that non-bank card providers will engage in issuing and acquiring of cards. “Our analysis, however, suggests that the card providers could do so and create a change in competition.”
A risk is that the international brands could take advantage of the SCF and try to move along the payments value chain and start to compete with banks, the report says, in a section headed ‘Banks and Others Could Create New Card Schemes.’
“They could reposition themselves not only on the scheme management and the processing of cards but also as payment institutions. Also, the main card providers could eventually propose a wider range of services; in the medium-term, they could eventually disintermediate banks.”
In support of this point, World Payments Report notes how international schemes propose new types of payments, such as m-payments and other contactless payments: “They are positioning themselves as insourcers or services providers for banks and corporates” and have developed new services to provide cards not linked to a current account (ECR, July/August, p6).
All this may lie in the future. For the present, MasterCard continues to warn against the development of “a narrow European eurozone-only scheme,” citing the history of card payments, “which has clearly shown the demise of the ‘one country – one card’ payment solution.”
Speaking at Bankkartenforum in September, MasterCard Europe president Javier Perez said banks were “increasingly operating on a world stage, while consumers were clearly demonstrating their preference for products that would work for them wherever they were and whenever they needed them.”
Perez added: “There is no bubble around Europe, and we and
consumers don’t want there to be. Moreover, our insight into
Maestro spending also showed us that a single market is already
developing in Europe – SEPA is not just about the 2% of transactions
that take place abroad when people are on holiday. Consumers are
now moving freely across borders to carry out their day-to-day
shopping from supermarkets to petrol and clothes.” 
