The Central Bank of Malta has extended by one month to April 30 the consultation period on the Retail Payment Services Policy and the Payment Services Directive.
These topics are explained in a comprehensive 38-page document that poses 73 questions to financial institutions, payment service users and constituted bodies, among other stakeholders.
The bank explains that the two issues dealt with would "considerably change the payment services market landscape in Malta". For example, the PSD - due to come into force on November 1, 2009 - will integrate payment systems in Europe so that the eurozone would become a single currency area not only in respect of cash but also in respect of other payment instruments.
The single payments market (SPM) created would save the European economy €28 billion per annum, according to the European Commission, with further savings of €100 billion per annum once banks start to offer extended services like pan-European e-invoicing and e-reconciliation.
In Malta, the Eurosystem and the Central Bank want payments within the EU - in particular credit transfers, direct debits and card payments - to become as easy, efficient and secure as domestic payments are now within an individual member state.
However, this will involve a radical shift from cash and cheque payments to less costly forms, such as electronic payments.
"While cash must be safely produced, carried, counted, controller, tracked, kept and disposed of, cheques are printed, issued, mailed, received, sorted, inputted, deposited, accounted for, cleared and reconciled (each of these processes being largely manual and costly), generating costs for organisations handling these instruments at each stage of their lifecycle," the discussion paper states.
"... Electronic payment instruments, however, can be processed at the push of a button and cleared automatically, at a fraction of the cost."
The European Commission estimates that while electronic payments cost a few euro cents, a cash transaction cost between €0.30 and €0.55.
"Given that the EU currently handles 231 billion payments per years, the potential savings linked to use of efficient payment services are enormous," the paper notes.
The Maltese use of cheques is still very high. In 2006, 12.5 million transactions were carried out by cheque, representing 52.8 per cent of all non-cash transactions. Of these, 65,000 cheques were returned to drawer.
At least six EU countries have phased out cheques altogether, while all are seeking to reduce cheque usage and reduce the volume of cash in circulation. In Malta, however, recent introduction or revision of bank-to-bank charges payments may drive clients who had adopted electronic payments back to cheques, especially for loal payments.
When the lira was the legal tender, it was possible for banks to offer low charges (or even no charges at all) for local transfers and higher charges for foreign currency ones, including euro. When Malta adopted the euro, banks were obliged to remove any distinction between charges for local and overseas transactions in euro up to €50,000. The banks were then faced with a dilemma: What should the charges be, bearing in mind the amount of revenue generated from cross-border transactions?
A quick glance at the charges of the three banks which offer internet banking (HSBC, BoV and APS) suggests that the banks have been trying to promote the use of transfers initiated by the user electronically rather than "over the counter" - at least until the new charging structures were announced in February 2008. For those who used to pay between €2.33 and €30 for a transfer in euro till 2007 (then considered as as "foreign currency") it is now cheaper to send the same payment in euro (€4) if done through internet banking. HSBC and BoV charge a €30 for the same transfer if ordered over-the-counter.
As the banks cannot discriminate between a local and a cross-border payment in euro (as a result of a European Regulation of 2001), even though the charge of €4 per transaction is much cheaper for cross-border transactions, it is clearly a disincentive to customers who were increasingly using internet banking for local payments. Sources close to the banking sector said that the hard work of the past years could be undone.
"Banks are in a very awkward position as they want clients to use electronic payments but have to face the commercial reality of how low their charges can go, especially since they may not benefit from the economies of scale that foreign banks do, which may afford, for example, to offer free transfers for all transactions under €50,000 as it would recoup enough revenue from transactions over this amount. Could the local banks afford to do that? They will have to do their own calculations..."
A spokesman for HSBC admitted that the bank would not cover its costs if the charges were removed.
"In accordance with the EC regulation, for local transfers in euro to be free would imply that all similar transfers in the EU would have to be free. This is not feasible as the bank would not be covering its costs," he said.
Local internet transfers in liri were never free and used to carry a charge ranging from a minimum of €0.47 to a maximum €13.98, he added.
Other changes came in force with the introduction of the Single Euro Payments Area at the end of January.
"At HSBC we led the market here in Malta by introducing a new transparent and competitive tariff of charges with a major highlight being that all euro inward payments to HSBC Malta with a value of €10,000 or under being completely free," the spokesman said.
"Outward SEPA payment charges have also been substantially reduced for those using electronic banking."
A Bank of Valletta spokesman also noted that SEPA would help.
"On a practical level, SEPA means that the user shold be able to make fast and secure transfers between bank accounts anywhere in the euro area.
"Over the coming 30 months, SEPA will also help to improve all payments, whether they are domestic payments or cross-border payments between two eurozone countries. All consumers will benefit from new rules ensuring transparent pricing and prompt transfers," he said.
