The impact of the Payments Services Directive
The recent enactment of the Payments Services Directive by the European Parliament is bringing about a major restructuring of the fragmented European payments industry. When the directive comes into force in 2009, the effects on the present and new...
The recent enactment of the Payments Services Directive by the European Parliament is bringing about a major restructuring of the fragmented European payments industry.
When the directive comes into force in 2009, the effects on the present and new payments services providers will be profound. Established banking players will find themselves competing against new entrants from outside the banking industry. Requirements for additional information, enhanced service levels, shorter execution times, and extended liability of banks will increase providers' costs and erode their revenues.
A recent study carried out by McKinsey & Company calculated that the total burden on European banks could amount to as much as €3 billion. This is almost a fifth of the profits generated by the payments industry. Banks that prepare for the coming challenge by using the levers at their disposal will have the best chance of emerging as powerful players in the new payments arena. This is already emerging in the banking industry with the creation of Payment Factories by large European banks such as ING N.V. and Deutsche Bank.
Despite the establishment of the single market and the adoption of the euro with monetary union, Europe's payments markets are still operating on national lines. Most transactions recorded are domestic payments; while cross-border transactions represent only a small share of payments (only two to three per cent of total transactions are international). In each member state, one finds differences in terms of payment products, technical standards and legislative frameworks. All these factors make the introduction of a single efficient European payment system a highly complex task.
The payment services directive forms the regulatory leg of the European Commission's initiative to create a single euro payments area (Sepa). It serves as the legal foundation on which banking self-regulation (though the European Payments Council) is building Sepa-compliant payment instruments and preparing for the eventual replacement of domestic legacy payment infrastructures. After its implementation by member states in late 2009, the Payments Services Directive will regulate the rights and obligations of payment services providers and users across Europe.
It will foster the emergence of a single uniform payments area designed to allow any European "to make any payment with Euroland as easily and as inexpensively as in his or her hometown".
The Payments Services Directive seeks to achieve this objective by:
• Opening up national markets to increase competition in the areas on direct debits, credit transfers (Swift), cards and cash sourcing;
• Creating a level playing-field by allowing new players known as payment services institutions other than banks to enter the European payment market;
• Increasing the efficiency in terms of level of service and timing of payment systems; and
• Ensuring consistent consumer protection and transparency.
• Mr Sant is a senior economics officer within the Bank of Valletta Group and Malta's representative on the European Payments Council. The information presented is partly sourced by a recent presentation given by McKinsey&Company to the European Payments Council.
When the directive comes into force in 2009, the effects on the present and new payments services providers will be profound. Established banking players will find themselves competing against new entrants from outside the banking industry. Requirements for additional information, enhanced service levels, shorter execution times, and extended liability of banks will increase providers' costs and erode their revenues.
A recent study carried out by McKinsey & Company calculated that the total burden on European banks could amount to as much as €3 billion. This is almost a fifth of the profits generated by the payments industry. Banks that prepare for the coming challenge by using the levers at their disposal will have the best chance of emerging as powerful players in the new payments arena. This is already emerging in the banking industry with the creation of Payment Factories by large European banks such as ING N.V. and Deutsche Bank.
Despite the establishment of the single market and the adoption of the euro with monetary union, Europe's payments markets are still operating on national lines. Most transactions recorded are domestic payments; while cross-border transactions represent only a small share of payments (only two to three per cent of total transactions are international). In each member state, one finds differences in terms of payment products, technical standards and legislative frameworks. All these factors make the introduction of a single efficient European payment system a highly complex task.
The payment services directive forms the regulatory leg of the European Commission's initiative to create a single euro payments area (Sepa). It serves as the legal foundation on which banking self-regulation (though the European Payments Council) is building Sepa-compliant payment instruments and preparing for the eventual replacement of domestic legacy payment infrastructures. After its implementation by member states in late 2009, the Payments Services Directive will regulate the rights and obligations of payment services providers and users across Europe.
It will foster the emergence of a single uniform payments area designed to allow any European "to make any payment with Euroland as easily and as inexpensively as in his or her hometown".
The Payments Services Directive seeks to achieve this objective by:
• Opening up national markets to increase competition in the areas on direct debits, credit transfers (Swift), cards and cash sourcing;
• Creating a level playing-field by allowing new players known as payment services institutions other than banks to enter the European payment market;
• Increasing the efficiency in terms of level of service and timing of payment systems; and
• Ensuring consistent consumer protection and transparency.
• Mr Sant is a senior economics officer within the Bank of Valletta Group and Malta's representative on the European Payments Council. The information presented is partly sourced by a recent presentation given by McKinsey&Company to the European Payments Council.