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E-payments in Europe

at the European Central Bank,
Frankfurt am Main, 19 November 2002


Introduction

The increasing use of new communication technologies and the need for specific payment mechanisms for e-commerce have led to the development of e-payments, i.e. payments that are initiated and processed electronically. The Eurosystem, which has the statutory task of promoting the smooth operation of payment systems and to ensure overall financial stability, is considering its role in furthering the efficient and secure operation of these new payment instruments and systems.

Against this background, the European Central Bank held a conference on "E-payments in Europe" on 19 November 2002, focusing on issues related to e-payment initiatives, security and standardisation. The aim of the conference was twofold: first, to present views from the market and academia on current developments in and key aspects of e-payments; and, second, to provide a forum for discussion between market participants and the central banks of the Eurosystem on the possible role of central banks in this field. A panel discussion on the future of e-payments closed the conference.

Conference programme and presentations

Welcome message

Ms. S. Hämäläinen, Member of the Executive Board, ECB
Chairman: Mr. K. De Geest, Deputy Director General Payment Systems, ECB


I. Morning session E-payments in Europe: overview and trends

E-payments in Europe - The Eurosystem's perspective

Speaker: Mr. J. Priesemann, Head of Payment Systems Policy Division, ECB
Presentation:

pdf 642 kB, en

  • Overview of e-payment initiatives, legal framework and security components
  • Policy considerations on the role of central banks in this field

Viva the all-electronic euro!

Speaker: Mr. L Van Hove, Assistant Professor of Economics at the Free University of Brussels and Postdoctoral Research Fellow of the Fund for Scientific Research - Flanders.
Presentation:

pdf 1.3 MB, en

  • How far up the road are we already?
  • Why move to a cashless society?
  • How could we move to a cashless society?

Faster and cheaper payment processes - key enablers

Speaker: Mr. B. Harald, Executive Vice President, Network Banking and Payments, Nordea and Chairman of MOBEY Forum.
Presentation:

pdf 2.9 MB, en

  • Fundamental changes in the environment
  • Payments are not what they used to be
  • How to make the transition fast and economical?
  • How not to do it?
  • How to do it cheaper and faster?

II. Afternoon session Removing obstacles for e-payments - the way ahead?

Oversight of payment instruments - The Banque de France's approach

Speaker: Mr. C. Martin, Payment Systems Department - Electronic Payment Systems Oversight, Banque de France
Presentation:

pdf 1.7 MB, en

  • Security issues in e-commerce
  • Security objectives for e-money
  • Security requirements for other e-payment instruments?

Draft position of European banks on mobile payments

Speaker: Mr. L. Peeters, European Committee for Banking Standards
Presentation:

pdf 1.5 MB, en

  • Overview of ECBS' activity
  • Detailed explanation of Electronic Services (TC6): e-banking, ePI, bank trust services, mobile payments
  • Technical report 603 "Business and functional requirements for mobile payments"


The implementation of e-signatures in payment systems: open issues and possible solutions

Speaker: Ms. P. Masi, Banca d'Italia
Presentation:

pdf 1.2 MB, en

  • The European institutional framework
  • The possible role of e-signatures in the development of e-payment services
  • The main obstacles to full implementation
  • The role of the overseer in solving open issues: some suggestions based on experience in Italy.

Panel discussion: The future of e-payments

Topics: How to address the obstacles to e-payments and how to proceed? What are the industry and service providers expecting from the Eurosystem, especially as regards regulation, oversight and catalyst role? What is the impact of developments in e-commerce and e-payments for customers, banks and central banks?
Panel discussion with:

  • Mr. L. Van Hove, Assistant Professor of Economics at the Free University of Brussels and Postdoctoral Research Fellow of the Fund for Scientific Research - Flanders
  • Mr. B. Harald, Executive Vice President, Network Banking and Payments, Nordea and Chairman of MOBEY Forum
  • Ms. C. Centeno, Institute for Prospective Technological Studies, Joint Research Centre, European Commission
  • Ms. Jackie Keogh, Senior Manager, e-commerce, SWIFT
  • Mr. J. Valentine, Senior Vice President - Products, Virtual Visa, Visa International
  • Mr. B. Fierens, Product Manager, e-commerce, MasterCard Europe
  • Mr. D. Keymer, Director Payment Systems, Bayerische Landesbank

III. Closing address

Summary of conference

Mr. K. De Geest, Deputy Director General Payment Systems, ECB
Summarising the e-payments landscape and links between e-payment initiatives and industry fora. Identifying open issues and possible ways ahead.

