United We Stand: An Interview with Gerard Hartsink, Chairman of the European Payments Council

An Interview with Gerard Hartsink, Chairman of the European Payments Council

by Helen Sanders, Editor

In this edition of TMI, in which we focus on the Single Euro Payments Area (SEPA), Helen Sanders, Editor, talks to Gerard Hartsink, Chairman of the European Payments Council (EPC) as he comes to the end of his tenure. In addition to his EPC role, Mr Hartsink is also Executive Chairman of CLS, following an extensive career at ABN AMRO, and is a Board Member for SWIFT. At the end of June 2012, Mr Hartsink will be replaced in his EPC role by Javier Santamaria.

As you come to the end of your Chairmanship of the EPC, what would you highlight as your greatest personal achievement during your period of office?

It is difficult to know how to measure achievement, particularly for oneself! I was privileged recently to be awarded ’Officer in the Order of Orange Nassau’ by the Queen of the Netherlands, so it is reassuring to think that my contribution to the work of the EPC has been valued. On a more personal level, I believe my greatest contribution has been to bring together a variety of different stakeholders, all of which have different concerns and objectives, represent different communities, and speak different languages, and work towards SEPA as a team exercise. Being the eldest of 11 children, I am very aware of the importance – and the challenges - of aligning people with different interests and skills! For example, it has been a pleasure to work with Olivier Brissaud and Gianfranco Tabasso from the EACT. I believe that we have co-operated in a very positive way, despite differences in outlook and priorities, but we have continued to maintain an open dialogue and found ways to move forward very constructively.

Not only have we worked together to create the SEPA Rulebooks for SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD) but we have also created the EPC Customer Stakeholders Forum (CSF). The CSF specifically addresses the requirements of payment service users with regard to the SCT and SDD Schemes and related standards. CSF members represent a wide cross-section of interest groups acting at a European level including consumers, corporate and small and medium-sized enterprises. In 2009, the EPC also promoted a Cards Stakeholders Group (CSG) bringing together representatives from four other sectors (retailers, vendors, processors, card schemes). I hope further progress can be made in the Customer Stakeholders Forum: currently, there is insufficient corporate representation, as well as too few representatives of some other user groups, such as the public sector. Collaboration and co-ordination of ideas is vital to the successful rollout of an initiative that will affect everyone making or receiving payments in Euros.

However, the model for cross-industry co-operation has been established, which is very valuable in extending the value of SEPA. For example, we are using the same approach to progress a decision on how to use the mobile chips channel for payment initiation. The risk with such initiatives, as with all other SEPA-related projects, is that people are not always willing to engage, but the value of doing so can be enormous.

With the end date for migration to SEPA CT and SDD now set, what would you expect (or perhaps hope!) to see now in terms of corporate and institutional attitudes and adoption?

The European legislator finally managed to agree end dates for national payment schemes, so the clock is now ticking. In February 2012, the European Parliament and the Council representing European Union Member States adopted the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009’ (the SEPA Regulation), which defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. In non-euro countries, the deadline will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes will be replaced by SCT and SDD. From what I can see, some corporates have already made significant progress towards SEPA migration, but there is another group that have not yet started. Migration does not only affect treasury: departments such as procurement, sales and human resources also need to be engaged to manage the change for suppliers, customers and employees.

There are also national differences in ‘SEPA-readiness’. Luxembourg and Finland are both well-prepared for SEPA, largely due to motivation at the highest level, which is a similar situation in France and Belgium. In countries such as the Netherlands, it has taken longer to develop momentum for SEPA migration, but this will undoubtedly happen. What is important is that migration is now a certainty.[[[PAGE]]]

With the current speculation about the future of the euro and its participants, it may be tempting to think that SEPA may be subject to the same uncertainties: this is not the case. Underpinning SEPA is the Payment Services Directive (PSD) which harmonises legal terms and conditions for payments across the European Union, including countries that do not use the euro as their national currency. In some cases, such as Hungary, local currency (HUF) payments are subject to SCT rules and standards, which extends the benefits of standardisation and harmonisation for banks and multinational corporates beyond the single currency itself.