These topics are explained in a comprehensive 38-page document that poses 73 questions to financial institutions, payment service users and constituted bodies, among other stakeholders.
The bank explains that the two issues dealt with would "considerably change the payment services market landscape in Malta". For example, the PSD - due to come into force on November 1, 2009 - will integrate payment systems in Europe so that the eurozone would become a single currency area not only in respect of cash but also in respect of other payment instruments.
The single payments market (SPM) created would save the European economy €28 billion per annum, according to the European Commission, with further savings of €100 billion per annum once banks start to offer extended services like pan-European e-invoicing and e-reconciliation.
In Malta, the Eurosystem and the Central Bank want payments within the EU - in particular credit transfers, direct debits and card payments - to become as easy, efficient and secure as domestic payments are now within an individual member state.
However, this will involve a radical shift from cash and cheque payments to less costly forms, such as electronic payments.
"While cash must be safely produced, carried, counted, controller, tracked, kept and disposed of, cheques are printed, issued, mailed, received, sorted, inputted, deposited, accounted for, cleared and reconciled (each of these processes being largely manual and costly), generating costs for organisations handling these instruments at each stage of their lifecycle," the discussion paper states.
"... Electronic payment instruments, however, can be processed at the push of a button and cleared automatically, at a fraction of the cost."
The European Commission estimates that while electronic payments cost a few euro cents, a cash transaction cost between €0.30 and €0.55.
"Given that the EU currently handles 231 billion payments per years, the potential savings linked to use of efficient payment services are enormous," the paper notes.
The Maltese use of cheques is still very high. In 2006, 12.5 million transactions were carried out by cheque, representing 52.8 per cent of all non-cash transactions. Of these, 65,000 cheques were returned to drawer.
At least six EU countries have phased out cheques altogether, while all are seeking to reduce cheque usage and reduce the volume of cash in circulation. In Malta, however, recent introduction or revision of bank-to-bank charges payments may drive clients who had adopted electronic payments back to cheques, especially for loal payments.
When the lira was the legal tender, it was possible for banks to offer low charges (or even no charges at all) for local transfers and higher charges for foreign currency ones, including euro. When Malta adopted the euro, banks were obliged to remove any distinction between charges for local and overseas transactions in euro up to €50,000. The banks were then faced with a dilemma: What should the charges be, bearing in mind the amount of revenue generated from cross-border transactions?
A quick glance at the charges of the three banks which offer internet banking (HSBC, BoV and APS) suggests that the banks have been trying to promote the use of transfers initiated by the user electronically rather than "over the counter" - at least until the new charging structures were announced in February 2008. For those who used to pay between €2.33 and €30 for a transfer in euro till 2007 (then considered as as "foreign currency") it is now cheaper to send the same payment in euro (€4) if done through internet banking. HSBC and BoV charge a €30 for the same transfer if ordered over-the-counter.
As the banks cannot discriminate between a local and a cross-border payment in euro (as a result of a European Regulation of 2001), even though the charge of €4 per transaction is much cheaper for cross-border transactions, it is clearly a disincentive to customers who were increasingly using internet banking for local payments. Sources close to the banking sector said that the hard work of the past years could be undone.
"Banks are in a very awkward position as they want clients to use electronic payments but have to face the commercial reality of how low their charges can go, especially since they may not benefit from the economies of scale that foreign banks do, which may afford, for example, to offer free transfers for all transactions under €50,000 as it would recoup enough revenue from transactions over this amount. Could the local banks afford to do that? They will have to do their own calculations..."
A spokesman for HSBC admitted that the bank would not cover its costs if the charges were removed.
"In accordance with the EC regulation, for local transfers in euro to be free would imply that all similar transfers in the EU would have to be free. This is not feasible as the bank would not be covering its costs," he said.
Local internet transfers in liri were never free and used to carry a charge ranging from a minimum of €0.47 to a maximum €13.98, he added.
Other changes came in force with the introduction of the Single Euro Payments Area at the end of January.
"At HSBC we led the market here in Malta by introducing a new transparent and competitive tariff of charges with a major highlight being that all euro inward payments to HSBC Malta with a value of €10,000 or under being completely free," the spokesman said.
"Outward SEPA payment charges have also been substantially reduced for those using electronic banking."
A Bank of Valletta spokesman also noted that SEPA would help.
"On a practical level, SEPA means that the user shold be able to make fast and secure transfers between bank accounts anywhere in the euro area.
"Over the coming 30 months, SEPA will also help to improve all payments, whether they are domestic payments or cross-border payments between two eurozone countries. All consumers will benefit from new rules ensuring transparent pricing and prompt transfers," he said.