Green Paper ‘Towards an integrated European market for card, internet and mobile payments’ — Frequently Asked Questions
1. Which types of payments are covered by this Green Paper? Why these specifically?
The Green Paper covers three types of electronic retail payments.
Card paymentsgenerally cover all payments made with a debit or credit card, either at the point-of-sale or remotely (e.g. through the internet or on the phone by voice communication).
Internet paymentsinclude online payments made with payment cards, online banking facilities or e-payment service providers.
Mobile paymentscover all payments made with a mobile device. These could either be remote payments, i.e. internet or premium sms-based payments, or payments at the point-of-sale, using technologies such as NFC (Near Field Communication) which require specifically equipped phones and readers.
The three payment categories are not mutually exclusive and the line between them is blurred. For example, an internet payment made with a smart phone using a payment card would fall into all three of the above categories.
All three payment methods are very important to Europe’s economy: card payments are the most frequently used electronic payment instrument for retail payment transactions (second only to cash payments). On average, every EU citizen owns more than one payment card and makes over 40 card transactions annually. Internet and mobile payments, while still much less common than card payments, are the fastest growing payment methods in today’s market, very much driven by the developments in e- and m-commerce, i.e. the buying and selling of products and services over the internet or mobile devices.
Two core payment instruments, bank transfers and direct debits, are not covered by the Green Paper as they were the subject of a Commission proposal in the context of the Single Euro Payments Area (SEPA).
2. What is the objective of the public consultation and who can contribute to it?
The aim of the Green Paper is to identify the obstacles that potentially prevent European integration in the card, internet and mobile payment markets. An assessment was made on the basis of numerous discussions and meetings with stakeholders from the demand (consumers, merchants, enterprises etc.) and supply (banks, other payment service providers, card schemes etc.) side of the market. The public consultation is an opportunity to launch a broader debate on the subject. Its first objective is to validate the analysis of the Green Paper and to ensure that no critical issues have been omitted. Secondly, it gives stakeholders the chance to share their views on how to resolve the identified problems and, whenever possible, provide relevant data and information.
The Green Paper now aims to assess the current European landscape for card, internet and mobile payments in order to identify the best way to foster integration. The way in which consumers purchase their goods has changed significantly. Increasing mobility and the emergence of e-commerce have strengthened the need for Europe-wide, cashless payment solutions.
The contributions to the consultation will determine the need for EU action on the various issues raised and the form this action should take. The consultation is open to all parties and stakeholders interested in this issue field.
3. How does this initiative relate to the Commission’s Communication on e-commerce adopted on the same day (see IP/12/10and MEMO/12/5)? Why are there two different documents?
There is a strong link between the two initiatives. In public consultations and surveys, payment issues are consistently mentioned by consumers and merchants as one of the key reasons not to use e-commerce. Various issues are raised, including the perceived lack of security, excessive or non-transparent payment fees, and the limited choice of payment instruments. The Green Paper covers all of the identified issues. Furthermore, card, internet and mobile payments are precisely the payment methods that are most often used in the context of e-commerce.
Although the two documents are closely related, they do not overlap. E-commerce covers more than payments and payments cover more than e-commerce. In other words, the issue of payments, although a very important one, is just one of many issues that need to be addressed in order to accelerate the growth of e-commerce across the EU. Likewise, the number of payments made directly at the point-of-sale, for cards and potentially also for mobile payments, significantly exceeds the payments which take place in the context of e-commerce. Therefore, the Commission has decided to address these topics in two different, but related documents.
4. What is the current market situation in the EU for payment cards?
In 2009, payment cards were used for a third of all non-cash retail payment transactions in the EU. But much remains to be done to create an efficient and competitive Single Market for cards. The European cards payments environment is largely fragmented along national borders with a small number of domestic schemes and only two main international players. Domestic debit card schemes are often not accepted outside their country of origin. With SEPA migration under way, and a number of domestic schemes closing down, a situation of duopoly on the card market could arise, with only the two international card schemes (Visa and MasterCard) remaining.
In addition, the business model in the payment-cards sector is dominated by inter-bank fees commonly agreed between payment service providers, also known as Multilateral Interchange Fees or MIFs. These fees determine to a large extent the charges merchants pay their banks for accepting the card to make a transaction. As the real cost of payment services at the point of sale is unknown to consumers and often opaque for merchants, there is no competitive pressure on the price of the payment instruments. Bonuses and rewards granted by card issuing banks and payment card schemes typically incentivise the use of higher fee cards.
As merchants dislike to refuse expensive means of payment, they typically pass the resulting higher costs of payments on to all consumers by adjusting the retail price of the good or service, rather than charging the specific user of the more expensive means of payment, in line with the ‘user pays’ principle.
In turn, the high profitability of this model for banks may hamper the development of more innovative or efficient payment methods, as cheaper payment cards cannot provide banks with the same level of revenue they request for issuing. There is also a spill-over effect on non-card payment means which potentially hinders innovation in the European payment market.
5. What is the current market situation in the EU for internet and mobile payments?
Internet and mobile payments are now the fastest growing payment methods, driven by e-commerce and the dramatic increase in the number of smart phones. Both payment methods offer significant benefits — more convenience for consumers and more efficiency for merchants, provided that they are secure, transparent and cost-effective.
Despite these benefits, internet and mobile payments currently still represent a very low share of all retail payment transactions. To put it in perspective, only 3.4 % of the value of all European retail sales are made on the internet. The estimated value of all m-payments in 2010 ranges from EUR 50 to 100 billion worldwide. An impressive figure at first sight, but only a tiny fraction of the total retail trade volume at global level.
Internet and especially mobile payments are both relatively new payment methods which to some degree explains their lower share of transactions compared to more traditional electronic payment methods, such as card payments or bank transfers. But many of the teething problems for innovative payment methods are due to the current fragmentation of the market and the fact that many internet and mobile payment solutions are restricted to the domestic market.
Key facts and figures
Around 726 million payment (credit and debit) cards were used in the EU in 2009. This represents an average of almost 1.5 cards per citizen. The average spending per card amounted to more than EUR 2 000/year.
According to studies, the number of online shoppers in Europe is forecast to increase from 141 to 190 million between 2009 and 2014 with the average spent by each buyer increasing from EUR 500 to EUR 600/year.
One in three European citizens used online banking in 2009. Studies indicate that by 2020, two out of three EU citizens may use online banking.
Almost one in three EU citizens currently owns a smart phone. This is expected to increase in the future, which will also drive emerging m-payment solutions. Studies indicate that the value of m-payments in Europe could be as high as EUR 250 billion/year by 2014.