A Very Green Green Paper?
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This week the European Commission released its Green Paper "Towards an integrated European market for card, internet and mobile payments". Strangely the site that lists all green papers doesn't (yet) have it. For a copy, see this story here. At a high level there is perhaps nothing surprising in the paper, as many of the themes remain consistent. Indeed, in my recent paper “The SEPA Ripple Effect – Coming to A Non-European Country Near You Soon” I listed many of these themes that I expect to see, or already are seeing, in other countries. The more interesting piece will be the responses, and what happens as a result. The card schemes in particular, other than interchange, have had a fairly light touch so far and that looks set to change. One thing to note that a green paper is a vision paper. This is important as it sets out the target end state, but isn’t necessarily what will come to fruition as practicalities necessarily impact. As such, its easy to wearily shake your head at the naivety of it all rather than applaud perhaps what they’re trying to achieve. However, there does seem to be a danger of a growing gap between the vision and the reality. This hinges around whether payments really is a “network industry”. This is central to the concept of an integrated market. In the 10 years of SEPA work so far, there would seem to be little evidence to support any of the 4 drivers listed on pages 2 & 3. That's perhaps unfair, as these drivers require the delivery of SEPA to come to fruition. With true SEPA not due until 2014, the question then becomes whether SEPA will ever work as defined by these 4 measures. For many, the jury is currently either still out or simply no. For all, the answer won't be known until for several years after the deadline has passed. Yet the assumption that it will deliver these benefits is the foundation on which this report is based. A second point is that the regulators and the interests of the supposed beneficiaries aren’t 100% aligned, which can cause some strange situations. Take MIF. The regulator has a stated aim for transparency. Prices, despite the 4 drivers listed, haven’t fallen naturally, but fallen because of the very large regulatory stick that was waved, including the threat of massive fines for non-compliance. But to a consumer there is no evidence of any change. Indeed, in Australia where intervention has gone further, and surcharging is allowed, prices have not fallen therefore but risen. As a result, consumers have chosen alternative payment products as a result. You can see the same impact as a result of Durbin as well! So how is transparency going to actually help? The model works at an academic level but not in real life, and perhaps nor should it in tough economic times. So, should the regulator give up? No. But perhaps it should perhaps focus on more point intervention, with a clear understanding and statement of why it is doing so, rather than trying change the world.