Long Baitao Recommended | Retail Payments Tomorrow-European Strategy

Text: Benoît Cœuré

Translation: Long Baitao

Reviews: Long Baitao


European Central Bank Executive Board Benoît Cœuré expressed in this article the concerns of the European financial elites about the autonomy of the European payment system and the countermeasures-the retail payment strategy of the Euro system, the core of which is a market-oriented pan-European retail payment solution.

Although Europe has made significant progress on single markets and currency unions, there is still a lack of European solutions for the retail payment market. This is due to the lack of a pan-European way of acting, fragmentation of the country, and (non-European) large tech companies to create separate new payment ecosystems to meet consumers' growing cross-border payment needs.

Full reliance on non-European and new ecosystems can present two risks. First, the unverified nature of risks associated with global stablecoins. Second, it may undermine the autonomy and resilience of the European payment system. Reliance on non-European global players makes the European payment market more vulnerable to external interference. Service providers with global market power (large global technology companies represented by Apple, Google, Facebook, Amazon, etc.) are not necessarily in the best interests of European stakeholders. The monetary power of other countries will not proceed in the best interests of the European Union, or even be used against the European Union.

The dollar currency system is being used against Europe. This is not a risk, but it has become a reality. SWIFT has become a weapon for the United States to wield a stick of sanctions and play with "long-arm jurisdiction", and has even been used against US allies. The United States has threatened to sanction European companies that still maintain trade relations with Iran by cutting off SWIFT connections. Countries in Europe, including the United Kingdom, Germany and France, have begun to establish an independent payment system with Russia, China and Iran to circumvent US sanctions on Iran and European companies that maintain trade relations with Iran.

Cœuré believes that the only effective response to these risks is the joint effort of European banks to provide payment solutions that both reflect consumer demand and strengthen the single market. Therefore, the Council of the European Central Bank has decided to actively promote pan-European market initiatives for retail payments. These initiatives must achieve five key goals: pan-European coverage and customer experience; convenience and cost-effectiveness; safety and security; European identity and governance; global recognition. The core of the retail payment strategy of the Euro system is a pan-European market-oriented payment solution.

The author believes that there are two challenges in implementing the retail payment strategy in Europe-the challenge of large global technology companies and the fragmentation of European countries. The best response in Europe should be to consolidate and expand the volume of Euro trade settlements and issue retail digital currency of the Euro Central Bank. However, the European financial elite chose to abandon the retail CBDC scheme because it wanted to protect the interests of commercial banks.

Europe has not been able to form a large domestic Internet company. Therefore, when large global technology companies bring a large user base and an ecosystem of diversified economic activities into the field of payment and broader financial services, Europe is almost unable to resist. Although a single European payment solution can provide consumers with a globally consistent payment experience that meets their needs for fast, low-cost, secure, and easy-to-use payments, it is almost better than the DNA business model of large technology companies. The key characteristics of the DNA business model are Data Analytics, Network Externalities and Interwove Activities. These three elements reinforce each other: network externalities bring more users and more value to users, which in turn allows large technology companies to generate more data, which helps to enhance existing services and attract more users. Compared with large technology companies, European banks (especially individual banks) have a much smaller customer base, the types of services (economic activities) they provide are limited to traditional financial services, and they lack big data and big data processing experience. Banks are far less effective than large tech companies in leveraging the feedback loop between data, network externalities, and tightly coupled activities. The competitiveness difference between banks and large technology companies in providing financial services is also reflected in the fact that the growth of the latter has already had a far-reaching impact on the industry organization of the financial services industry. The financial hierarchy is reversing, and banks are downgrading from the center of the traditional financial system to payment services that are provided by large technology companies. China's Ant Financial and Tencent have shown this feature.

