For years now, the free circulation of goods, services, people and capital between the 28 countries that make up the EU has been the European Union's main goal and giving up this goal is unimaginable. Political advances have helped to gradually integrate the different domestic markets. However, some elements still exist that prevent a greater degree of integration. Fragmentation between the different national payment systems is one of these, although significant progress will probably be made to unify them over the coming years by means of the Single Euro Payments Area or SEPA.
Integrating payment systems at a European level is no easy task, particularly if we take into account the fact that, to date, the rules governing their operation at a national level can vary greatly within the EU. These differences partly explain the differing degree of penetration of electronic payment instruments (including all means of payment except cash transactions) between countries. In 2010, close to 40% of the transactions in the EU were carried out through electronic means of payment. This figure varies considerably from country to country, ranging from 65% in Finland to 4% in Greece.(1) However, the small quantities normally involved in cash transactions increases the relative weight of electronic means of payment to 90% of the total value of transactions made in the EU.
An analysis of the composition of electronic payment systems at a national level provides further evidence of this disparity. As can be seen in the second graph on the next page, in 2012 the relative weight of the three most widely used payment instruments, namely bank transfers, bank direct debits and cards, was very different in each country. These three means of payment accounted for almost all electronic transactions carried out in the countries of northern Europe (Finland, Denmark and Sweden) and in Germany. In the majority of countries, the dominance of these three payment systems was not so absolute but they clearly predominated. In France and Italy, however, they only accounted for 83.7% and 82.2% of electronic payments, respectively. In France's case, the more widespread use of bank cheques, accounting for 15.5% of all electronic transactions in 2012 compared with 4.5% in the EU as a whole, explains this smaller share.
Significant discrepancies can also be observed among the three most widespread means of payment in the EU. A clear example of this are card payments which, although these accounted for more than 65% of all transactions in Sweden, Denmark and Portugal in 2012, accounted for just 17% in Germany. In this country, however, bank direct debits accounted for close to 50% of electronic transactions.
In spite of this significant disparity between different electronic means of payment, some convergence has been seen over the last few years.(2) A good example of this is the gradual loss of share by bank cheques while the opposite is happening with cards, which are still gaining relative share in almost all EU countries. The first graph in this article shows the reduction in variability in the use of different means of payment among countries occurring in the last few years. Whether this process continues will particularly depend on the preferences of individuals and firms and how these alter, as well as on the technological advances that might occur and possible changes in the regulatory environment.
With regard to this last aspect, the coming into force of the SEPA could play an important role as a catalyst for the integration of payment systems at a European level. The aim of the SEPA is to achieve a single market of payment instruments for individuals, firms and public administrations in which there is no distinction between national and cross-border transactions within the SEPA's geographical scope. To this end, common guidelines have been established that standardise, automate and bring under a harmonised legal framework two out of the three main payment systems most widely used in the EU: namely bank transfers and direct debits. These guidelines will come fully into force as from August 2014 for the euro area countries and will subsequently be rolled out to the rest of the countries that form part of the SEPA (EU members that do not belong to the euro area as well as Iceland, Liechtenstein, San Marino, Norway, Monaco and Switzerland).
The potential benefits resulting from the correct implementation of the SEPA are numerous and can be divided into three groups. Firstly, putting domestic and cross-border payments on an equal footing will reduce the cost of the latter and therefore boost relations between economic agents in different countries. In fact, one single bank account will be enough to make and receive all payments within the countries that come under the SEPA umbrella, irrespective of the country of origin and destination. Secondly, harmonising the rules that govern payment systems increases the potential market for providers of such instruments, allowing them to exploit economies of scale at the same time as encouraging competition between them, with the resulting benefits for users and improvements in the system's efficiency. Greater price convergence is therefore expected between the various means of payment which should ultimately lead to greater similarity in the use of the different means of payment between countries. And lastly, introducing SEPA regulations will also encourage innovation and reinforce the security of payment systems, a fundamental condition for their success.
Undoubtedly, the creation of the SEPA will help Europe to advance towards the harmonisation of its payment systems. However, this project is not enough to ensure full integration of payment systems at a European level as some challenges can still be glimpsed on the horizon that will have to be overcome. Among the most urgent is the completion of the regulatory framework for card payments. So far, only the broad lines of this framework have been designed, as well as promoting the adoption of cards with a chip and secret PIN that make them more secure than their predecessors. However, the increasing importance of cards among the main payment systems in Europe means that they urgently require a common set of specific regulations.
A second challenge that must be tackled is the inclusion of new means of payment within the SEPA, such as online payments (eSEPA) or those via mobile. The regulatory framework must therefore be flexible enough to adapt quickly to the appearance of new payment instruments. This will help to avoid the creation of 34 different domestic markets that must subsequently migrate to a common area. And lastly, it is also important to get rid of possible barriers to new competitors entering the different domestic markets.
The creation of the Single Euro Payments Area (SEPA) is therefore an important first step towards the integration of European payment systems: a process that, if completed successfully, will improve the system of payment instruments and thereby enhance economic relations between European countries.
Joan Daniel Pina
European Unit, Research Department, "la Caixa"
(1) See Schmiedel, H., Kostova, G. and Ruttenberg, W., «The social and private costs of retail payment instruments: a European perspective», Occasional Paper Series, No. 137, September 2012.
(2) Martikainen, E., Schmiedel, H., and Takalo, T., «Convergence in European Retail Payments», Occasional Paper Series, No. 137, June 2013.