Initial conclusions

The ECB conference "E-payments in Europe" brought together more than 130 key experts from the payment services industry, the banking sector, central banks and academia to discuss the future of e-payments and the role of the Eurosystem in this area. To stimulate discussion, the ECB published an issues paper "E-payments in Europe – the Eurosystem's perspective". This paper is published on the ECB's website ( Documents for public consultation ) and can be commented upon until 15 December 2002. Three main points were discussed during the conference: the future of e-payments, the possible obstacles to the development of e-payments, and the entry of new service providers into the payment landscape. The ECB, which has a mandate to promote the smooth operation of payment systems and to ensure overall financial stability, will reflect on its policies with regard to each of these three items.

The conference gave an overview of recent developments in the European retail e-payment area, with a focus on e-payments related to e-commerce transactions. Many initiatives are gaining widespread acceptance (such as credit transfers via e-banking applications and online credit card transactions). Other initiatives are experiencing a slower adoption by the market, possibly because they are developed for certain transactions or "niches" (such as the initiatives focusing on very small or micro payments) or require changes in customers' payment habits (such as in the case of prepaid services). The emergence of these new initiatives has led customers to perceive the market as fragmented.

The ECB will continue to monitor these e-payment developments and will aim to increase transparency in the market. In particular, the ECB will contribute by improving the e-payment statistics available to the public, and will foster co-operation between market participants. The ECB underlined this intention at the conference by announcing that it will run the "e-Payments Systems Observatory" (e-PSO) website, which will be transferred from the European Commission to the ECB early in 2003. The website will include a discussion forum, discussion papers and a database on e-payment systems and instruments. Further reflections on the efficiency of e-payments and, more particularly, on pricing principles and practices for non-cash payment instruments will also be initiated.

The second main topic of the conference was the removal of obstacles to e-payments, mainly related to security, standardisation and authentication. The industry has already made considerable efforts to ensure security for e-payment transactions. Security efforts are usually proportionate to the risks, i.e. schemes which focus on very small amounts (micro payments) do not have the same security features as initiatives focusing on larger payments. Some central banks in Europe are very active in the field of payment security, by defining security requirements and fostering the co-operation of market players on security issues.

The Eurosystem, which has issued a set of general security objectives for e-money schemes, will investigate the need for common action to ensure the security of other e-payment instruments.

Concerning standardisation, it became clear that efforts are increasingly pan-European in focus. However, many initiatives continue to focus on domestic markets, and the introduction of the euro is not considered to have been a sufficient stimulus to direct efforts away from the national context. In order to facilitate straight-through processing (STP) of payments throughout the payment chain, common standards would not only need to be agreed at the interbank level, but also for invoicing and reconciliation. This development of standards would require a greater involvement of all parties (including customers and merchant organisations) in the payment transactions. These parties should be involved in making the payment instruments as efficient as possible, by focusing on the seamless interoperability of the different elements of the payment chain. The Eurosystem intends to further investigate governance of standards, business practices and industry agreements.

Another topic related to obstacles was the means of authentication, which have traditionally been provided by the government in the form of ID cards. On the internet and mobile networks, there is an absence of government authentication by electronic means, so that private entities (including banks) are currently starting to provide such services. The views diverged on whether public authorities should provide e-authentication, or whether private mechanisms are sufficient. The Eurosystem will continue to monitor these developments.

The third main item of discussion was the entry of new service providers into the European payment landscape. It became apparent that the co-operation between financial institutions and service providers has increased, each focusing on their field of competence (i.e. the "border skirmishes" have not escalated). The banking industry concentrates on maintaining customer trust and providing reliable payment products, while the service providers focus on innovative and more convenient applications. Overall, it should be noted that most e-payment initiatives are still at an early stage of development. The success of the initiatives depends on many factors, e.g. payment habits in different countries (which tend to change slowly), security and interoperability concerns, network effects (the need to achieve critical mass), business decisions (finding the appropriate moment in the investment cycle), etc. The involvement of the Eurosystem in e-payments will therefore be analysed and discussed thoroughly before any action is taken.