The fragmentation of European countries may weaken the effectiveness of European retail payment strategies. This is reflected on two levels. First of all, the European stakeholders of the unified payment solution are the fragmented European banking industry. As a contrast to the payment solutions of large technology companies, there is a powerful network platform and an economic ecology behind it. Second, the single European market is actually very fragmented. Cœuré stated in his speech "Digital Challenges Facing the International Monetary and Financial System" that "Despite the creation of a single currency 20 years ago, cross-border e-commerce in the Eurozone has not taken off. Domestic bias remains strong. Only one third European e-shoppers purchase goods from sellers in other EU countries. About 40% of European websites do not sell to consumers in other member states, and nearly 80% of online sales are domestic, "Cœuré continues," will be new It may be easier for currencies such as Libra to connect to an existing network than to build a new network on an existing currency (the euro). Few retailers see the introduction of the euro as an opportunity to build a pan-European network around the euro. " With or without the euro, the single service market is still incomplete. "

In order to consolidate the autonomy of the European payment system, Europe's top priority is to consolidate and expand the volume of trade calculations settled in Euros. In 2018, the United States and the European Union accounted for 10% and 11% of total global trade, respectively, but the global trade volume settled by the US dollar and the Euro was 50% and 30%, respectively. Europe contributes a considerable amount of dollar-denominated trade (even if both parties to the trade have no relationship with the United States). Former European Commission President Juncker has said that it is ridiculous that Europe imports 300 billion euros of energy each year, but has to pay 80% of its orders in US dollars. The status of any international currency is first measured by the total amount of trade it pays.

The European Central Bank should also resolutely develop the central bank's digital currency like the People's Bank of China in order to enhance the potential of RMB internationalization and resist the erosion of its currency sovereignty similar to the Libra global stablecoin. Senior officials of the German and French central banks have surprisingly agreed that the European Central Bank is currently considering the development of wholesale central bank digital currencies, but is cautious about retail central bank digital currencies. "The" business case "for promoting retail CBDC within the euro zone is a bit weak," said Denis Beau, the first deputy governor of the Bank of France. Johannes Beermann, the Bundesbank executive committee, pointed out that "for the economic relations between households, commercial banks and central banks that have developed to date, the retail format may mean a paradigm shift". The essential reason here is that retail CBDC means that the central bank weakens the power of commercial banks to create money. "Wholesaling is an improvement on the existing structure, but it has little or no impact on monetary policy." This explains why German and French senior finance officials strongly called for "Europe to issue its own central bank digital currency", while central bank officials (whether it is the European Central Bank or member central banks) have not responded positively.

Therefore, the so-called retail payment strategy in Europe is only facing the challenges brought by large global technology companies in cross-border payments and digital currency innovation. The expedient of the European financial elite-the loss of (sovereign government) currency sovereignty and retail payment. At the front, a portion of the coinage was recovered from commercial banks to the "central bank" (government) to strengthen resistance to the erosion of sovereignty by other currencies. The European financial elite made a radically different choice from their Chinese counterparts, and there is a reason for this choice. The foundation of a supersovereign European Union is anti-national awareness and weakening of the sovereignty of member states. Behind European banks are a group of elites without state awareness. In the face of this challenge, the natural choice is to maintain the "coin right" in the hands of banks rather than to maintain the sovereignty of the country (currency) that has been weak or even non-existent in their consciousness. This also explains the reason why senior ECB officials secretly gave Libra an attitude. Cœuré said in an interview with Bloomberg in October that "global financial regulators have no plans to ban Facebook Libra or other stablecoins, but these digital currencies supported by official currencies must meet the highest regulatory standards."

The choice of European financial elites respecting anti-state consciousness and lack of sovereignty concept is surprisingly reasonable and reasonable!

Long Baitao

November 29, 2019


In recent years, Europe has made important progress in establishing a true banking union. We now have a single bank oversight for important institutions, a single framework for resolving insolvency institutions, a single fund to fund these dispositions, and we will soon provide a single guarantee for that fund. There is also renewed hope that the European Deposit Insurance Scheme will soon begin political negotiations.

The European Commission has also launched an ambitious agenda to build a capital markets alliance. Although co-legislators, especially Member States, tend to make slower progress on individual committee initiatives, a recently established high-level panel of experts may help overcome remaining obstacles and increase efforts to deepen and deepen European capital markets With liquidity [1].

We are gradually improving the financial structure to support a single market with 500 million consumers, consolidate the stability of a single currency, and guide savings to finance sustainable growth.

