EC Edges Toward Decision on Whether to Regulate M-Payments

The volume of payments made through cellphones is the fastest growing of all payment methods, but market penetration in the EU “still has considerable unrealised potential” in comparison to the Asia/Pacific region, the EC paper said. One reason for the slower take-up is the highly fragmented m-payment market, it said. Key market actors such as carriers, payment service providers and cellphone makers haven’t agreed on a viable business model to enable interoperable payments, it said. As a consequence, “the largest and most promising global m-payment initiatives are currently launched outside Europe,” it said. Apple, Google and Visa have all announced major drives to enter the mobile payment business, the EC said.

As with e-payments, “the lack of a concrete European framework addressing main concerns” such as technical standards, scrutiny, interoperability and cooperation between m-payment market players risks perpetuating the fragmentation, the EC said. Potential market entrants seem reluctant to invest in m-payments as long as the legal situation regarding the possibility for applying collective fee arrangements remains unsettled, it said. A major roadblock to interoperability seems to be a stalemate between carriers, traditional banks, manufacturers, application developers and others, it said. It’s likely that private players controlling the standards and, hence, interoperability, will dominate the whole payment chain -- the device, application platform and security management, potentially risking balkanization through proprietary solutions, it said.

The EPC “does not support a number of related assumptions and suggestions” in the discussion paper, Flatraaker told us. The council believes many of the recommendations “will not help achieve the stated objectives, and may even undermine their realisation,” he said. The EPC coordinates and makes decisions for the European banking industry with regard to payments and promotes the Single Euro Payments Area (SEPA), its website says.

Interoperability for m-payments isn’t the “stalemate” the EC claims it is, but it’s in an emerging state, Flatraaker said. The EPC has made “considerable efforts” to engage with other stakeholders to help create solutions for interoperable mobile payments, he said. While such systems already exist, the ecosystem is still considered an emerging one globally, he said. Any such early stage of market development is characterized by many diverse innovative initiatives and pilots, he said.

There are as many m-payment pilots and projects in Europe and the SEPA area as elsewhere, Flatraaker said. The European approach is to come up with an interoperable model that fits SEPA, he said. Because SEPA consists of 32 countries -- the 27 EU nations and Iceland, Norway, Liechtenstein, Switzerland and Monaco -- it’s more complex, he said. There are different legal regimes in each EU member, he said. Most other regions have single-country approaches that feature either few stakeholders with such strong market positions in each country that they can create a national infrastructure themselves, or global players leveraging their capabilities, he said.

Many of the m-payment launches in regions outside Europe are based on legacy or bridging technologies, solutions and standards, Flatraaker said. In Africa, for instance, the situation is very different because many rural areas have no working banking infrastructure and most people lack bank accounts or cards, he said. There, building an m-payment network also serves the purpose of ensuring access to a payment system, he said. The bottom line is that each region has a different starting point and targets, and therefore faces distinct m-payment challenges, Flatraaker said. “Each region is making progress in surmounting these challenges and we do not see that Europe would lag behind in this regard."

The EC consultation paper drew over 300 responses, Competition Policy Commissioner Joaquin Almunia said at the recent conference. Preliminary conclusions are that mobile, Internet and card payment regimes must take into account the consumer perspective; that they must be part of an integrated European market; and that integration must create a level playing field for all payment services suppliers, said Internal Market and Services Commissioner Michel Barnier. Every week brings news about new mobile payment applications, such as for public transport, parking or supermarket purchases, he said. Many such services are being rolled out by telecom operators themselves or by new entrants who haven’t previously been active in the payment sphere, he said. All payment services must have the same conditions of transparency and benefit to the end-user, he said.

Transparency isn’t enough to make mobile, Internet and card payments consumer-friendly, European Consumers’ Organization President Paolo Martinello told the conference. If what’s offered is limited or of poor quality, and the market isn’t competitive, consumers won’t find new payment systems attractive, he said. The payment market is expensive, complex, geographically fragmented and uncompetitive, he said.

Mobile devices will change how payments are made, Visa Europe President Peter Ayliffe said May 4. His company has invested heavily in digital “wallets” and m-payments in Europe, he said. Europe is leading the way in the technology, and it shouldn’t adopt any rules that will hamper newer players from entering the market, he said. The EC isn’t far from having to decide whether, and how, to regulate, Faull said. Possible regulatory issues, in addition to standardization, interoperability and security, include surcharges and multilateral interchange fees; electronic access to bank account information; market access and entry; and SEPA governance, he said.

Some say m-payments need regulatory flexibility at this stage of their development, Faull said. Yes, but if such an important market grows up in an uncoordinated, 27-member way it will be all the more difficult, he said: “Balances have to be struck” to achieve regulation, but not too much.