Payment Integration Under Pressure as Europe Battles with Euro Crisis

LONDON – The financial crisis and the uncertainty about the future of the Euro put progress of ambitious European payment integration plans, such as the Single European Payments Area (SEPA), increasingly under pressure. Lawyers and financial experts weighed in on the situation.

‘The Spanish bail out and discussions about deeper Eurozone integration may slow down SEPA,’ said Michael McKee, partner at DLA Piper in London, while Mark Taylor, partner with Hogan Lovells, thinks that ‘the focus and priority of regulators and governments is inevitably drawn elsewhere. There is a risk that this may lead to a slower rate of progress.’

According to Nathalie Moreno, of Speechly Bircham, ‘the impacts of increased lending and bailouts to keep the Euro afloat will surely affect the ability to make a certain decision on the future of SEPA.’

The uncertainty of the Euro spells bad news for economic recovery.

To make SEPA a success ‘we surely would need to ensure we have a Euro,’ said Celent consultant Gareth Lodge. McKee concurs: ‘There is no question that the SEPA project is fundamentally tied up in the future of the euro itself.’

The crucial role that banks play in the development of SEPA raises concerns since ‘those banks who have heard of SEPA  –and an alarming number still have not– are placing big bets as a way of capitalising on their strengths and their competitors weaknesses. Others are simply trying to survive the month,’ said Lodge.

Regarding the EU Green Paper, published in February and calling for an integrated market for card, internet and mobile payments, Moreno believes that ‘as the markets fragment more, it is difficult for many to reconcile a unified approach to enable efficient cross border payments.’

The more and more political nature of SEPA is having repercussions.

‘SEPA is more and more political,’ said McKee. That is ‘why the Green Paper raises issues about mandatory completion times and about SEPA governance; a coded threat that the Commission, European Central Bank and Member States want to wrest more control of the [SEPA] project from the banking industry.’ Moreno agrees with McKee: ‘There is a worry that regulatory intervention could hamper the banking sector’s competitiveness in the global marketplace and also lead to the lack of development and innovation in this space.’

There are also concerns whether the SEPA migration deadline of February 2014 is still realistic: ‘There will be more than a handful of banks and corporates who will miss the deadline. The questions then are how many, by how much and how long are they are given,’ said Lodge.

Cash Payments in UK More Common

Consumers are increasingly using cash to make payments in store in order to keep track of their spending, the British Retail Consortium (BRC) has said.

In hard times, we rely on hard currency.

‘Customers are more likely to be paying with cash,’ said Tom Ironside, Director Business and Regulation at the BRC. ‘They have less money. They are buying things only as and when they need them, and spending less each time.’

The use of cash in 2011 was up by 5.7% on 2010. The BRC based its figures on 9.5 billion transactions in British shops. Tom Ironside: ‘In 2010 financial worries were putting people off running-up debt and they turned away from cards. Now times are even tougher.’

The figures come only weeks after the Court of Justice of the European Union, on 24th May, rejected a legal challenge by MasterCard against the European Commission’s decision to classify cross-border transaction fees as uncompetitive. The fees are charged by a cardholder’s bank to a merchant’s bank for each card transaction. MasterCard had agreed to lower its charges in 2009 but the EU Commission believed MasterCard had not gone far enough
Michiel Willems