However, one area that policy makers have paid less attention to in recent years is the European retail payment market, especially point of sale and online payments. Indeed, the back end of the European retail payment system has achieved many achievements, especially under the protection of the Single Eura Payment Area (SEPA). SEPA can handle cross-border payments as cheaply, efficiently, and securely as domestic payments.

Recently, the euro system also introduced TARGET Instant Payment Settlement, or TIPS. The service was launched a year ago, enabling payment service providers to transfer money to customers in real time, 24 hours a day, every day of the year. And it pays with the central bank's currency settlement.

But progress on the back end has not translated into similar progress on the front end, the front end remains fragmented, and European solutions for point of sale and online payments have not appeared.

In particular, national providers have been unable or unwilling to act in a pan-European manner. Twenty years after the launch of the single currency, we still do not have a European Card program. There are currently 10 national card programs in European countries that do not accept cards from other EU countries.

This has led to a significant increase in the use of non-European cards for non-cash payments. As of the end of 2016, the transaction share of the international credit card program was slightly more than two-thirds. Unfortunately, past coordination initiatives have failed to explore the huge economies of scale offered by single markets.

In addition, the current situation has attracted new initiatives aimed at overcoming cross-border retail payment deficiencies by establishing a new, separate payment ecosystem.

These initiatives highlight the rapid increase in consumer demand for cross-border payment services and the desire for payment services to be faster, cheaper, and easier to use. This willingness and curiosity to use new technologies and try new providers is particularly pronounced among young people.

However, full dependence on non-European and new ecosystems poses two risks.

The first risk involves the unproven nature of some new schemes. For example, global stablecoins have raised potential risks in a wide range of policy areas, such as legal certainty, investor protection, financial stability, and compliance with anti-money laundering requirements. Public authorities have made it clear that the threshold for operating these stablecoin plans will be set very high [2].

The second risk involves the autonomy and resilience of the European payment system.

Relying on non-European global players poses a risk that the European payment market will not be suitable to support our single market and single currency, which will make the European payment market more vulnerable to external interference, such as cyber threats. This risk also includes that service providers with global market power are not necessarily in the best interests of European stakeholders.

Payment strategy autonomy is part of Europe's important agenda to maintain the euro's international status [3]. The increasing challenges facing our global governance system have led to the belief that the EU may be more vulnerable to the risk that the monetary power of other countries will not proceed in the best interests of the EU, or even be used against the EU [4] .

Retail Payment Strategy in the Euro System: Pan-European Vision

The only effective response to these risks is to strengthen collaboration among European stakeholders to provide payment solutions that both reflect consumer demand and strengthen the single market.

With that in mind, earlier this month, the European Central Bank Council decided to restart its retail payment strategy. Our strategic goal is to actively promote pan-European market initiatives for retail payments (so-called POI payments) at purchasing or interactive locations.

The Board believes that these market initiatives must meet five key objectives.

1. Pan-European coverage and customer experience

Customers should be able to make POI payments across the EU as efficiently and securely as in their home country. To this end, it is necessary to achieve widespread acceptance of merchants within the pan-European range, and to implement sound and efficient governance (see below) in order to obtain the clustering effects necessary for the network industry and fully harvest the benefits of the single market. Scale will drive consumer acceptance and trust, which is critical in e-commerce.

2. Convenient and cost-effective

European retail payment solutions will only be accepted if they fully meet user needs and needs. Therefore, the solution needs to provide consumers and merchants with a simple, flexible, secure, and user-friendly payment experience. This requires the use of different methods and tools (such as payment cards, mobile phones, wearables, and instant payments) as well as other channels and technologies (such as near field communication) to make payments.

Relying on instant payment technologies that were not available before may be key to designing more efficient solutions. The subsequent cost savings for merchants will ultimately lower consumer prices and benefit every citizen.

3. Safety and security

The new European payment solution must meet all relevant legal and regulatory requirements. It should provide the highest level of fraud prevention and provide reliable complaint and refund procedures to protect consumers [5].

4. European identity and governance

A common brand and logo should be used to foster European identity. European governance structures can directly impact European payment stakeholders on strategic direction and business models. These stakeholders should be motivated to design a payment solution that meets the needs of European users under their governance.