Follow-up to the issues paper and conference on "E-payments in Europe"

The Eurosystem, which has the statutory task of promoting the smooth operation of payment systems and ensuring overall financial stability, is currently examining its role in terms of further developing the efficient and secure operation of innovative payment instruments and systems. A conference entitled "E-payments in Europe" was organised by the ECB on 19 November 2002 and an issues paper was published on 16 September 2002, presenting the Eurosystem's policy considerations vis-à-vis the role of the Eurosystem in the field of e-payments . The issues paper was open to public debate in the form of a public consultation until mid-December 2002 and attracted comments from both inside and outside the banking sector.

General reactions to the issues paper and the conference

The feedback from the issues paper and the conference mainly revealed that the e-payments market is still in an early stage of development, with some uncertainties and difficulties for the market remaining in terms of adopting a common approach towards handling difficulties/challenges.

The general message interpreted from the responses and conveyed at the conference was that the initiative taken by the Eurosystem was highly positive and that the market was very interested in learning all about the Eurosystem's policies on e-payments. Security aspects and regulatory/legal issues relating to e-payments were of particular interest.

The Eurosystem was also encouraged to co-operate with all interested parties involved in the area of e-payments, bearing in mind its specific competencies and concerns, in order to foster efficient e-payments and sound payment systems. Co-operation with the European Commission, consumer organisations, competition authorities and non-EU G10 central banks was considered particularly important.

Follow-up action by the Eurosystem

The ECB has drawn four conclusions from the public consultation and the conference. These will be followed up by specific actions.

  • First, the e-payments market is still in an early stage of development and is changing rapidly. An increasingly wide range of initiatives is being developed to effect payments via channels such as the internet, TV and mobile networks. Some of these payment initiatives are gaining greater widespread acceptance (such as the online card payments or transfers via e-banking), while others are experiencing slower adoption by the market, or have had to close down. The large number of stakeholders, with new players (such as non-banks and near-banks), and new legislation have added to the complexity of the e-payments market. In order to support co-operation, consensus-finding and information exchange in the market, the ECB has decided to relaunch the "e-Payments Systems Observatory" (e-PSO) website. The website was launched by the end of April 2003 (  www.e-pso.info ) and includes, inter alia, an e-mail discussion forum, a database on e-payment initiatives, and publications on specific topics.

  • Second, the development and use of common standards in the e-payments market still has room for further improvement. It is generally acknowledged that the setting of standards should be left to the market and the involvement of governmental bodies should be limited. Indeed, the work should be driven by market participants and bodies of the banking industry, such as the European Committee of Banking Standards (ECBS) and the European Payments Council (EPC). However, from the feedback received, it has become clear that there are certain difficulties in implementing existing standards. Also, consumer representatives may not have been involved in the work of the banking industry bodies setting the standards as much as one might have hoped. The Eurosystem therefore envisages monitoring the implementation of existing standards and investigating areas in which further standards might be required. The ECB is participating in various different working groups of the ECBS and EPC and will contribute actively in these meetings. Information and analyses will be available on the e-PSO website.

  • Third, security issues are still a major concern for the public and payment providers. The industry has already made considerable efforts to ensure security for e-payment transactions. There is, however, always a trade-off between security and (cost) efficiency. Schemes focusing on small amounts do not require the same security features as initiatives focusing on payments of a higher value. Opinions on Public Key Infrastructure (PKI) and its use for e-payments differed significantly. Some of the comments indicated that it is premature to implement PKI at this stage, as it is not clear whether PKI will become a major security solution. Moreover, the organisational issues surrounding the Public Key Encryption could be more difficult to handle than the actual technical security issues. Other comments referred to the benefits on a common infrastructure based on PKI.
    There are various degrees to which the Eurosystem could foster the security of e-payments ranging from limited involvement (i.e. by establishing general security guidelines), to a more comprehensive framework for e-payments, to detailed technical security and interoperability requirements. A common security framework could, on the one hand, help to achieve a level playing-field between service providers, but, on the other, it could create barriers for entry thereby hampering innovative solutions. The Eurosystem is aware of the fact that too deep a regulatory involvement could stifle innovation and consequently it will closely examine the various different degrees of involvement before coming to any decision. As a follow-up action, the Eurosystem will further analyse the risks related to e-payment systems and instruments.

  • Fourth, statistical information on e-payments is inadequate at the EU level and needs considerable improvements. Reliable statistics are vital for the business decisions of the companies providing payment services, their financiers, analysts, and the public authorities setting the underlying policies. The ECB initiated further work in 2002 in order to improve the quality and availability of aggregate payment statistics for the EU, the euro area and the accession countries. The initial results of this project are expected to be available in the course of 2004.