Currently, SEPA instruments are limited to SCT and SDD: do you expect or hope to see new instruments being developed in the future, and who is likely to be driving these developments?

With SEPA moving to a new stage in its development, it is essential that there is a clear, transparent and accountable governance model for the future. 

Absolutely: there remains enormous potential to develop new instruments, such as mobile and ePayment channels. Now that we have standard SCT and SDD instruments, it should be possible to initiate payments or mandates using different devices e.g., by structuring the mobile chip in a certain way. There has been a great deal of work on this, based on strong co-operation across various stakeholders, but this work has not yet reached resolution. In some communities, there are concerns about mobile operators’ degree of influence, but in general, discussions are moving forward constructively. In particular, it is important to note that consumers’ freedom of choice over their mobile operators, handsets etc. is not affected, but should rather be enhanced by it.

When it comes to ePayments, there are still diverging views. In the Netherlands, a trade association for online merchants has been established, and the model for online purchases is very sophisticated, so there are workable examples that already exist. Currently, purchasers use a card or PayPal to make a payment online, but in the future, they should be able to make an SCT or SDD, leveraging the substantial authentication capability of their bank.

One difficult issue from an EACT perspective is the issue of SEPA governance. EPC has been positive in embracing suggestions raised by the European Users Committee of Payment Systems in Europe, but how do you see this issue progressing?

With SEPA moving to a new stage in its development, it is essential that there is a clear, transparent and accountable governance model for the future. We have proposed a three-tier arrangement, headed by the SEPA Council. The SEPA Council brings together representatives of both the demand and supply sides of the payments market, including the EPC, and was established by the European Commission and the European Central Bank in June 2010. Its aim is to promote an integrated euro retail payments market by ensuring proper stakeholder involvement at a high level and by fostering consensus on the next steps towards the full realisation of SEPA. The SEPA Council should be empowered further to play a key political role in governance of SEPA going forward. This Council should decide on priorities and arbitrate decisions between stakeholders. We propose that the SEPA Council takes on full responsibility for steering the SEPA initiative and for setting the main priorities to be worked on in a multi-stakeholder structure, without the need for regulation.

At the second layer, and reporting to the Council, would be a series of task forces, each comprising multiple stakeholders, along the lines of the Card Stakeholders Group that has proved very successful. Each task force would cover areas such as ePayments, mobile payments, cash, cards, SCT and SDD (core and B2B), but these will evolve over time as new opportunities and priorities emerge. The third layer includes the different stakeholder associations and other relevant bodies that co-ordinate the needs and priorities of the diverse communities that deliver or use payment services in Europe. The EPC is one of the stakeholders at this level, which should be reorganised in order to represent an industry position within a multi-stakeholder structure and in SEPA Council discussions. The EPC would also provide technical support to the technical task forces at the second layer on request.

It remains to be seen whether this EPC proposal will be supported by SEPA stakeholders and the regulators. In any event, the decision on the future SEPA governance model will be taken by the political authorities. It has to be kept in mind that the SEPA Regulation adopted by the European legislator in February 2012 tasks the European Commission to review the governance arrangements of the whole SEPA project before the end of 2012 and, where necessary, make a proposal. The EPC is firmly committed to continuing the work it has put in over the past ten years to contribute to achieving the vision of SEPA. The EPC however has never been responsible for the overall management of the SEPA process: the success of SEPA continues to rely on the engagement of all concerned bodies and stakeholders.[[[PAGE]]]

What is your opinion on the creation of a European public payments infrastructure as opposed to using different platforms? How feasible or desirable would this be?

A common platform already exists with TARGET2, which includes 17 domestic settlement platforms, with just one exception in the Eurozone. In 2011, TARGET2’s total share of high value payments in euro was 91% in value terms and 59% in volume terms (source: ECB).

One of the challenges of aligning and harmonising payments infrastructure is that in some countries, such as Italy and Germany, central banks also take responsibility for retail payments, which is not the case in others such as the Netherlands and France. Austria has also started to do so recently. This makes it more difficult to establish a public payments system.