5. Global recognition

To fully meet the needs of end users, merchants outside the EU should also have access to the new European solution, which will increase economies of scale and domestic acceptance. Therefore, global recognition should be a long-term goal.

Need a pan-European market-oriented solution

These five key goals form the core of the retail payment strategy of the euro system. They provide a conceptual vision that should be implemented by the private sector.

The euro system therefore welcomes the strategic moves of some of Europe's major banks to create a truly pan-European retail payment solution. This plan may fit our strategic vision. The proposed solution will be based on the SEPA Credit Transfer Instant (SCT Inst) scheme. In our opinion, this is the right approach because it is future-proof. And, from day one, it can take advantage of existing strong and complex infrastructure, such as the TIPS of the euro system.

However, now a firm commitment from supporters of the new initiative and a clear road map to achieve the desired goals are needed so that we can quickly see concrete action. Proponents should also work closely with the European Commission to ensure that any project is open and in compliance with EU competition rules. It also means that if or when other initiatives emerge, they will receive equal consideration.

Public initiatives may be effective and necessary to sustainably support industry-led solutions. For example, the European Commission could propose legislation requiring instant payment if a payment service provider does not reach a critical number by the end of 2020. Other regulatory changes may be needed when appropriate.

As far as the euro system is concerned, it is ready to provide additional technical support where it is useful and needed. For example, we will analyze how to support finding solutions that ensure a fully integrated SCT Inst-compliant clearing mechanism. Private solutions currently used for clearing instant payments remain unsatisfactory in addressing interoperability issues. This requires further analysis and action.

The European Central Bank will also continue to monitor how new technologies are changing payment behavior in the euro area, for example by reducing demand for cash. We will explore how and to what extent the European Central Bank's policies and tools can be adjusted to meet the challenges of consumer protection and monetary policy transmission that such changes may bring.

For example, the central bank's digital currency can ensure that citizens can still use the central bank's currency even if cash is no longer used. This type of digital currency can take many forms, and the European Central Bank and other central banks are currently investigating its benefits and costs, while also paying attention to its wider impact on financial intermediation.

But potential central bank initiatives should not hinder or exclude private market-oriented solutions. These solutions are designed to enable fast and efficient retail payments in the euro area.

in conclusion

Let me summarize.

The global payment market is undergoing transformation. Rapid technological advances, regulatory reforms, and increasing cross-industry initiatives, especially those by large global digital companies, have brought unprecedented momentum, putting established banks and payment service providers under considerable pressure.

In this environment, there are clear signs that Europe is at risk of losing its economic advantage. Country-specific solutions lack the necessary size and scale, and fragmentation of the country has paralyzed competition and stifled innovation at the pan-European level. In the worst case, this could jeopardize the autonomy of the European payment system.

Therefore, the vision of an industry-led pan-European retail payment solution is at the heart of the euro-based retail payment strategy I outlined this morning. A pan-European strategy that promotes instant, secure, and cheap payments, whether online or in a physical store, has the potential to help us regain our lost ground and meet consumers' growing demand for efficient cross-border payments. Better affordability, quality and choices will also promote financial inclusion.

The euro system therefore welcomes the recent joint initiative of European banks to unite and look forward to payment solutions across the euro area.

Thank you.

Original endnote: [1] See also Cœuré, B. (2019), "European capital markets: priorities and challenges", dinner remarks at the International Swaps and Derivatives Association, Frankfurt am Main, 25 June.

[2] See G7 Working Group on Stablecoins (2019), Investigating the impact of global stablecoins, October.

[3] See Juncker, JC (2018), "The Hour of European Sovereignty", State of the Union Address 2018; European Commission (2018), "Towards a stronger international role of the euro", European Commission contribution to the European Council and the Euro Summit, 5 December; and European Council (2018), "Statement of the Euro Summit", 14 December.

[4] See Cœuré, B. (2019), "The euro's global role in a changing world: a monetary policy perspective", speech at the Council on Foreign Relations, New York City, 15 February.

[5] In line with strong customer authentication (SCA) under the revised Payment Services Directive (PSD2).

Original source: https://www.bis.org/review/r191126e.htm