Furthermore, it is also questionable whether a single public payments system is desirable. This would compete with existing CSMs (clearing and settlement mechanisms) which are increasingly adding new services from which corporates and banks can benefit. So long as there are standardised formats and payment rules, there should be no impediment to corporates or public sector bodies accessing any CSM across the single euro payments area: in this respect, there would appear to be no benefit to having another single payments system.

How would you wish to see the SEPA landscape in five years’ time, and how is this vision likely to be realised?

Personally, I would like to see SEPA operating smoothly by that time, with any early teething problems relating to large-scale migration resolved, and banks able to concentrate their flows through any CSM. By that time, I also hope we will see the problems that we have encountered so far with mobile and ePayments addressed, so that users start to see a new portfolio of payment instruments emerge.

Another initiative that the EPC is working on is to optimise wholesale cash distribution in SEPA. In 2011, the EPC, together with other stakeholders, launched an initiative to help standardise the size of automatic teller machine (ATM) cash cassettes and cash transport cases, and to create interoperability among Intelligent Banknote Neutralisation Systems (IBNSs). The costs of transporting cash are enormous, so streamlining and accelerating the physical cash cycle would bring significant benefits. For example, today, cash cannot be transported between the Netherlands and Belgium, so the barriers are practical as well as policy-related.

What do you see as the major challenges affecting the realisation of the SEPA vision, and how could these be overcome?

Co-operation between banks and the wider stakeholder population needs to continue and expand.

The greatest obstacle to realising the SEPA vision is misalignment in public policy. If the public authorities pull in different directions over decisions such as innovation, security and integration, the benefits of harmonisation are lost. Ultimately, users’ experience of payment services then decline, while their costs increase. Each central bank will still consider its national interests as well as the wider European perspective, which will continue to cause differences in priority and practice. The EPC has also frequently pointed out that prevailing inconsistencies between European Commission´s objectives threaten to hamper SEPA progress.

Co-operation between banks and the wider stakeholder population needs to continue and expand. Furthermore, it is time to look beyond the concept of standardisation based on XML ISO 20022 for European payments alone: the benefits will be multiplied when these standards are adopted at a global level, which will in turn be highly advantageous to banks, corporates and technology vendors.

One issue that continues to affect the adoption of SEPA continues to be the tension between bank co-operation and competition. How have you seen this issue evolve, and where realistically is the line that can be drawn?

The debate about the borderline between co-operation and competition will undoubtedly continue, and national priorities will also remain. Following the introduction of the euro notes and coins in 2002, EU governments, the European Commission and the European Central Bank called on the banking industry to develop harmonised schemes for electronic euro payments. The EPC was created in response to this request. The EPC defines common positions for the co-operative space for payment services, not only in the inter-bank market but also for bank-to-customer payments.[[[PAGE]]]

In practice, this means that the EPC is responsible for, amongst other things, the development and maintenance of SEPA payment schemes as defined in the SCT and SDD Rulebooks. These rulebooks, which are binding to adhering payment service providers, can be regarded as instruction manuals which provide a common understanding on how to move funds from account A to account B within SEPA. The particular payment products and services – based on a particular payment scheme – offered to the customer are developed by individual payment service providers operating in a competitive environment. The development of payment products based on the SEPA payment schemes including all product-related features is outside the scope of the EPC.

There will continue to be a balance that needs to be struck to ensure that banks do not lose the opportunity for competitive advantage, and national interests continue to be respected, whilst trying to align all stakeholder objectives towards a harmonised, standardised payments area.

Based on your experiences as Chair of the EPC, what advice would you give to your successor, Javier Santamaria?

Javier will obviously find his own path, but from my experience, I think the main task is to keep the team together, not only banks, but the whole spectrum of stakeholders, and continue to promote co-operation. Undoubtedly SEPA’s success is based on the premise that ‘united we stand, divided we fall’ and I am very sure that Javier will be successful in creating the unity and convergence of ideas on which SEPA will rely.

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We would like to congratulate Gerard on his very successful tenure as Chair of the EPC, and wish him every success in his role at CLS and the wealth of other initiatives in which he will undoubtedly be involved.